Robert Leonard  01:01

For those listening that may not be familiar with you, tell us a bit about your background and how you got into real estate.

Tim Bratz  01:07

A high level on me is that I was going through college when the market was going crazy before in 2003-2007 when I was in college. I was motivated by money, and people said that if you want to make a bunch of money, get involved in real estate. I went and started something like a construction company that was painting houses in the summertime, then I worked as an intern for one of the largest homebuilders in the country.

I’m from Cleveland, Ohio, and my brother who was living out in New York City at the time said, “Hey, why don’t you come and live with me and get a job out here?” And I thought, “Hey, I don’t know when the next time I’ll be able to move to New York City and live for free will be,” so I moved out there and became a real estate agent. I got my real estate license worked for a commercial boutique brokerage in Manhattan and thought that’s how you got involved in real estate. I think a lot of people want to get involved in real estate because of the allure and the attractiveness of residual income and passive income, but then a lot of us get stuck in this transactional trap of trading our time for money and on a hamster wheel.

I became a broker. I brokered a couple of deals, and the first deal I brokered was a 400 sq ft property. We signed a lease for $10,000 a month for a 400 sq. ft.,12-year lease term with 4% annual escalations. I remember doing the math on that thinking, “This landlord’s going to make almost $2 million over the next 12 years for doing something at one point in time.” And that was one small unit. He had eight other retail spaces, and other properties, like 10-15 stories of apartments above it, so I realized, “Man, I’m on the wrong side of the coin. I should be owning real estate instead of brokering it. That’s where the real residual is.” But again, I didn’t have money. I didn’t know that you can go out and raise private money. I didn’t know. I thought that you had to stockpile your own cash in order to buy deals, and so I stayed in that transactional trap.

I moved down to Charleston, South Carolina. I didn’t have money. I was a punk, 23-year-old kid, and when I was down there, I wondered, “How can I get money?” And somebody said that you can call a credit card company, get a credit card limit increase and that’s what I ended up doing. I found the cheapest house on the entire MLS, called up my credit card company, told them I was going to make a big purchase and asked them to increase my limit from $3,000 to $100,000. They said absolutely not, but I got an increase to $15,000, so I made an offer again on the cheapest house in the entire MLS in Charleston, South Carolina. I went back and forth and I got it for $14,000.

I had a couple of thousand dollars saved up, and I literally did all the work myself –flooring, paint fixtures, and landscaping. I handed out a bunch of flyers, and I flipped that house. I flipped it and made about $13,000-14,000 and in about 90 days, I wanted to go do it again. So I did it again and did it again. I eventually met people who had access to money, but maybe didn’t have the time or the skill set to go out and invest in real estate, so they became private money lenders. They asked to put up the money, I did the work, and we ended up carving up deals. Fast track to today, I own a little over 3,472 units as we sit here today. My portfolio’s a little over $275 million, with about $160 in debt. There’s a lot of equity built up in my portfolio.

Robert Leonard  04:13

We’ll certainly talk more about the current level of your business and the over 3,400 units that you own, but let’s start at the very beginning and work our way up to today. You mentioned that you were always about money and you knew that the way to get that money was in real estate, but what really drove you to real estate, specifically, in the depths of the Great Recession? Because, I mean, there are a lot of different ways you can get money, right? I mean, there are various different ways that people have come about their wealth. What made you choose real estate?

Tim Bratz  04:41

Well, I get excited about real estate when everything was going crazy. When everybody’s making money,  if you had a pulse, you could make money. I heard a statistic that one-in-four residents of Florida had their real estate license during the last boom, and so it’s crazy. It was like, in a family of four, somebody got a real estate license. That’s how many people were buying in Florida from out of state that, one-in-four residents could go into real estate. It was crazy! And so, that’s the kind of mayhem that was going on in the real estate market from 2003 to 2007 before the crash. I remember when I was interning for this homebuilder, the VP just came in one day to a Monday morning meeting and said, “Hey, somebody, give me a good idea.” He had a stack of $100 bills, then started handing out to people with good ideas, and even to people who had bad ideas. I was amazed. “Are you kidding me? That’s how much money is in this business?” It was amazing to me, and so I got really excited about real estate.

Then the market crashed. I had just shown up to the party. Everybody was leaving the party, but I just got there. What was happening? It was actually pretty good timing because if I had gotten into real estate a couple of years before as an investor, I probably would have done something stupid. I would have taken out one of those no-documented loans and $100 million loans. I would have gone bankrupt. I actually started investing in real estate when the market had already shifted, and everybody was saying, “Run, run, run, run, run, brothers!” It was toxic. But I knew to do otherwise, just from studying wealth and reading books on this stuff.

I was always interested in real estate, and I was always interested in wealth because everything I ever studied, everything I talked about or talked to anybody about, all said that there are more millionaires that made it in real estate than in any other industry or every other industry combined. And so, I knew that real estate was not an experiment. I knew that it wasn’t something like a tech startup that could be something big, but probably could fail also. I knew that if I just stuck with real estate, eventually, I’d be able to build some wealth. I’d look to some other people who were involved in real estate, and I’d say, “This guy’s making money. I’m going to get rich doing this right.” And so, that’s what really got me intrigued on real estate and why I really stuck with it.

