From Control to Freedom Building Real Wealth Through Ownership with Tim Bratz
Key Takeaways
- Ownership creates long-term wealth by shifting focus from transactions to control and patience.
- Net operating income management matters more than market hype or short-term cash flow.
- True freedom comes from disciplined systems, not chasing deals or trends.
United States Real Estate Investor®
The REI Agent with Tim Bratz
https://youtu.be/hPcYy7G97dI
United States Real Estate Investor®
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The Moment That Changes Everything
When Real Estate Stops Being a Job and Becomes a Vehicle
Every so often, a conversation cuts through the noise and lands squarely on truth.
This episode of The REI Agent Podcast does exactly that as Tim Bratz shares the unfiltered reality of building wealth through ownership, discipline, and long-term thinking.
Tim’s journey is not a highlight reel. It is a case study in patience, adversity, and clarity.
From navigating the aftermath of the financial collapse to scaling thousands of rental units, his story reminds listeners that wealth is not created by hype but by control.
"I realized I needed to own real estate, not just broker it."
From Exposure to Ownership
The First Wake-Up Call in Commercial Real Estate
Early in his career, Tim experienced what many agents and professionals eventually see. The math tells the real story.
Watching landlords earn millions from a single lease forced a mindset shift. Residual income, inflation protection, and asset control suddenly mattered more than commissions.
This was not about hustle. It was about positioning.
"The idea of residual income is what really opened my eyes."
Surviving the Worst Timing and Learning the Most
Entering Real Estate During the Collapse
Tim entered real estate at what appeared to be the worst possible time. Banks were frozen. Investors were scared. Prices were falling year after year. Yet this environment became his greatest teacher.
Instead of quitting, he learned creative financing, off-market acquisition, and negotiation. Confidence came not from theory but from action when others stood still.
"When everyone else was running from real estate, that was the real opportunity."
Why Multifamily Changes Everything
Scale, Efficiency, and Control
The move from single-family homes to multifamily unlocked a new level of efficiency. Fewer roofs. Fewer foundations. One utility bill instead of many. The operational math finally made sense.
More importantly, Tim discovered that wealth is not built on cash flow alone. It is built on time, debt reduction, and disciplined ownership.
"The real wealth is built after holding property long enough for rents and equity to compound."
The Hidden Enemy Most Investors Ignore
Bad Management Destroys Value Faster Than Markets
Interest rates matter. Insurance costs matter.
But Tim is clear that nothing destroys value faster than poor property management. Delayed data, hidden payables, and weak accountability quietly drain millions.
This realization led to full operational control and the creation of systems designed to eliminate blind spots.
"You cannot run a business looking only in the rearview mirror."
Understanding Value at a Deeper Level
Why NOI Is the Real Scoreboard
Tim breaks down a truth many investors never fully grasp.
Commercial real estate is valued by income. Every dollar added to net operating income multiplies property value. Every unnecessary expense does the opposite.
Small operational improvements compound into massive valuation shifts. That is where professional ownership separates itself from amateur investing.
"Little changes at the property level create massive changes in valuation."
Opportunity Is Born From Pressure
Why the Next Decade Favors Disciplined Investors
Despite recent pain across the market, Tim sees opportunity ahead.
Housing shortages, stalled construction, and rising replacement costs create powerful tailwinds for existing assets.
Investors willing to operate carefully and buy strategically stand to benefit as the market normalizes.
"When there is blood in the streets, that is when real opportunities appear."
The Smarter Way to Participate
Passive Investing Without Losing Control of Your Life
Not everyone should operate property. Tim emphasizes that passive investing through syndications allows professionals to benefit from real estate without sacrificing their primary careers.
Choosing experienced operators and understanding deal structure becomes the real work.
"You do not need to be the expert to benefit from expertise."
Taxes, Time, and Strategic Advantage
Why Real Estate Professionals Play a Different Game
The episode highlights one of real estate’s most powerful advantages.
Accelerated depreciation, passive losses, and strategic structuring allow income to be preserved rather than surrendered.
For many families, aligning one spouse as a real estate professional unlocks benefits most people never realize exist.
"Your biggest expense is taxes, not missed investment returns."
The Mindset That Separates Survivors From Leaders
Control the Controllables
Tim’s golden nugget is simple and demanding. Ownership is not just legal. It is mental. Blame creates paralysis. Responsibility creates leverage.
When markets tighten, leaders get creative. They optimize operations, reduce waste, and build resilience.
"When you take ownership of everything, you stop feeling like a victim."
The Book That Shaped a Philosophy
Building a Life, Not Just a Portfolio
Tim recommends a book that influenced how he approaches life, business, and priorities. The lesson is clear. Wealth without intention is hollow.
"The most impactful book I give people is 12 Pillars by Jim Rohn."
The Long Game Always Wins
Why Patience Outperforms Hustle
The episode closes with a reminder that success in real estate mirrors success in life. The focus is not speed but alignment. Not noise but clarity.
Tim’s journey reinforces a powerful truth. Ownership changes how people think, act, and live.
"Build assets that support the life you actually want."
The Bigger Picture
Ownership Is More Than Real Estate
This conversation is not about chasing deals. It is about building stability, freedom, and confidence through long-term ownership. Tim Bratz does not promise shortcuts.
He delivers perspective.
For those willing to think beyond the next transaction, this episode offers a blueprint worth studying.
Stay tuned for more inspiring stories on The REI Agent podcast, your go-to source for insights, inspiration, and strategies from top agents and investors who are living their best lives through real estate.
