Should You Buy Real Estate In 2026? | Brian Berke Interview

All right, all right, welcome back to the show. Today we got with us Brian Burke. Brian, welcome to the show. How you doing today?

I'm doing great. How about you?

Great. This is going to be a fun episode. For people that don't know you already, Brian is the CEO of Praxis Capital. They have over 3,000 multifamily units. And we talked earlier, you went from the syndication model all the way down to the fund model. Also the author of The Hands-Off Investor. An Insider's Guide to Investing in Passive Real Estate. This is gonna be a fun episode talking to a bona fide fund manager that's done this. How long have you guys been running your funds and syndications, by the way?

Well, let's see. I started in real estate 30 years ago and I started raising money for private offerings in our investments about 20 years ago. So, 20 years in the capital raising business.

Walk us through a little bit of your story getting into this and And then eventually finding the fund model, using the fund model. And there's a lot that goes in. I'll probably have a ton of follow-up questions of how did you find your initial investors? How did you find partners? How did you find properties and deals and pull it all together? But walk us through a little bit of your story.

I mean, my story began, you know, investing on my own, you know, pulling together money however I could to buy, fix, and resell houses. And I was using credit cards and credit lines and, you know, all kinds of wacky stuff to be able to get creative financing. To get into houses to fix up and resell, and when I had finally gotten good enough at that, I decided that in order for me to grow my business, I needed more capital. I also needed more time. So the first thing I had to do was quit my job, and I was in law enforcement. So I went into the station. I put in my two weeks notice, and then I immediately told all of the guys I worked with that you know I was going to start doing my real estate thing full time. And by the way, I rented out the room at the community center. If all you guys will come down there, I'm going to tell. about what I'm doing in real estate. So, everybody was interested, of course. Hey, this guy just quit his job. I got to go find out how he did it. So, they all come down to the community center. I gave a presentation on real estate and I said, if you guys will invest with me, I'll take as little as $5,000 and I'll split the profits 50/50 with you guys. And that was literally the first time I'd ever raised capital. And it was a fund. That was a fund.

Wow.

My very first one was a fund because I pooled together $500,000 in capital out of that meeting. with minimum investments as low as $5,000, believe it or not.

Yeah.

And, you know, now I had, you know, 28 new investors and all of them are carrying guns. And I realized, like, you know, I've got a bunch of cops as investors. If I screw this up, I'm a dead man. So, I've got to do this right and not lose any of their money. So, that's what really ingrained to me, you know, don't screw up. So, then I built this, you know, really nice house flipping business. And eventually, that grew and then it grew some more. And then, I started getting into other things— commercial, self-storage, multifamily. Development, you know, just kind of natural progression through my career of trying various different things. And then, the great financial collapse hit. And at that point, it was time to make a decision and either shrivel up into a hole or grow my way out of my own hole. So, decided to grow my way out and grew the business, raised a ton more money, was flipping Over 100 houses a year. And we did that just by raising money from a variety of people and kind of growing that initial fund I had built of $500,000 into a much larger fund of a few million. And it was all just word of mouth. And still flips. Still flips.

Still flipping houses. I love it.

Still flipping houses, yeah. And just kind of grew it through word of mouth and referrals, flipping houses. And then, and meanwhile, I had, early on, I had bought some houses for my own rental portfolio that I sold on 1031 exchange while apartment building. So, you know, now I was in the apartment business kind of on the side and then realized like, I need to grow this apartment business. But in order to do that, I'm gonna have to raise more money. Well, I didn't want to do it on a fund level. So, I did this single asset syndication model. I said, I'm going to find an apartment building. I'm going to raise money for that deal. And then I'll find another one. I'll raise money for that deal. And that's what I started doing. And gosh, that was about 20 years ago. And then And then, about 6 years ago, I started buying like 2 multifamilies at a time and raising money in one vehicle for 2 and then decided like, why don't I stop doing that and just raise a fund? So, last year, we did a $50 million fund, raised $50 million. Now, we have discretionary capital. We go out and we buy multifamily assets using that fund. So, really, the whole growth trajectory was start small and then step by step by step by step by step. Geez.

My question is, what changes have you seen over the last 20 years in the way you've raised capital and investors' mindset? Has it been relatively the same, or have things shifted?