When I started buying, I was buying at the bottom of the barrel and there were deals everywhere. You could have your pick at anything you wanted on the MLS, but money was very, very hard to come by. It was really hard to find private lenders for your projects. Maybe that’s just because I was new. Maybe it’s because of the market. I don’t really know, but I struggled with raising private money and was able to get little bits here and there. Again, I was 23-25 years old when I first got started. All my friends were at bars blowing all their money on booze, trips, girls, and all these other stuff, so nobody really had any money saved up. I couldn’t go to my friends for money. I had a little bit of not really family money, but my brother had a couple of dollars. He sold his apartment and had about $60,000. He ended up investing in some projects with me, but I was doing small deals. I was buying houses for $15,000 to $20,000 in C and D class areas of town so I could buy three to five houses at a time.

Built-up, by the time I was 25 years old, I didn’t have a lot of property but I had 10 houses. One of which was my primary residence where I had a 3-bedroom. I rented two of the rooms out to my buddies, and between cash flow that came in from all my properties after operating expenses and after debt service, I had about $3,000 a month in passive income. I wasn’t rich, but I was technically financially free because my operating expenses, like my personal expenses, were only about $1,500 to $2,000 a month. So again, I was not rich, but I was financially free. I had more passive income than what my monthly expenses were. I could essentially retire if I wanted to, so it was really, really cool. Even in the depths of the recession, 2010, I was, essentially, financially free. I was self-managing. I didn’t pay a management company, so that was kind of my job, but it wasn’t anything too crazy.

And so, along came this other business on this entrepreneur. I was chasing shiny objects, I wanted to get rich quickly, and I followed this other business that was more of a network or marketing type of company. But it aligned really well with real estate. They did home security systems, TV, internet, electricity, natural gas, cell phones, and all these other things, so I liked it. It aligned with real estate, so I thought maybe I could push this onto my tenants, and I could make some residuals on this other stuff. I really went down that path of networking, and it was amazing from a standpoint of personal development and the relationships I built.

The reality is there wasn’t really any money in it unless you recruit people. After two and a half years, man, I was just dead broke. I had $25,000 in credit card debt and I had $80 of cash to my name, burning up miles in my car. Paying for gas were the coins out of the cupholder of my car, I go to these business conferences two hours away. I would actually sleep in the backseat because I couldn’t afford a hotel room, then I’d go in early into the hotel before any of the guests got there, because we had these events at these hotels, and I would go into the common bathroom. I would shave without taking a shower or anything. That’s what my life was like. I would go to Subway and buy a footlong-sub, eat half of it for lunch, and the other half for dinner. That’s what I ate. So that’s where I was in July to August of 2012.

Around that time, I told myself, “Man, I have to get out of this. I have to go back to what I know, my roots.” The other thing that I do was was real estate, and now that I knew more people that had better resources, I had better connections. I decided to leave the network marketing company and get back into real estate. At that time, two guys who were really high up in that company reached out to me, and they said, “Hey, man. We got into this so that way we could get in real estate. How about we put up the money and you do the work, and let’s build a real estate firm together?” So, they put up $3,000 initially, and I invested and flipped it, bought some high-end flips, low-end flips, single-family rentals, small duplexes, quadplexes, and eventually found an eight-unit apartment building right around Christmas or New Year’s of 2012. It was the first apartment building commercial property I’ve ever bought, and it was kind of my initial step into commercial real estate.

Robert Leonard  10:43

What did the very early days of your portfolio look like? I know you mentioned that you did that first flip on your credit card. Where did you go from there? How did you go from just flipping one unit to now 3,400? What were the strategies that you were implementing? How long did you flip properties?

Tim Bratz  11:00

I got into wholesaling. I started wholesaling properties, and that really taught me how to go out and find really good deals. I didn’t have a lot of money to go and buy properties, so I naturally fell into wholesaling so that way I could generate a little bit more of my own cash and put food on the table. Flipping was okay. I could do maybe one of those at a time, but the reality is, it took 90 to 120 days to flip a property, and I had zero income. If it wasn’t sold, then I’d get this big windfall of cash, and I just didn’t like that.

I liked wholesaling because it kept me going, and it really taught me how to go out and find, negotiate, and underwrite good deals, understand what the renovation budget would look like, and help force me to build a buyer’s list of people with money. That helped a lot. So, the first was a flip. My second one was a quick flip. I sold it in about a week. I made about $1,200 to $1,300 on that one. I didn’t do anything to it. I was just able to double-close on it.

Then I found a buddy who had a job and could get qualified for a loan, and so my third house that I ever bought was the first one I ever lost money on. I bought this house because it was listed for about $100,000. We went in and got it for $60,000, and put another about $30,000-35,000 into it, so we were all-in for about $90,000-95,000. The house next door was listed for $160,000, so I thought, “Oh, we could totally sell this thing.” And so, one of my early lessons was you cannot run computations based on what other things are listed for. It doesn’t mean that’s what it’s worth. And so, on that property, we could not sell it on the market, and so we decided to just rent it. I actually rented that house out for probably five or six years because we couldn’t sell it. We had to wait for the market to come back. And eventually, I just wrote a check to get rid of it because it was just a headache property. So *inaudible* on that property. That guy never did another deal, by the way. He swore off real estate altogether.