For more content and episodes, visit reiagent.com.
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United States Real Estate Investor®
United States Real Estate Investor®
Contact Tim Bratz
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Mentioned References
- 12 Pillars by Jim Rohn
- Rich Dad Poor Dad by Robert Kiyosaki
- Smart Management
- Yardi
- AppFolio
- RealPage
- RentManager
- Entrata
- Zillow
- LoopNet
- Crexi
- HGTV
United States Real Estate Investor®
Transcript
Welcome back to the REI Agent. I'm here with Tim Bratz. Tim, thanks so much for joining us today.
Hey man, excited to be here.
Give us like an elevator pitch or a bird's eye view of who you are and what you do in real estate.
Oh man, been in real estate since 2005, been investing in real estate since 2009, been buying apartment buildings and commercial real estate since 2012. Scaled that up to almost 5,000 doors in my rental portfolio, currently sitting at right around 3,000 doors. All of that has turned into, we do a little bit of coaching through a mastermind.
And then we also just launched a property management software called Smart Management. It goes toe-to-toe against Yardi and Appfolio and RealPage and RentManager and Entrata and all the other ones that we've used before. But it's an all-in-one solution where it's got accounting and all that kind of stuff, as well as layered with artificial intelligence.
So super excited about that. That just launched. And then we still have the rental portfolio.
Yeah.
Wow. I had an idea. I actually attended, I think, one of a one-off, like I'm not in the mastermind, but I think I attended a one-off deal analysis thing of yours a number of years ago.
So it's going to be fun to talk to you. And I think I get some properties every once in a while. Do you still email people some opportunities every once in a while?
Yeah. Yeah, man. We're always raising capital for deals and then we're buying and selling all the time.
So depending on what's going on, it's a constant. Being in the investment world is a constant balance of deal flow along with money flow and just trying to make sure that you're not too deal-heavy and money-shy or money-heavy and deal-shy, right?
Yeah. I think one thing about being in the investing space is, yeah, being cash poor can often happen. And you can have a lot of money going out to buy new stuff or for expenses, et cetera.
And yeah, that's a balance I'm sure that you've had to learn over the years, and it's not an automatic one for sure. Yeah.
The best way to combat that is by learning how to raise private money. So if you can raise capital and you know how to source private money and you know how to structure deals and you can utilize OPM, other people's money, for your different projects, it helps limit the feast and famine cycles that otherwise real estate investors always experience.
That makes sense. And I definitely wanted to dive into that and some of the nuts and bolts about why that might be a good thing for somebody who would be considered a real estate professional, like real estate agents. But before I do that, let's talk about where you started.
Did you start off in the investment space back, what'd you say, 2009? Five.
Yeah. So 2005, I was going through college and I interned for a big home builder and I worked in the trades. I had a painting company when I was in college where a couple of my buddies worked for me and we painted houses.
And then in 2007, I graduated from college and moved out to New York City from Cleveland, Ohio originally. And so I moved out to New York and got my real estate license. And so I thought that's what getting in real estate was.
And so I got my real estate license, but I parked it with a boutique commercial brokerage. So we did mostly commercial leasing and some investment sales. And that really opened me up.
I brokered a 400 square foot lease to a falafel shop in Greenwich village and they signed a $10,000 a month lease on a 12 year lease term with 4% annual escalations. And you start doing the math on something like that and you're like, dude, I need to be owning some real estate, not just brokering it.
Yeah. Yeah. For real.
It's crazy. The amount of money. I think I just watched a real somebody showing their space and I think it was like $30,000 a month to rent in New York City.
Something crazy. Wild, man. It's wild.
I mean, you have a concentration of a lot of people there. And so it's not like that anywhere else in the country, but the idea of residual income and the idea of doing the math and this landlord's making $2 million over the next 12 years for doing something once, that concept is really what resonated of like, I need residual income. I need to go buy assets that combat inflation, that I could put a tenant into that tenant pays a monthly fee and it covers all my operating expenses, covers my debt service, pays down my mortgage and potentially puts a couple bucks in my pocket.
Like that's how real wealth gets built.
Yeah. I mean, I think that the debt payoff is not one of the things that people often think about as much, or it's not like the, maybe the first selling factor, but that's pretty crazy. Like if you get to like a big scale, I mean, you're, you're looking at, I mean, you guys are probably well over hundreds of thousands of dollars or hundreds of thousands of dollars of debt payoff a year, or I'm sorry, a month.
Like it, it, it scales up like crazy. So yeah, it's amazing.
And that's, that's really where the real wealth is built. The wealth is built not in the positive cashflow and you will not see any positive cashflow for probably the first five years that you own a rental property. The real cashflow comes after owning it for five to 10 years and the rents have bumped up by two, three, 4% per year.
And you started paying down principal over that time too. And then you pick your head up, dude, in 10 years and you're looking at how much equity you've built and then the amount of cashflow that comes in, like that's where the real magic happens. So you've got to be patient.
You have to have a long-term vision in this stuff.
Yeah. Yeah. And then, and then hopefully there's some appreciation there as well, which I know we're not necessarily supposed to count on.
But no, that's, that's awesome. So you, you broke that deal. You kind of had the light bulb moment of like, okay, I need to own some of this stuff to get on the other side of this, this equation.
And, and yeah, really, I mean, you would be controlling that $30,000 or whatever you said a month. And that's, you know, that's some, some power, even if, if a lot of it's going to expenses, a lot of it's going to the debt service, you kind of control that $30,000 rent check a month. So what was your next steps after that?