People were asking the question about return and ignoring the question about risk. And when you're, when you're looking at any investment, you have to balance risk and return together, and not as separate components, but together. So I think that You know, if you really broke down the risk profile of a cryptocurrency investment and you compare that to the risk profile of some real estate offerings, you'd see that they're completely apples and oranges. So, that's a big thing. But people, no matter what, they're searching for yield. And that's really what people are trying to figure out is like, okay, I've got this money. What am I going to do with it? Where can I put it where I can earn the most that I can off of it? And that's caused real estate to become increasingly popular. And that's made the capital raising segment of our business the easier part. And it's funny because it's always a shift, right? And, and people say like, oh, it's, you know, I'm not having any trouble at all raising money. I'm having trouble finding deals. And then they say like, I wish it was 2009 again because there were deals everywhere.

Mm-hmm.

But what they forget or what they don't know, because they didn't live through this era, is that in 2009, when there were deals everywhere, it was next to impossible to raise money. It was like squeezing blood out of a rock because at that time it was risk that was dominating people's investment decisions. And it was like, well, I don't want to invest in real estate because I don't want to catch a falling knife, or the market is toxic, or there's all kinds of things wrong with real estate. That's why I don't want to invest in it yet. It was the best time to be investing in real estate. You were buying at the bottom. Well, now you're seeing the same kind of thing with cryptocurrencies, right? People are ignoring the risk factor and they're just looking, they're zeroing in on the return. And so, you know, they're doing the same thing with real estate. Uh, it's just, you know, now is really, uh, uh, the wrong time to ignore risk entirely.

I want to hear from, from Brian Burke. What, what's going on in your brain right now, looking, forecasting for the next you know, 12 to 18, maybe 24 months, specifically in the real estate markets? We've seen a huge run-up. We've seen a lot of capital hit the markets. We've seen the Fed trying to taper inflation.

What—

and what does your crystal ball hold for the next 18, 24 months? We'll talk real estate markets first, but then we can talk broader, just macroeconomics as well. But what, for you, what do you see the next 24 months?

Well, I see a lot of sales. That's one thing that I didn't want to be a net seller, but we've become one. We'll probably sell over 1,000 units out of our portfolio this year. And we'll be lucky if we added 300 to go in behind those. So, what we're seeing is this is a really good time to harvest the crop. It is a difficult time to plant a seed. And so, I've seen this, I've read this book before, and there's a time when people get hurt when they throw caution to the wind. And so, I think now is the time to be prudent and conservative and accept that returns right now are lower. It doesn't mean you can't invest in real estate. It doesn't mean now's a terrible time to get in. It just means that if you're looking for high teens, 20s, Interesting.

So, I love that about your focus on risk mitigation. I think a lot of investors in general just throw that to the wind, and you've already brought that up a couple of times here. So, right now, you guys are harvesting a lot of your portfolio. Congrats on that. It's obviously a great time to sell, at least as of the date of recording right now. Do you see a cycle in the real estate markets coming soon? Do you think the Fed is going to raise rates? Do you think they can? What do you see going forward from a monetary policy?

I think that we, we are in an inflationary environment, or we're, we're looking to be in an inflationary environment. And I'm certainly no economist, but I can see when everything around me is going up in price. I can see when there's bidding wars over labor. You know, it used to be bidding wars over material or whatever, but now it's bidding wars over labor. I heard a— I was reading a comment the other day from A friend of a friend who's trying to hire for their coffee store and offering $28 an hour for a coffee barista that would've been a $12 an hour position just a year ago. That's how desperate people are for workers. That's ultimately going to translate to higher prices, higher wages translate to higher rents. So, I think there's inflation on the horizon. Now, having said that, real estate is essentially by definition a hedge against inflation. And I think it makes a lot of sense to have real estate in your portfolio in an inflationary climate. It doesn't mean it's the end of the world. Now, it might mean that eventually borrowing rates are going to increase. And when borrowing rates increase, that's going to create a headwind on pricing. And so, there's people right now that are looking at, well, we're buying at a 3.5 cap and we're going to exit at a 3.5 cap in 5 years. And the chances of that happening, I think, are quite slim. I think you're going to see cap rates decompressing. I've been saying this for years though, so it hasn't happened yet, but I still think, you know, we're going to see cap rates decompressing and that's going to create a headwind on price. But there's also a tailwind to price, right? And that tailwind is increasing income. As rents go up, incomes go up, and as incomes go up, the price of real estate goes up. So these 2 factors are pushing and pulling against one another. I think ultimately, where does it land? I think prices continue to rise, but I think there's, um, You know, there's risk in the horizon and there's reasons to be cautious.

That was a great summary of that. And I want to ask a few follow-up questions. So, and back to your point, you said you've been saying this for years.