I met a guy with a line of credit with $100,000 on it and he said, “Hey man, I got $100,000. I can family for money. I don’t have to pay any interest on it. I could borrow it for one year. Do you have any property that we can invest in? But I have to have the money back in a year.” And so I found this portfolio of houses. There were five houses on the same street, under the same previous owner who got foreclosed on and gave them all back to the bank. These houses were about 700 to 1,000 sq.ft., two-bed, or three-bed sitting on slabs. I decided, “Hey, let me just make an offer on all these things.” So I made an offer on all of them and I got the houses for $15,000 to $21,000 per house. I probably put another $7,000 to $10,000 in each house, so I think I was all-in for around $120,000. I was able to renovate them, rent them, and turn around and refinance them all within a year. I was able to get them all refinanced and paid this guy back. I cashed him out in full. The deal was, “Hey, man, I’m just going to refinance and hang on to these things because it can be easier to do that than to sell them.” I think he brought $100,000. I was able to raise $20,000 of private money elsewhere, and so I paid him back his $100,000 and gave him another $15,000 to $20,000 on top of it. Then, he was cashed out in full, and I owned this property, essentially, with another couple of thousand dollars of private money on it. 

That portfolio is what really gave me five properties and started boosting by residual income. It was between that, my primary house, and then this other property that was just kind of breaking even. And then I found another property. It was two single-family houses on a single parcel, and the seller needed to sell really bad. He wanted to sell it for $50,000, and I was able to carry back a note of $32,000, so I only had to bring $18,000 to the table. I borrowed $25,000 of private money from somebody I just got introduced to.

These two deals triggered me to do business the way that I do now. The five-house deal, where I just bought, renovated, rented, refinanced, then cashed out my investors, and held on to it for longer cash flow is my entire business model today.

The other deal was the two houses on a single parcel on borrowed $25,000 when I only needed $18,000. Well, guess what happened with that? I showed up at closing, even with rent probations and taxes and everything. I ended up buying the house with private money and seller financing, and I walked away from closing with a $5,000 check from financing proceeds. With cash flowing property, it was rented for $1,100 a month. My total expenses were around $700-800, so I had a positive cash flow of $300-350 a month, and I had $5,000 in my pocket. That whole strategy resonated, “This is an amazing strategy. I don’t have to flip property. I can actually raise private money for rental properties, have it cash flowing and walk away with a check.” That whole idea really got me excited about the idea of holding rental property and building that type of portfolio.

Robert Leonard  15:57

So, if you had to go back and start over, would you still follow the same steps that you did?

Tim Bratz  16:02

That got me to where I am, so I have zero regrets. Even the mistakes, the mess-ups, all the contractors that burned me, the tenants that burned me, business partners that burned me, and just all of it, man. Those made me who I am today, so now, I have zero regrets. I would absolutely do everything the same.

Robert Leonard  16:17

Other than just the sheer volume and size of the properties that you’re doing today, how have commercial properties and apartment buildings been different from your smaller investments?

Tim Bratz  16:27

At the end of the day, the strategies are all the same. There’s adding a couple of zeros on there. It’s actually easier to do big deals than smaller deals. Commercial mortgage brokers get paid a bigger commission, so they’re more incentivized to make sure that the deal happens. They get a loan for you, get you qualified, and all these different things. So, now they’re in your corner. Commercial real estate agents have big commissions in play and they want to help make a deal happen, so they’re willing to either forego commissions or help. It’s like everybody is on the same team trying to get the deal done. So it’s actually easier to do bigger deals than do smaller deals. With bigger deals, the banks look 90% based on the property, and only 10% based on the borrower. With small deals, they’re looking 90% based on the borrower, and only 10% based on the property. It’s just different.

I like the scalability of doing bigger deals, like 100-unit deals or 100 single-family houses. And you know, you only negotiate with 1 seller versus 100 sellers. You’ll get one financing for one deal versus 100 deals. You go look at 1 roof versus 100 roofs. You look at one foundation versus 100 foundations. Send your contractor to one location versus 100 locations, and your property manager to collect rent at one location versus 100 locations. So there’s a lot of scalability to it as well, that between that and between the financing being easier.

One of the things I really noticed is that, when you get into bigger deals, you’re working with a more sophisticated crowd. It’s not that they’re smarter or better or anything like that, it’s just that they’ve been around a little bit longer. I personally went through this transition of going from being a broker to a wholesaler to a flipper to a turnkey single-family rental provider to a property manager to buying single-family rentals to buying duplexes and quadplexes to buying small multifamily to buying bigger apartment buildings. That was a gradual process and graduation that I went through in order to scale up my operation, and what I’ve noticed is that a lot of contractors have done the same thing. They might start out as being a handyman then they get into full-house renovations and they build single-family houses. They start building small communities, and they start building multifamily and commercial real estate. They do road projects. There’s a gradual progression that they go through in order to grow their business, as well. It’s the same thing with real estate agents, finance leaders, mortgage brokers, and even private money lenders.