Yeah.
So I couldn't afford, you know, I was a punk 22 year old kid. Right. And so like, I can't afford anything in New York city.
So somebody, I want a better lifestyle anyways. I love visiting New York. She's not a place that I would, I wanted to live.
And so I moved down to Charleston, South Carolina, heard some good things about Charleston. So came down here and started learning, attending courses, paying for the rich dad education stuff and going down that rabbit hole of, you know, back then it was like blogs and things like that, that I was paying attention to and learning from and get ready to jump into real estate. And then all of a sudden, dude, the entire carpet gets swept out on the real estate industry.
Right. The great financial collapse occurs. And, and everybody points the finger at real estate as the reason it was occurring.
So at 22 years old, 23 years old, I wasn't going to be able to raise any money from anybody else. Banks weren't lending to me. So it was, it was a, it was a blessing though, because right when I showed up to the party, everybody's running out the back door saying, run from real estate.
If I hadn't like the timing was actually pretty good though, because as difficult as it was, that was easier to handle than maybe graduating two or three years sooner, going down the real estate rabbit hole, not knowing enough to be an expert or have the wherewithal to not take out a no document loan or to stated income loan and just go and borrow millions of dollars and be completely bankrupt at the age of 25 or something, you know, like, so I'm glad that didn't happen.
And I'm glad I graduated when I did. And as difficult as it was, I learned a lot about creative financing. I learned a lot about how to source off-market deal flow, negotiate deep discounts, you know, bump it up just a little bit, maybe not all the way to retail price, just so I can get it sold faster.
And you know, that, that quick nickel is better than the slow dime kind of a thing and just transact and transact. And then more transactions I did, the more confidence I had, the more people saw me transacting in real estate when nobody else is transacting real estate or making money in real estate. And I'm like, what the hell is going on with this kid?
And then all of a sudden people are like, well, dude, I got 50 grand or I have a hundred grand, or I have 25 grand that I'd love to invest with you into some real estate deals. And, and when you're buying properties for, you know, under $50,000 a door, like you can't loot and they rent for $750 a month. You literally can't lose on stuff like that.
So, so I started building up a portfolio of single family homes, chasing shiny objects. That wasn't good, like in other industries, got back into real estate by 2012. And I just put my head down and started collecting houses.
And then I got into multifamily and then an eight unit building came across my desk, bank owned in 20, I think it was December of 2012. Eight units, I bought it for $32,000. And I put another 50 grand into it, but I was all in for $10,000 a door.
And they were all rented for, you know, anywhere from 500 to $800 a month. It was C-class and it was dealing with drug addicts and shitheads and stuff like that. But at the end of the day, it was like, I understood the idea of efficiency and I understood the idea of going to one property and looking at one foundation and paying one utility bill and paying one tax bill instead of having eight single family homes where I had eight foundations and eight roofs and eight closings and eight loans and eight tax bills.
Like just the efficiencies that came with buying multifamily really resonated with me. And so I was like, this is where I want to be. So I bought another eight unit and then I bought a 12 unit and then I bought a 23 unit and then I bought a 31 unit and then I just kept on scaling up.
And over the course of next three years, I bought about 140 doors and just managed it with me and one other part-time employee.
Tim, circle back to that first aplex. Those numbers are insane and people probably are like, that's a no brainer. I wish those deals would happen now.
But I'm guessing at that time, it wasn't like you had the confidence to continue through, but I'm guessing there probably was also some reservations. And I think it's very common that people feel like they're overpaying or the deals were before, but it's always in hindsight that you'd realize how good the deal was. You know what I mean?
So think about it this way.
Today, yes, oh my gosh, I would have bought the whole planet if I could buy it at $10,000 a door, right? Buy the earth. Here's the difference.
The market back then was not the market today. There was zero money. There was no banks lending on rental properties.
There was no private investors. There were no hard money lenders loaning because they were all out of business. Dude, they all lost everything.
They were all going bankrupt. Literally, there were no buyers for real estate and there were no investors or lenders for real estate. And the decline in values was precipitous from 2008 to 2012.
Values kept on dropping by 20% every single year across some of these markets. And it was like, oh my gosh, you're just going to try to catch a falling knife back then. And it's like, well, eventually you sit back and you don't get emotional over the thing.
You're like, you know what? This looks like a pretty good deal. I can't lose that bad.
But I will say, I sold that I think three or four years later. And dude, the most I got for it was like 100, I think I sold it for 125. So yeah, great.
I was into it for $80,000. I sold it for 125 grand. But I had to own it for four years in this dump of an area and I made $40,000 on it.
So it didn't really, the values didn't really start jumping up until 2018, 2019, 2020, 2021. And then it was like multifamily was on fire. And then it fell off a cliff again in 23, 24, 25 because of interest rates and insurance costs and everything else and bad management.
When you were talking about timing of getting into it, that's the first thing I thought of is like, yeah, you could have started at 2020 or something around there, gotten really aggressive and build a huge portfolio with bridge debt and then face the interest rates changing, which a lot of people couldn't have been done. Yeah. I mean, while we're there, how has this, the change of interest rates and the insurance costs, all that kind of stuff, if that impacted you, your all's portfolio?
Dude, everybody in real estate, everybody in multifamily, everybody in commercial real estate is just taking arrows left and right right now. And for the past three years, they have been. It has been absolutely brutal.