And yeah, I've been saying for a long time that, you know, cap rates were going to decompress. And, you know, even a broken watch is right twice a day. So, you know, maybe, maybe that is, is what I'm banking on. But I do feel that, you know, cap rates are, are Once again, at a historic low, and eventually, the tide will turn. Everything always reverts back to the mean sooner or later.

So, do you see something like that coming then? Maybe it's a black swan event, we don't know what's coming, but a major market correction. I mean, Michael Burry even tweeted this morning, he thinks we're in the everything bubble, it's gonna be 2 times bigger than the 2007-2008 financial crisis. Do you see something like that happening on the horizon?

I don't. I don't think there's going to be another 2007, '08, '09 style great financial collapse. I don't see that happening right now. But I do see an increase in the number of people willing to take outsized risk. And ultimately, that will lay the foundation for that type of a bubble to burst. I don't think we're there yet. Gosh, in '05, '04, '05, people were buying houses with no income qualification, no job comfort. You know, I used to call them ninja loans. No income, no job, no asset.

Yeah.

Right. So, and, and that was, that was what was forming the foundation of residential real estate. And then people were getting 100% loan-to-value financing with negative amortization that was running it up max 125% LTV. That kind of stuff was laying the foundation for a massive bubble. Well, now what we're seeing is we're seeing a ton of people paying cash, a lot of people with good down payments. But give it 5 years, you know, and maybe we're back to where we were in '05. I could see it heading that way. We're not there yet, but I could see it heading that way. You know, I had a, a friend of mine who was looking to invest with us. He managed money for a family office that was One of the wealthiest families in the country. And he told me a story about when he got hired. He said that in his interview, the head of the family basically told him, don't be a hero. I'm already rich. Just don't lose my freaking money. That's what it came down to. And he knew the value of a dollar that you lose is a is worse than a dollar you didn't make because now you got to make $2 to make a dollar after you lose one. So, you know, just don't lose money. You know, I've been— knock on wood— I've been fortunate. I've been doing this for 30 years. I've never lost a nickel of investor principal, and we've raised over $200 million. Now, I can say with absolute certainty, not all our investments perform the way we want, and that's life. It will happen everywhere. It happens to everyone. But we haven't lost money. And that's, I think, being conservative and maybe even lucky at times is, is all part of how you survive.

Over 30 years, I think you start, you start turning from luck to more of you've got good principles. Now, Brian, last question I want to ask you. I love asking my guests this question. What are some things that you feel like is most valuable to leave this audience with?

Let's imagine yourself standing in your backyard. And you need to get up on your roof. There's there's three ways to get there. One way is you just jump up, and that's the person who says, "I'm going to go do my first deal, and I'm going to go buy a hundred-unit multifamily property." I'm going to jump straight to the roof. I want to be on the top, and I want to get there right now. Well, what will happen to most people who try to jump up onto their roof is they'll slip. And they'll break their leg or break their arm. But they might also fall on top of someone else and break their arm too. You might injure somebody else in this process. So that might not be the best way to get up on the roof. There's another way, and that's to climb a ladder. You throw a ladder up against the roof and you go up one rung at a time. And that's how I did it. I flipped small houses, then I flipped bigger houses, and then I did bought duplexes, and then I did 5-unit, then 20-unit, then 60-unit, then 100-unit, then 500-unit. That's how I got from the ground to the roof. To me, it's the safest and most surefire way, but there's downside. It takes the longest because it takes a while to build that track record up. The third way is you can find somebody that's already up on the roof that can throw you down a rope, and you can climb the rope while they're hoisting you at the same time, and you can get there a little bit faster. And that's the same model as like partnering with someone or joining up with another firm to build your track record and experience. Those are really the three. ways to do it, but there's one way not to do it. And that one way not to do it is to give up, because if you give up, you're probably going to give up about 15 seconds before you were going to have your major breakthrough that actually got you up on that roof once and for all. So that's— there's my 2 minutes.

Been a fantastic episode, Brian. Thank you for coming on. Very cool to hear all the stuff you're working on. We'll have to follow up with you maybe in a year from now and see What has happened and what's going on there, and what's happening in real estate in your funds, and if their predictions were correct, and all the types of things would be fun to talk about. So Brian, again, thank you so much. Again, Brian Burke. Go look him up on LinkedIn, Instagram as well. The book is *The Hands Off Investor: An Investor's Guide to Investing in Passive Real Estate Syndications*. Brian, thank you again for coming on. It's been it's been a pleasure.