Now, they’re tired of doing the transactional stuff. They want to get into more of a long-term wealth-building strategy. And so, all these different people from all these different facets of real estate end up graduating into commercial real estate. So when you’re doing commercial real estate, you’re just around a more sophisticated crowd. You’re surrounded by a bunch of players for the most part, and so you build out a good team. It’s really easy to really scale and grow your business because you’re surrounded by a bunch of players. There’s a lot of juice in the squeeze.

Tim Bratz  19:09

It’s hard to bring a bunch players into a single-family house that you’re flipping and making $20,000 – $30,000 on it. There are five hands in the cookie jar, and not everybody’s excited about that. When you’re talking about hundreds of thousands of dollars of equity or even billions of dollars of equity in any given deal, there’s plenty of juice in the squeeze for everybody to get paid.

I’m in Charleston, South Carolina in my beach house right now. My team is up in Cleveland, Ohio, and they essentially closed on a 105-unit apartment building yesterday, and I wasn’t around for it. I had assigned closing documents earlier last week and signed a couple more documents on Monday, but it was pretty easy. They were the ones handling the money transaction, private money investors and lenders, lining up the bank loans, all the paperwork, all the legal, and all that kind of stuff. They handled all that. They’re all A-players and everybody is accountable. Everybody’s competent. Everybody gets their job done. It’s easier to do deals when you’re surrounding yourself with people like that.

Robert Leonard  20:07

As we talk about commercial real estate throughout this episode, there are varying definitions of what commercial real estate is or what it’s defined as. I know some people consider anything over four units, so five units, enough to be considered a commercial property. That’s how I look at it. But some people only consider commercial properties to be properties that are leased to actual businesses. How are you defining commercial properties?

Tim Bratz  20:31

So there are four major asset classes for commercial real estate. One is residential, so that’s apartment buildings, multifamily, maybe some mobile home parks, things of that nature. Student housing deals and things like that, by adding Housing and Urban Development, set this rule of law, but that’s five units or bigger, so that’s commercial real estate. A third asset class is more office and medical, another asset class covers retail and hospitality, and then the last asset class is warehouse and self-storage. Those are the four major asset classes in commercial real estate. Everything else can fall into one of those four, but as far as residential real estate is concerned, all those housing, it’s still commercial real estate if it’s five units and bigger.

Robert Leonard  21:16

Okay, so just want to make sure. That’s exactly how I define it as well. I just wanted to make sure we have that context for the listener so that they’re able to picture what we’re talking about as well.

Now, you’ve talked a lot about raising private capital. And I want to dive into that a little bit because, hands down, the most common question I get from new investors is “I’ve done a few deals, about 1 to 5 deals. Now, I’m out of my own capital. How can I go raise money? How can I get my initial money to start scaling my properties?” How were you able to find all of this private capital when you were just getting started?

Tim Bratz  21:51

I didn’t find a lot of private capital. I found some private capital, but it’s everywhere. Everybody has a 401-K or IRA. They have some cash, very unassuming on suspecting that some people have access to money. And, at the end of the day, there’s a lot of people who are real estate investors, but they’re not telling people that the real estate investors. They are trying to be some sort of super-secret agent and real estate investor where nobody knows that they’re buying real estate. At the end of the day, you can’t do that. If you’re not telling people that you’re buying real estate, why would anybody send you deals? If you’re not telling people that you’re buying real estate, why would anybody offer to invest in projects with you? If you’re not telling people that you’re doing real estate, how are you going to build up your operations team and do all these different things? So I just got very vocal about telling people that I’m investing in real estate, and even if you only have one deal, now you have a case study on a deal that you did and how much you made on it. Now you can go and show that to somebody, “Here’s what I did.”

Even if you’ve never done a deal, but you have the work ethic, go out and find deals. Deals are far more valuable right now than money is. Money’s easy to come by. I just read it’s $2.1 trillion, sitting on the sidelines, waiting to get into all sorts of bad assets and fixed assets like real estate right now. That is happening right now. So there’s plenty of money out there. The question is, “Are there any good deals, right?” So you have to go out and find good deals. You can just Google Search, “How to find wholesale-priced commercial real estate?” “How to find wholesale-priced apartments?” “How to find wholesale-priced real estate?” Look up all the different strategies, select one or two of them, go out, and find good deals.

I promise you, if you’re vocal about the deals that you come across on social media, you will get it funded. Somebody like me will come in and buy it from you, or partner with you on that project. So, right now, institutional money and private money are easy to come by. Hedge funds, real estate trusts, family offices, and all these banks and institutional lenders are begging to get money out. And there are definitely people in your circle that know, trust, love, and respect you who would invest with you if they knew that you were investing in real estate.