It hasn't been a, just an interest rate. I know everybody points at interest rates. That really was the, maybe the exacerbation of the impetus of like, oh man, like let's pay attention and interest rates are changing and valuations are changing.
But dude, insurance tripled and quadrupled in some markets that I'm in, like in Houston, Texas and in Louisiana. And then even in like the middle of Georgia, these storms that hit the Gulf coast, and then they come over Georgia and they dump and they tear off roofs and stuff like the insurance tripled there. And that's not something that goes away.
That's not like an interest rate that rises and falls. Like insurance just gets more and more expensive. And it adversely impacts the net operating income in a massive way, which impacts the valuation.
Labor costs gone through the roof, right? Supply chain still messed up and all materials and supplies are more expensive. Energy costs are more expensive.
Utility costs are more expensive. But then, you know, what's evaporated more of my net worth and more property value than all of those things combined is bad third-party management. Like just bad management.
People who, and companies where we have a property and it's worth $5 million, $10 million, $60 million, $2 million, doesn't matter. And you put somebody in charge of it to manage your multi-million dollar business. And you only pay them 50 grand a year, 40 grand a year, whatever as a salary.
And you expect them to accurately do that. And even if it's layered with third-party property management, you expect them being their business to do it. And even if you hop on phone calls with them from an asset management perspective, which we do on a weekly basis to make sure the needle's moving forward, guess what, man?
You're getting data that is either inaccurate or it's delayed dramatically, right? Like I wait until the 15th of the month to get the previous month's financials. It's like driving a car, looking at a rear view mirror, right?
Trying to drive forward, looking only backwards. Like how can you accurately and productively manage a rental property if you're always working off of bad data and slow data and not transparent data? Like I can't tell you how many times I've fired third-party management and found hundreds of thousands of dollars of unpaid payables, aged payables, that were never disclosed on the financial reports.
Like, dude, you know if the water bill's not paid, right? Like these are things that aren't just like some vendor contract. And it's across the board all the time, which is one of the impetuses of why we started Smart Management, our property management software and developed that whole thing to expose bad third-party management and to empower good third-party management and to empower owners to take over management in-house.
And so that's been a big part of the past few years of just like, dude, I can't let these layers get in the way of, you know, here's where the revenue is and here's where our ownership team was. And there were, you know, different site level management team, third-party management, regional managers, then the asset management team, my C-level executive team, and then me. It's like, dude, if you are dealing with just chaos in business, you need to eliminate as many of those layers as ownership and leadership needs to get as close to the customer base as possible.
So we got rid of all third-party management and like literally me and my team are on calls with the site level team who's direct then to the tenant base. And so we've built it out all in-house. We've put all new SOPs and metrics and things like that together and put in place and just tightened up and controlled the controllables, right?
So there's a lot of things outside of our control. At the end of the day, man, what can you control? And that will make you feel like less of a victim and more empowered.
Oh, it makes a ton of sense. And I guess maybe we should, in case people don't really understand the way this world works with cap rates, NOI, that kind of stuff. Do you want to give us a quick kind of rundown as to why this is so critical?
Why making sure that your expenses are managed?
Great question. So a lot of realtors, a lot of real estate agents that watch this, right? So when you go through a real estate class, you're taught how to value properties in three different ways.
One is the cost approach to build something. Another is the comparable approach of I have a three-bedroom, two-bath house right here that's 1,500 square feet and the house across the street just sold for $300,000 and it's three-bed, two-bath and 1,600 square feet. So mine's probably worth 280, 290 or whatever, right?
So that's a comparable approach based on other things that have sold. And then the third one is the income approach. This is how businesses are valued and this is how commercial real estate is valued.
So all that matters here is what is the income minus all the operating expenses, taxes, insurance, utilities, maintenance, management and it leaves you with a net operating income, right? This is how much I net at the end of the year. Of this net, your value of that property is a multiple of that.
That's the cap rate valuation. So a cap rate is like, listen, you're netting $60,000 a year on your apartment complex. The going cap rate for apartment buildings in Cleveland, Ohio is a 6% cap rate.
So you take 60,000 divided by 0.6 and it leaves you with a valuation of $1 million. So your property would typically appraise for around $1 million in the commercial world based on the income approach. And so that is what impacts valuation.
So I'll give you an example. On that net income of $60,000, let's say I was able to implement some sort of a valet trash, right? And maybe this is a 10 unit building on a 10 unit apartment complex and I implemented valet trash.
Valet trash is like when they come and they take your trash from your front door and they take it out to the street and they take the garbage cans out. You don't have to deal with any of that. And maybe I can implement valet trash for 15 bucks a month per tenant.
And out of my 10 tenants, I'm going to do some quick math, $15 times 12 months times 10 tenants brings in $1,800 additional income that we didn't have before we had valet trash. And this is an addition to rents. So I bring in $1,800 of additional net income that goes straight to the bottom line.
There's no additional expense. It's just like my maintenance guy who's already there and he just takes it out twice a week or whatever it is. $1,800 of cashflow, that's exciting.
What gets more exciting is at a 6% cap rate, I'm sorry, you divide it by 0.06, not 0.6, divided by 0.06 adds $30,000 to the valuation of that apartment complex. All by just adding a $15 a month additional revenue stream to the property. And so you can see how all of a sudden like little things start compounding in a positive way if you're generating more revenue or able to reduce your expenses.
And the flip side of that coin or the other side of that pendulum is that if expenses go up, it can dramatically, dramatically adversely impact your net income and your valuation. And that's what's happened over the past three years is as interest rates or not interest rates, expenses have increased. Let's say your property taxes go up, your property taxes on a building that size would be like $20,000.
Let's say they increase by 15%. So $20,000 times 1.15 goes up by $3,000. $3,000 a year divided by a 6% cap rate reduces the value by $50,000.
So now you can't sell that apartment building for a million bucks. Now you have to sell that apartment building for 950 grand, all because property taxes bumped up. Just naturally got reassessed every five years and that's what happened.
So imagine what happens if your insurance doubles. Imagine what happens if your utilities increase by 30%. Imagine what happens when labor increases and material cost increases.
Dude, it's like you're getting arrows from every single direction. And all of a sudden these properties go from being worth millions of dollars or like 10 million bucks to all of a sudden it's worth $6 million. And you're like, oh my gosh.
And a big part of what dictates the cap rate is interest rates. So that's why interest rates play a part because usually you want to spread between what your cap rate. A cap rate is also known as like an unleveraged yield.
It's like if I bought this million dollar property with cash, my yield, my net, my return on my investment is, would be 6%. A 6% cap rate. And so if I'm going to go put leverage on it, if I'm going to go get a loan for it, typically the lender, you know, you'd want interest rates.
There's probably a spread of somewhere between one to two percentage points on that. So this is a 6% cap rate when interest rates were 4 or 5%. Today with interest rates being 6%, you're looking at a 7 or 8% cap rate valuation.
So on that same $60,000 of net income at an 8% cap rate valuation, right? Instead of a 6% cap rate valuation brings your value down by 25%, by $250,000. That is why so many, you know, commercial investors are walking around today with like, oh my God, just beaten and bruised because not only are the NOIs, the net incomes lower, but the valuation, it's just every direction, man, we've gotten hit.
And so it's been a pretty tough market for the past three years. But that being said, for somebody who's like new saying, I want nothing to do with multifamily, like when there's blood in the streets, that's the time to buy. That's when the opportunities are.
And there's a lot of jaded and tired and beaten and bruised operators that just want portfolios off their books and they're willing to take a big loss. And it's a great time to be able to step in and buy discounted multifamily properties. And so the other thing is, man, I don't want to ramble too long, but I see the market really turning and being very positive for multifamily for the second half of this decade.
If you take a look at housing statistics, we are 4 million housing units short of supply of what we need in the United States right now. And you've seen flat rents and yeah, well, if it's been so, there's so many housing units short, how come rents are higher? How come valuations or blah, blah, blah, this or that?
Well, there's been a lot of deliveries of new product happening in 2023, 2024 and 2025. These are things, developments, build to rent, you name it, that were acquired and started in 2020, 2021 and 2022. And so then it takes 24 to 36 months to cycle and actually deliver these things.
And so you've seen consistent housing deliveries over the past three years. That stops in 2026. Why?
Because as soon as interest rates started skyrocketing in 22 and 23, these builders started going pencils down and they stopped underwriting deals. They stopped banking land. They stopped taking on the risk because they didn't know what they could sell these.
Most builders don't build to hold, most build to sell. And they are impacted directly based on the federal funds rate. And so their cost of money to build things starts going up and it starts going up substantially, steeper than it's ever been seen since the creation of the Federal Reserve.
And so they're like, I'm not building anything. I'm just going to be, let me sit back, finish what I have in the pipeline, and then we'll watch to see how things play out. And so these builders aren't delivering anything in 26, 27 and 28.
If they started today, the soonest they'd deliver would be end of 28, early 29. And so we need another million housing units a year. So in the next 36 months, we're going to find ourselves 7 million housing units short of what's needed.
On top of that, if they do start building, building costs have skyrocketed. You can't build a single family home for less than $300,000 today. You can't build a multi-family apartment for less than probably $150,000 to $200,000 per door.
And so like anything that's new construction that would be delivered three years from now is going to be luxury or at least up higher end. And that's not where the housing issues are. The housing issues are in affordable housing and there's nothing that can be built for a reasonable price point in order to justify this stuff.
So what you're going to see is a lot of investment into older housing stock, right? The 70s and 80s vintage type stuff that's candidly, dude, it's in a better location than a lot of the newer stuff, right? It's more city center.
It's more urban. It's more walkable. It's more, and you're going to see a lot of that stuff starting to turn and be renovated and not only improved because you can buy that for $50,000 to $80,000 a door in a lot of markets.
I'm not talking like primary downtown New York or anything like that. I'm talking like, you know, first ring suburbs and second ring suburbs and rural areas, tertiary towns, secondary markets. But dude, you can go out and buy, you know, I have an apartment building in Springfield, Illinois that we're trying to sell it for $70,000 a door, right?
You can go and buy that building, have 265 units and it's already renovated and just do a condo conversion and sell the units to the tenant base. They're going to be able to save money on what they're paying in rent on a monthly basis. The city wants to see homeownership and stickiness there.
And you can be able to sell it for $110,000 or $120,000 a door as opposed to $70,000 a door. So like, you're going to see some real big spreads on that front. And you're going to see, even if you don't do that, you're going to see rent growth.
Everything, every analysis, thing that I'm reading and studying right now shows that rents, although they've been flat for the past couple of years, are going to bump back to the standard three to 4% per year rent increases.
Yeah. And that's kind of where that multifamily appreciation happens. It's based on increasing the NOI, right?
Which can be through rent increases over time. And the one point I wanted to make too about what the examples you were giving earlier, but the power good and bad of how the cap rates multiplied is use 10 units, right? I mean, so you're talking about 100, 200, 300, 400 doors.