I will say this: I gave up 67% of the first 250 deals that I did. I gave up a big chunk of the first big chunk of deals that I did, but I knew that I needed to build up a reputation. I knew that I needed a track record. I knew that I needed a resume to go out and raise cheaper money, so I gave up a ton of equity in all my initial deals that I did, but built up such a reputation that now, I can go out and raise money that’s much less expensive. There are a lot of people out there that want to keep 100% of the deal. It’s a scarcity mindset, and the reality is if you go out and you raise money from somebody, and you help make them money, they will invest more money with you. Not only that, but they’ll also probably tell their friends, business colleagues, and family about you. You’ll be able to raise more money, and at deal two, at deal five, at deal 15, you’ll be able to get more equity in those projects because you raised a little bit less expensive money because you have more access to capital.

People get so focused on this deal right here. “How much equity am I going to get?” This doesn’t matter. What about the next deal? And the next deal? and the next? And what if you build up a portfolio 3,400 units over the course of the next few years, that then the cash flows you enough money where you never have to raise private money again if you didn’t want to. You can just invest your own money forever because you have a problem with having too much money. That’s a real problem that some people have. And so, don’t get too caught up on how much equity you’re getting. If you’re in this game, you should be in it for the long haul. Real estate is not a get rich quick; it’s a get wealthy slow. And if you’re in this game, you have to have a long-term mentality. You have to think, “I’m going to be here for 10 years.” “I’m going to be here for 15 years.” “I’ll be here for 20 years.” It’s okay to give up a lot of equity in your first one to two years of doing deals in order to build up that resume and really have the experience to then go out and raise more capital at maybe a lesser expense ratio.

Robert Leonard  25:49

Yeah, I think that’s such a great point. I always recommend that to new investors as well. I think it’s Mark Cuban that talks about this on Shark Tank, where he says having a smaller percentage of a watermelon is better than owning the entire grape. I mean, having more deals or having bigger deals, or just having a smaller percentage of that is better than not doing as many deals or just doing a lot smaller deals. So, yeah, I completely agree. I think that’s such great advice.

Tim Bratz  26:14

I still subscribe to that mentality of I’d rather have a quarter watermelon than 100% of the grape. There’s more juice in the squeeze.

I give up a good chunk of my equity to other joint-venture partners. I have operating partners now who bring deals, who are boots on the ground because that’s something that I know, but it’s not the highest and best use of my time. And so, somebody brings me a deal, and they have the work ethic, and they have the skill set in order to oversee renovations and all that. I know that I can just raise money. I can sponsor the loan. My team can handle the asset management, like all the stuff that can be done remotely, and do some coaching and mentoring and stuff throughout that process, and I’m able to now get into deals that I couldn’t have gotten into before. It’s pretty easy for me because it’s my core competency and what my unique ability is, and other people are looking at deals that they couldn’t have gotten into before. Now all of a sudden, we’ll do more together. One plus one equals three.

Robert Leonard  27:04

Yeah, it’s so true. I haven’t been in real estate super long. I’ve been in it for a few years, but I’ve already realized that it’s a relationship game. It’s all about building those relationships. You can’t be short-sighted. You need to build for the long term. And you just never know who somebody knows or what they might have in their back pocket. You just start working with them, you do the best you can, provide the best value that you can to them, and then long-term, it all works out. You’ll eventually be able to find more money from them telling their friends or them having it themselves.

So, in all of those apartment buildings, what exactly is it that you’re looking for when you’re going through all of the deals that you’re potentially considering? What exactly makes it stand out to you?

Tim Bratz  27:44

Our buying criteria is 80 units or bigger. That allows us to have on-site property management and on-site maintenance staff. So there’s scaling once you get into about 80 to 100 units and bigger. Really, the bigger the better though, so that’s one. Number two has to be in a B-class area of workforce housing. So I don’t do anything luxury, but I want good school districts. I want safe neighborhoods. They’re easier to manage. Although the returns might look nice on a C-class or D-class type property, I’m telling you, the management is a nightmare. You have to run the numbers. People run their numbers on D-class properties as if they have the same occupancy rate as a B-class property, and it’s just not real. The real occupancy on C-class or D-class properties is probably 80% on average if you’re running a tight ship. People don’t run numbers that way on C-class and D-class. That’s why they don’t make the returns that they projected they should be making.

So, I stick to A-class and B-class workforce housing, 100 units or bigger, and value add. If you can see that they’re physically distressed or managerially distressed, you need to be able to be all-in to the property for 65% of the after-repair value. I took that from single-families, just like when I was flipping houses. The only difference is I don’t *inaudible* the apartment building. I actually just refinance it and hold it. So, if the building’s worth $10 million stabilized, I have to be all-in with purchase price renovation costs and holding costs for $6.5 million. That allows me to then go to a lender once it’s stabilized, meaning it’s over 90% occupied at market-rate rents, and I can go and refinance it. So let’s say, at a 70% loan, on a $10 million valuation, they’ll give me a 70% loan at $7 million. That allows me to pay off my short-term acquisition construction loan and allows me to pay back all my investors. And if I’m in for $6.5 million and they give me a $7 million loan, there’s $500,000 of non-taxable refinance proceeds that then get carved up amongst me, the equity partners, the operating partners, joint venture partners, and everybody else who’s involved in the project.