And so obviously if you take that 10 and multiply it by 40, that number's way bigger. So it can make those little $10, $15 a unit can make a huge difference in rent increases, in rent decreases, and obviously all the other things that we just talked about. So yeah, I've been thinking that timing could be pretty good because it's just like you said, just now and then earlier as well, it's just like when there's mass fear, when there's blood in the streets, that kind of thing is often when it's a good time to get greedy, right?
Like it's usually playing against what the mass psychology is, is when some of the best decisions investing wise are made. And so yeah, it's an interesting time. Let's quickly get into kind of the power of being a real estate professional, investing in a syndication.
So obviously Tim here is an expert at this stuff. He's been doing this for a long time. He has a lot of different doors.
He's seen a lot of different things, a lot of different cycles. And to somebody who has not done any of this, it's going to be a big ask to go take down a 265 unit in Springfield, Illinois, or whatever you said. But there is the ability to invest passively through a syndication.
So can you talk about that a little bit, what that looks like, and then what some of the benefits would be to somebody looking to invest?
Yeah, I think a great question because one of the things that you'll find or that I've seen in my career in real estate is everybody thinks they can become a real estate investor, right? Hey, I grew up in a house, I watch HGTV, I'm a realtor, or I'm in the trades, or I'm... Anything you do, any new industry you get into is a new business you're starting, right?
Just because I go and eat cheeseburgers and drink a beer in a bar doesn't mean I should own a restaurant, right? Doesn't mean I'm qualified to do that. And I see so many people, smart entrepreneurs, get into real estate, and they get their legs taken out, man.
It's where I buy a lot of my deals from. Some of the best deals I've gotten are from Wall Street guys that make millions of dollars a year, and they bought 600 apartments in Georgia, and then guess what? They didn't know how to navigate the Georgia tenant system, right?
They didn't know how to hire a contractor, they didn't know how to hire a third-party property manager, or they did, but they didn't qualify them, they didn't ask them the right questions, they just expected them to do what they were supposed to be doing, and all of a sudden these properties started bleeding, and it took them away from their primary job, took them away from their primary source of income in order to pay attention to this thing over here that's losing money, and then all of a sudden their primary business starts doing worse because they're not paying attention to it, and now they're caught with a situation where they gotta either fire sale the apartments or lose their primary business, and they always choose to fire sale the secondary or the thing that you know less about, and so that happens a lot, a lot, and I'm going to be different. No, you're not, right? Unless you're going to dedicate a full-time effort to whatever you're going to do, and when I say full-time for five years, there's books and studies on this, a 10,000 hour rule, you need to dedicate 10,000 hours to anything to become an expert at that thing, and so 10,000 hours, if you work 40 hours a week, 50 weeks a year, that's 2,000 hours for one year, so 10,000 hours is five years of time, full-time effort in order to become an expert at something, so if you're not willing to do that, I wouldn't suggest dipping your toe in real estate, right? I wouldn't suggest in anything.
I wouldn't dip your toe in the trades businesses or buying a blue collar HVAC company. You need to be all in, and that's the only way that you win in business. Serial entrepreneurs, man, when somebody tells me they're a serial entrepreneur, I'm like, oh, I bet they don't make any money because they're not focused on anything.
I've experienced it myself, so I'm not even making fun of people. I know this because I've dealt with this, right? So anyways, if you're looking to invest in real estate and you want to diversify your portfolio, I do think, and I know a guy who owns a massive, one of the largest financial advisors for individuals in the country.
He has 160 clients and manages $42 billion, average $250 million per person that his clients have with them, and he says they have a cross section of one-fourth, one-fourth, one-fourth, one-fourth of how they allocate their investments. One-fourth is in public equities, stock market. One-fourth is in private equities, privately owned businesses.
One-fourth is in real estate, and then one-fourth is in some sort of dividend or interest bearing accounts. It's good enough for me, right? Pretty simple.
It makes good sense. So if you don't have some exposure to real estate, real estate does pretty well when there's hyperinflation going on, right? Having fixed assets and businesses does pretty well when inflation skyrockets the way that it does and it's going to continue to do.
So you need some sort of exposure to real estate in your investment portfolio, and you can go buy a REIT or something like that through the stock market, but it's going to be minimal returns. What I would say is find a great operator. Find somebody in your local market who's active, who has experience, who knows what the heck they're talking about, who's been around the block a few times, and has some success stories and has some loser stories.
Say, hey, what's the worst case scenario? Tell me about the worst deal you ever did. Tell me about the time you lost money, right?
And have those conversations of how they navigated that. And you can look at investing with them in two different ways. One, you could just lend them money and they can go and flip houses, or they can go and flip small multifamily buildings, or you could be kind of like a debt lender to them where they just pay you a fixed, you know, 6, 8, 10, 12% return on your money.
Predictable. No upside, no downside, just a predictable debt loan that you're making to somebody. And that's a very real and very available opportunity to go and invest.
Now, you want to make sure that you're secured and all that kind of stuff, paperwork's done right, but that's a great way to generate good dividends and good income. That far exceeds what you can get in a money market or a CD. So that's one.
The other option is to invest as a limited partner in a syndication. What this means is, let's say I'm buying an apartment complex for 5 million bucks, and I'm going to go and raise a million dollars of money. I don't need one person to write me a check for a million dollars.
Maybe I'll drop it to $100,000 minimum investment. They write me a check for, and I'll bring in 10 investors at $100,000 a piece. These investors receive what's called a preferred return.