Robert Leonard  28:57

So, how are you finding these types of deals that meet all of your criteria? Are they coming from brokers’ pocket listings?

Tim Bratz  29:51

In some markets, like in Georgia, yeah, we get some broker listings. But what you need to understand is that brokers don’t have to put the property on the MLS 72 hours as residential brokers do. Commercial brokers will get a listing and they’ll just shop it around to the top 20 buyers in town, so that way they earn both sides of the commission. So, if you’re one of the top 20 buyers in town, you’ll get those. There are certain markets where I am, and there are certain markets where I’m not. The majority of the markets, though,  that I’m investing in, I’m trying to go off-market and go direct to the seller, because the stuff that comes through brokers, if I’m one of the top investors in town, great, I might get a look at it. Otherwise, you’re getting the stuff that the top 20 people in town all said no to, so it’s probably not a good deal.

I’m always trying to go off-market and go directly to the seller. I don’t want to compete. I don’t want to get the highest and best offers and in the bidding wars. I want to talk directly to the seller. I want to negotiate. I usually negotiate the best terms that way. You find those deals the same way that you find them on the single-family side like I was saying before. Google Search “How to find wholesale real estate deals?” and it’s going to say drive for dollars. Drive around, look for houses and buildings with tall grass and boarded up windows. Dial for dollars. Call for rent by owners. Call for sale by owners. Go in and do direct mail. Send postcards. Network. Go to real estate investors association meetings. Talk about it on social media. Get on podcasts, and start a podcast. Start a meetup group or a real estate investors association or a landlord association. I mean, these are all things that you can do, and you can plug into it. Join all the different Facebook groups and look for deal flow on all the real estate Facebook groups, LinkedIn real estate groups, Instagram, like all these different things. Start getting a circle of real estate investors. We get a lot of our deal flow just from residential wholesalers and brokers who don’t know how to underwrite a commercial real estate deal. They come across these deals and they don’t deal with it. They just throw them away. We make sure we’re top of mind and they send us those deals.

Robert Leonard  31:50

When you’re going direct to the seller, how are you approaching them? What are you saying to them and what strategies are you using?

Tim Bratz  31:56

“I’m not a broker. I’m an actual buyer. Here’s my balance sheet. I’m real. Do you have any interest in selling your building?” You cannot say the wrong thing to the right person, meaning it doesn’t matter how much you stumble and bumble and trip over your words. If they’re a motivated seller, they will still continue the conversation with you to sell you the building. Conversely, you cannot say the right thing to the wrong person. Meaning, if somebody has no interest in selling, it doesn’t matter how well-crafted you are. It doesn’t matter what your resume looks like. None of that stuff matters. You can’t talk them into selling if they have zero interest in selling.

So it’s more of a sorting game than anything else. You have to sort through deals. We sort through about 400 deals a month, note them, and buy two. We could buy a lot more if we’re willing to buy smaller stuff, but to find those types of deals that meet our buying criteria, we usually buy two buildings a month. We’re between 100 to 400 units per month based on our buying criteria. If we want to get in smaller units or C-class kind of areas, or more tenant-friendly type states, then we could do that, but we’re very focused on our niche, and we stick to that. So, you just have to go through a lot of deals, though. You have to sort through deals faster than anybody else can sort through them. You have to be bold enough to make offers immediately. We don’t even look at properties until we get an acceptance letter of intent, so we’ll actually make our offers on properties without seeing them and just kind of project out what the renovation cost is going to be. You can get a lot of information online these days. You can go on Rentometer and find out what the market rate rents are. You can hop on Google Maps and look at Street View and see what kind of area it is. You can look at areavibes.com to figure out if it’s a good school district, what the crime rate is, and all those kinds of things. There are a lot of tools out there online that you can use. We figure out if it meets our buying criteria or not, even if we’re not local to the project, and then once we get an offer accepted, that’s when we go out to the property and we do all the due diligence, all the inspections, and the walkthroughs.

Robert Leonard  34:00

Why might a seller of a property like what you’re looking for be willing to sell directly to you as a buyer, rather than going to a broker? My guess is that if they’re selling to you directly, they’re probably not getting their highest dollar amount that they could end up getting. If they went to a broker, they could probably get a slightly higher price just because that’s going to be shopped out to so many other investors. So why might they want to sell to you rather than going directly through a broker?

Tim Bratz  34:26

The highest price buyer might not be the most qualified buyer. I’ve seen it hundreds of times where somebody internationally is coming in and they’re going to buy it at top dollar. But guess what? It’s really hard to qualify for loans. It’s really hard to get international money into the United States. If you’re coming from certain countries, there’s a lot of moving parts and a lot of moving pieces, and all of a sudden they get dragged, the seller gets dragged through the mud for six months on somebody who says I’m gonna close on a deal but doesn’t. I have a track record of closing deals and not dragging sellers through the mud. If I tell you I’m going to close in 90 days, I’m going to close in 90 days. One way or another, I’m going to close in 90 days. I’ll resolve 100% cash. I have to just to make sure that I close. When you build up that kind of a track record, not everybody is motivated by getting the most money.

A lot of people are motivated by getting a headache off their hands. It could be bleeding money. They might desperately need the cash. They might be going through a divorce and can’t finalize it until all their assets are liquidated. Their grandmother’s in the hospital and needs a bunch of money for medical bills and they need it now versus six months from now or even 90 days from now., and so they’re willing to take a lower price point in order to fix that need. Maybe they inherited the property, and they’re a ballet dancer in New York City, and they don’t want anything to do with grandpa’s commercial real estate portfolio in Georgia. What’s the difference to them if they make $13 million or $11 million on it? Not that big of a deal as long as they know that they get the money and they can go and buy their doodads.

There are a billion different reasons why people might sell for less than top dollar. There are a lot of different motivations in that, and those are the motivations that we seek. I’ll give an example. A 48-unit apartment building was bought about a year and a half ago by a husband and wife who ran the place into the ground. They did not make any renovations to the property for over 30 years. They sucked 100% of the cash flow out and lived off the cash flow. In fact, in the past couple of years, it was so beat up that the occupancy dropped pretty significantly. They could barely pay the operating expenses and their mortgage. They let the taxes slide, so they had to sell it and they couldn’t wait for a broker to list it and hope because it was going to go to tax auction in six months. So, they couldn’t hope for somebody else to come in and qualify. They needed to sell it to somebody they knew could buy it within 90 days, and we came in made them an offer they couldn’t refuse, and we ended up buying that property. So, those deals are out there. They’re out there in every single market. They’re out there in your own backyard. You just have to go find them before the brokers do or somebody else does.

Robert Leonard  36:50

Wholesaling small residential properties is a very common strategy in the real estate investing space, specifically for new investors. But I read on your website that you’re wholesaling large apartment buildings. How and why are you doing this?

Tim Bratz  37:05

Yeah, so there are properties that don’t meet our buying criteria. They’re either in C-class areas or areas where we don’t resource or they’re too small. They’re still decent deals. They still meet our buying criteria, and there are still people out there who would buy them that are maybe just at a different place in their investment career than I am. So, even though it doesn’t meet my buying criteria, it’s just because I’m looking for bigger stuff and easier stuff. But early on, I bought a bunch of C-class properties because I needed to build my balance sheet and to build my portfolio to be able to qualify for larger loans. There are a lot of other people who are in that space and are looking to buy those types of buildings, so yeah, we come across those deals quite a bit and do wholesale smaller apartment buildings.

There are a lot of different ways you can do it. You can wholesale it. You can actually take a fee on it. You can wholesale then take equity. You can take wholesale and maybe do a hybrid of the two. I had a 24-unit apartment building that we wholesaled to somebody. They paid us a $40,000 wholesale fee and needed help sponsoring the loan and raising some money. They wanted us to advise them and counsel them, so they actually ended up giving us 40% equity in the deal also on top of the $40,000 wholesale fee. It was a pretty passive overall deal, other than just hopping on a phone call once a week for 20 minutes, and putting our eyes on it a couple of times a month to make sure that the needle is moving forward. So it was a pretty good deal. There are definitely opportunities there.

The easiest stuff to wholesale is really the stuff under a million dollars. Usually, that’s cash buyers. Once you get over a million-dollar apartment building commercial property, then you’re talking about getting financing and all that kind of stuff. You can still do it, but you just probably want to take more of an equity piece, or there’s just a different way and you’re not really going to sign a contract in that regard. You might have to sign some sort of consulting agreement or something like that to either take a fee or to take equity or a JV agreement or something along those lines. Talk to your attorney, whatever state you’re in. They’ll tell you how to legally do it.

Robert Leonard  38:53

Yeah, taking equity in wholesale deals is interesting. It’s not a strategy that I hear a lot of people talk about. I do read a lot about wholesaling on different social media platforms or just on the internet in general. I don’t personally do any wholesaling, but I never hear people talk about pegging equity in deals. I only hear just collecting that small fee that you get in the arbitrage between the prices, but the equity component that’s an interesting dynamic that I think could be interesting for wholesaling.

Tim Bratz  39:18

Yeah! I mean, hey, you’re in the transactional rat race. Don’t you want to get out of that? Right? Not you, but I’m talking about people in general. One of the ways to do that is if you’re wholesaling and wholesaling some big deals, and you can cover your expenses, your lifestyle, with what you’re doing on the single-family side and you can wholesale this one apartment building, why not take equity in it? As long as the buyer’s cool with giving that to you, which I don’t see why they wouldn’t be, it saves them a bunch of money. When it’s due a couple of percentage points of equity, you’re building long-term wealth. Now you have somebody else operating a deal, which is amazing, and they know what they’re doing. You can kind of ride coattails and learn a little bit more about it while they’re operating it. While they’re doing that, the principal is paid down on the loan, properties appreciating over time, it’s cash flowing while talking about it, maybe refinancing and taking a couple of bucks off the table. And so wealth is created by buying assets and getting other people to pay for it.