And then they also have equity ownership in the deal, right? So it might be 2% equity ownership for every $100,000 that they bring, but they do have equity ownership. So they share in the depreciation, in the tax benefits, in the equity upside of the deal.
And then there's usually, like we usually do somewhere between an 8% to 10% preferred return. So when there's cash flow in the property, they get the first money that goes back out. So it's preferred to them and they get the first $8,000 that comes in excess cash flow.
If there's no cash flow or not sufficient cash flow, they get paid out whatever we do have. And then the rest would just accrue. And then when there's excess cash flow or when we sell or we refinance, all that gets caught up.
And then after they make their 8% preferred return, then they have their equity split with us. And so whatever their percentage is, let's say they own 5% of this deal for every $100,000 that they brought and we profited by $300,000, they make $15,000 on top of their 8% annualized return. So it's a sweet deal for the investors.
It's a great way for them to participate and be involved in an apartment complex without having to be the expert and go through five years of 10,000 hours of learning experience.
Well, that like to execute successfully, but also just having to spend the time on, like I think some people will definitely not want to be getting calls about clogged toilets and that kind of stuff. If they're investing in like just a single family townhouse or whatever for rental, they don't want to have to deal with that kind of stuff. And so that's also baked in here.
You're basically, there's a deal that's presented to you and you're going to decide if you want to do it or not. So there's two factors here, like you talked about, there's the operator, that's the most important. And then second is the deal itself.
And so it's a good idea to have some knowledge about how this all operates, which you explained it really well, listening to podcasts like this help. There's definitely a good idea to understand how it's going to work. What's the game plan?
What are we going to do here? Are we going to do a value add? Are we going to improve the NOI with the cap rate magic we just talked about?
Basically make the business more profitable to make the property more valuable. And then are we going to refinance and hold ownership, get money back, hold ownership? Are we going to sell and then receive additional profit like you just explained?
But above and beyond all of that, there is the tax benefits, which is huge. This could be almost considered like a real estate 401k. If you're a real estate agent, you're going to be doing an accelerated depreciation on these big assets, where instead of most people listening would understand that if you buy a house as a rental, you would typically take the value of the property divided by 27 years and then take that every year as depreciation.
Whereas in this kind of property, they would be looking at an accelerated depreciation schedule where everything, the IRS has this essentially like a value or a year time frame for every little thing in the property. And so you're going to be able to take a lot more at the beginning, a higher amount of depreciation at the beginning, which can result in a pretty nice tax benefit for the investor. So to put that all in plain English, I just like to give an example of something that I've invested in.
It was a mobile home park. I was a limited partner and put in $50,000. And the first year I was able to write off about $66,000 of my taxes.
The second year it was another like 17 or something like that. So obviously that alone is pretty awesome, but it's also been giving me a return. So far the game plan for this one is to eventually do a cash out refinance where I would be kind of made whole and I would be owning a portion of that property going on, a very small portion, but still.
So it can be a really awesome no brainer and something that as a real estate professional, you can kind of offset your earned income, like your commissions with this kind of thing. If you're not a real estate professional, and this is stuff you need to verify with your accountant, I'm not an accountant. This is just kind of what I've learned from talking to people.
If you're not a real estate professional, then you wouldn't be able to take that right off against your earned income. Like if you're a doctor, for example, you wouldn't necessarily be able to write off your doctor wages with this kind of income. So especially real estate agents should be listening to this.
It could be an awesome opportunity for you to try to plug some money into something every year, every other year. And then that stuff, as the money comes back to you, as the plan is executed, if you're selling it or if you're refinancing, you can then reinvest that capital into another project. So it's powerful.
It can be a really good win-win, certainly risk, that you could lose money. That happens as well. And like you said, it's been a tough, tough couple of years for the apartment investor.
Yeah. One of the other things that I'll mention or just add on to that, you did a great job explaining it, is that even if you are not a real estate, let's say you are a wealthy doctor or a wealthy physician or white collar professional, and you do make a lot of money somewhere, even if you are focused on that career, the spouse could become a real estate professional. So what I've seen a lot of my e-commerce buddies do or a lot of my doctor buddies is that their wife doesn't work.
And so the wife becomes the real estate investor and maybe they buy a second home and they rent it out at Airbnb once in a while. And then she has her own LLC and they invest into that LLC. Then that LLC then invests in two different real estate opportunities.
And maybe they own a couple of properties themselves, and then they invest in a couple of different deals, but she becomes a full-time real estate professional. When I say full-time, it's 750 hours per year. So it's only 15 hours per week, but they have to dedicate.
And playing on Zillow and playing on LoopNet and Crexie and walking an open house and driving to Home Depot, that all counts. So it's not hard to meet the hours or listening to a podcast or reading about something. That all counts towards those hours.
But if the spouse is a real estate professional and they're married, filing taxes jointly, the spouse is able to use their passive losses and active losses and active income and all those things. It all goes into the same bucket as active with the physician or white collar professional's income as well. So this is a phenomenal way.
You always have to make disclosures and stuff. I'm not a CPA. Talk to your CPA about it.
But it's a fantastic way that I've seen a lot of people be able to invest in real estate. And if you're making 600 grand a year, 800 grand a year, $1.5 million a year in some traditional white collar role or in your traditional business, and you're just paying taxes on that, dude, that is your biggest expense. You don't need to be focused on making an extra 10% per year on your money.
You need to reduce the 37% that you're paying the taxes on the federal level. That's going to make you and build you way more wealth than anything else that you could be doing. And this is a great way, great strategy to attack that.
And just one more thing on top of that, that I love. You might think that that traditional white collar, whatever doctor, they probably have opportunities to offset their taxes by investing in retirement funds. But you got to wait until retirement to see any of that.
And that's one of the beauties of this. It's kind of, you get the tax benefits, but then you also, you're going to get quarterly dividends likely. I think people might structure that differently, but quarterly dividends, you're going to get whatever in five years, whatever, when the plan is executed, you're going to get money back then that you can use.
So that's one of the things, and this is another option. You can convert a Roth IRA into a self-directed IRA to invest in these kinds of things as well, which is definitely a good opportunity. But one of the problems I've had with some of the plans of doing everything self-directed IRA is that, again, I'm going to have to wait until I retire to really use, I'm building up this great nest egg for then, but I also kind of want to have the ability to be able to buy stuff or do whatever I want with the capital now.
And that's what's the beauty of- Yeah, it's different types of money, right? How patient is your money? And your cash, you probably want to turn that a lot more and be able to transact on that stuff a little bit more.
And by the way, 401ks and IRAs can't take depreciation. So there's probably different types of deals that maybe you just lend and it's like a patient five-year, seven-year, 10-year play. I don't really care because I can't touch it for that long.
So maybe you're going and buying some stock that has way bigger upside long-term, and you don't need that money right now. That's a play for that kind of money. Keep your cash for these heavy depreciation type deals and things like that that can help you offset your active income.
That's a good point. I didn't realize that and thought about the depreciation aspect of the Roth. Hey, I do want to transition this.
I know your time's valuable. This has been awesome so far, so thank you so much. But I do want to ask if you have a golden nugget for our listeners to share.
Oh, man. I would say one of the biggest lessons learned over the past three years is you're going to take arrows. Tough things are going to happen in business.
If you always blame other things, then you're always going to feel like a victim, and you're always going to feel out of control and helpless. You've got to take 100% ownership over your situation and focus on the controllables. Control the controllables.
What are the things you can do to positively impact your property? What are the things you can do to positively impact your operation, your business, your team in order to do better things? We got really creative in finding new ways to generate revenue at our apartment complexes to then offset the increase in expenses.
Insurance increased dramatically. Well, we said, hey, instead of going through a traditional insurance broker, we're going to go and put our own master insurance policy in place. That'll save us probably around 30% on our insurance premiums on an annual basis.
We started doing things at our apartment complex. Utilities started increasing. Well, I did some research, and we found there's a company that remove all the bubbles that come from the water company through the water meter that you're paying for air that's coming through the water line, the water main.
They install this thing on there, and they pull all the bubbles out, so it's just pure water coming through now. You're not paying for those air bubbles, which reduced our water bill by about 15%. Not only that, but then we put aeration back into the apartments to re-bubblize it and to reduce the water flow by tenants by putting low-flow water fixtures, showerheads, faucets, sinks, all that kind of stuff in, toilets, and that reduced it by another 30%.
It's like doing things like this of controlling the controllables. We're actually ahead in our water expenses, then paying less today, even though water prices have gone up in some of the markets that we're in. We're paying less because we did these things.
When you start controlling the controllables, man, it gives you a lot more confidence and a lot more posture when you're attacking the business the way that we've been attacked. You can posture back up against a lot of those things.
I love it. I think that mindset is so fundamental. One of the biggest differentiators between somebody who's going to be successful in life is just taking – I think people are scared of taking ownership because then it's all on them, but I think that's really a liberating thing once you do, like you just said.
You might be out of it now if you just blamed everybody else, but instead, you've taken control of the situation and are moving forward. Now, what about a favorite book, a fundamental book you think everybody should read or just one that you currently are really enjoying? Yeah, man.
A book that has made a big impact on my life that I gift probably more than any other book is called 12 Pillars by Jim Rohn. Jim Rohn is one of the foremost thought leaders of our time. That's where Tony Robbins got all his stuff from.
He's no longer alive. He passed away, I think, in 2010. The guy's a stud and has such a simple understanding of a way of explaining complex things that really resonates with me.
He's got a book called 12 Pillars. It's like 60 pages long. It's so easy of a read.
You'll sit down for one or two sittings and read through the entire thing and you'll sit there with a highlighter because you'll highlight every single chapter. It's really built on how to build a great life and how to design your life and things that you should be focused on, the things that are really important, the skills that you need to learn in order to be successful across all different facets of your life. These are the things that really you should be focused on, the 12 Pillars, if you will.
It's really, really good, really simple, yet super profound.
I love it. I feel like we need another podcast episode just to talk about the other things in life as well with you because I'd be curious to hear more about the family life and all that kind of stuff, health, wealth, family. It's all interconnected, this crazy life we live.
Tim, what about if anybody wants to follow you on social media, reach out to you in other ways? You mentioned a mastermind. Where can people find more about you?
Yeah, just connect with me on social media, @TimBratz. I'm available there, putting out content all the time, trying to help people by just delivering as much value as I possibly can on social media. Just hit me up there, shoot me a message.
Yeah, if you're interested. We don't really have a lot of coaching type stuff anymore. We do have a mastermind that's higher level for people with bigger portfolios.
We work with investors all the time. If you're looking to put some money in play, happy to chat with you or at least direct you in the right place in order to do some of that stuff and just be a resource. I appreciate it, man.
Thanks for having me.
Yeah, Tim. Thanks so much for being on.
Thanks for listening to the REI Agent.
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