Robert Leonard  40:08

Yeah, and that definitely goes back to the idea we talked about earlier of just having a small piece of a bigger pie, right? I mean, you might not be able to get a huge percentage when you do these wholesale deals, but if you do it enough times, those small percentages start to add up, and eventually, you own 50-75%, maybe even 100% of an entire deal, just in terms of cumulative percentages that you’ve acquired over the years. It’s definitely an interesting dynamic that I haven’t thought about when it comes to wholesaling, so I’m going to have to look into that a little bit more.

Tim Bratz  40:36

If you’re a ninja at finding off-market deals, just go and wholesale it and take 3-5% equity in every single deal. Then all over time, you’ll get a little annuity every month paying you from all these different deals. If you did 20-30 different deals, some of them could be really big deals, hundreds of units, thousands of units. A small percentage of that is a lot of monthly cash flow, so you can really build up a lot of net worth and a lot of wealth that way, by buying wholesale and taking equity.

One of my early mentors said millionaires and billionaires are made by equity and deals. So, if you can, again, have a long-term mindset, you’ll make long-term decisions based on short-term shortfalls. I’d always rather have the equity in the deal versus the condition, the big jack. And so, I would always maybe, maybe sacrifice some things today in order to have a better tomorrow. Well, it worked for me.

Robert Leonard  41:26

Looking back on all the different strategies you’ve used, and all the things you’ve done, where would you recommend a new investor start?

Tim Bratz  41:33

I guess first I would figure out, “Where do you want to go? What is your endgame? What is the destination that you want to end up at?” A lot of people go through life without knowing where they’re going. If you don’t understand where you’re starting from, where you’re going, and what your destination is, how can you create a roadmap to get anywhere? You can’t. So, you have to know where you want to be and have clarity in that.

If that’s owning a rental property, that’s owning commercial real estate, then perfect. Now that you backtracked and figure out where you are today, the first step to that is buying a rental property. I don’t care what it is. I don’t care if it’s a single-family rental property. Go and buy a property. A lot of people are hesitant, “No, I’m going to wait for the 100-unit apartment building,” or, “I’m only looking for 200-unit buildings and bigger.” Those buildings don’t come across your plate or desk, unless you’re doing small deals or other deals or unless people know that you’re doing. You’re not going to get a whack at a 150-unit apartment building if you don’t own anything, right? Nobody’s going to take you seriously when you say that you want to go and buy that.

You’ve got to be able to have some small victories. Have those little victories, little wins where you’re going out buying properties. It’s a single-family. Then you buy a duplex, and you buy a triplex, and you buy an eight-unit, you buy another eight-unit, and you go buy a 14-unit, and then you go buy a 23-unit or a 30-unit. All of a sudden you’re up to 60-80 units, and now that a 100-unit comes across your desk, you could probably qualify for that loan yourself. Now, you can step in, get a little bit more equity in that project, sponsor a loan yourself, and doubled your portfolio up to 180 units. And then all of a sudden, a 150-unit comes by, and now you can qualify for that. You take that down, and now you double your portfolio again. That’s all that I’ve done. I’ve just continued to double my portfolio every year for the past five to six years. It’s a compound effect, but it all starts with taking action. It all starts with going out buying something, doing something. Go and find a deal.

Robert Leonard  43:25

What do you think that number one thing is that stops people from buying that deal, getting started, and just taking action?

Tim Bratz  43:31

I think a lot of people confuse productivity with activity. They just think, “Hey, let me go make business cards. Let me go and create a supplier, and create this website. I can’t go out and do deals until I have an LLC name or so on. None of it matters. Go and find a deal. You know what? There are only three activities that matter in real estate. One is finding deals. Two is finding money. Three is operations. That’s it. If you’re not doing one of those three things, you’re not doing real estate. You can’t do operations until you have a deal. You can’t raise money and can’t deploy till you have a deal. And so, the first thing that you have to do is go out and find a deal. Get good at finding deals. You can get good at finding deals, especially in today’s market. You will become very wealthy in equity and projects because there’s so much money sitting on the sidelines. Go out and find deals.

Robert Leonard  44:17

I hate to say it, but back in my early days of college, I was one of those people that thought I was making progress, but I was really just designing business cards and not really doing anything.

For those listening to this episode that might have more questions about how you’ve grown your business or something that we’ve talked about throughout the show, where can they go to connect with you?

Tim Bratz  44:36

I’m pretty active on social media. Come and find me on Facebook, Instagram, and LinkedIn. I’m always putting out free content there. That’s a great way to connect with me. My website’s legacywealthholdings.com, but social media is usually the best. Find me on Facebook and shoot me a friend request.

Robert Leonard  44:53

Awesome! Thanks, Tim! I’ll be sure to put links to everything that we talked about throughout the show, as well as all the resources you just mentioned for how people can connect with you in the show notes so that everyone can go connect with you further. I really appreciate your time. Thanks for joining me!

Tim Bratz  45:07

Robert, thanks for having me, buddy! I appreciate all the value you put out there, so thank you again.

Robert Leonard  45:12

Alright, guys! That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week!

Outro  45:18

Thank you for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permissions must be granted before syndication or rebroadcasting.