#143: The Unfair Advantages of Multifamily Investing
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Welcome back to another episode of the richer geek, today we have Bronson Hill. Bronson is the founder and CEO of Bronson Equity and has raised over $20M for real estate investment. He is a general partner in over $150M worth of real estate around the US.
He is an authority on apartment investing and is continually putting out new content to help educate investors and help them achieve financial freedom.
In this episode, we’re discussing
[2:03] How he started, about his past and what is he doing
[3:48] The multi-family is the natural progression
[5:43] The difference between multi-family and single family
[8:18] Dealing with the compression of cap rates
[10:35] Why multi-family is still a great deal
[13:10] Investing in multi-family
[15:48] Using debt to buy assets that pay you
[17:38] Why wealth is not dollars?
[19:47] How to reduce your taxes?
[24:36] The importance of diversifying your portfolio
Resources from Bronson
+ Read the transcript
Mike Stohler What if you could be doing something smarter with your money that creates income. Now, if you're wanting to get ahead financially, and enjoy greater freedom of choice, if you want a comfortable retirement, and you know you'll have more choices, if you can do more with your money. Now, if you've wondered who else is creating ways to make their money work for them, and you want actionable ideas, with honest pros and cons, and no fluff. Welcome to the Richard geek podcast. Where you here helping people find creative ways to build wealth and financial freedom. I'm Mike Stohler. And in this podcast, you'll hear from others who are already doing these things, and learn how you can too. Hey everybody welcome back to another episode of the richer geek in this episode. We have Bronson Hill. How you doing Bronson?
Bronson Hill
Hey, Mike, really excited to be here. Love talking about alternative assets and becoming a richer geek.
Mike Stohler
There you go. We'll have a little bit of geek we just won't be a Little Richard donut. Right, exactly. So Bronson is the Managing Member of Bronson equity. He's a general partner in 2000 multifamily units worth over $200 million. Well done, well done. And he currently co leads a large inperson multifamily meetup in Pasadena for all of you, California listeners. And we'll talk a little bit about that and how you can find information when the time comes. And he does everything multifamily. And he's going to talk a little bit about inflation, why he still thinks multifamily is the way to go with the reduced cap rates and listening. Looking forward to that. Tell us a little bit about how you started a little bit about your past and what you're doing.
Bronson Hill
Yeah, thanks. Well, excited to be here. Mike. I love talking about these topics. Yeah, so I started years ago, I had a rental house. And I'd had it for years. And it just cash flowed a little bit. But it was another state where I had been working. And my work background, I worked in medical device sales for about 10 years. And so this was basically cool, wearing scrubs going into surgery, working with heart surgeons and physicians on how to sell these certain devices. And I looked around, I was working a lot of hours. And I was making good money, but I just didn't have freedom of time. And I saw a lot of physicians I worked with to add a couple physicians, I knew they were making over $3 million a year, but they were working 70 or 80 hours a week, every week. And I didn't envy what they were doing. And so I thought, well, I want to become try to find a way to become financially free. So I started I do what a lot of people do is I started buying single family houses and do kind of a buy and hold strategy. So I ended up with a small portfolio of single family houses. And it was a lot of work. I'm still getting calls. I just thought when I got to keep doing this is what I know. And I think we start with houses because you know this a lot of us because that's what we know, right? We're familiar with we lived in houses we're very familiar with this is a subconscious thing. That's just what we think we're going to do. And I had a cousin that I didn't, hadn't really talked to in years and I saw him randomly at a family event. I told him my big plan to get 30 houses in Cleveland and retire with you know, quote unquote, passive income. And he said, Well, that sounds like a lot of work. Why don't you do multifamily? And I said, Well, I'd love to but I don't have the money. And he said well you can raise the money and he'd been doing multifamily for 25 years he taught me about syndication said read this book, go to this conference, I did everything. He said I you know, there's kind of a process that went into that. But now four years later, I left my great corporate job about a year and a half ago have raised about 30 million for real estate as well as other sort of alternative assets like ATM machines car washes and other stuff. So it's been it's been really fun.
Mike Stohler
Yeah, well sounds like and it's been this pretty quick turnaround so multifamily. You know, I have it's interesting that well, let me back up a little bit, you know, it's, it's kind of like what I call the HGTV progression. Okay, most people will fix and flips you know, because you can do that and in our in our episode, right and the and everything goes perfect. And then, you know, the single family home it's the natural progression right? And I think everyone that gets into fixin flips and then the single family homes, whether they do rentals or lease options. What's the next step? It's multifamily? It's just the natural progression. Number one are a lot of yours. Are you nationwide or are they in California?
Bronson Hill
So we don't own anything in California. I just think it's pretty tough. We talked about a little before we started this interview, but it's a tough place to do business. It's a tough place to own property. All of our suburbs I'd say most of our stuff is in Jacksonville, Florida. We love that market because the growth we do a lot in Atlanta. We also have some stuff in Huntsville, Alabama. So we've got southeast and again, it's popular Based on growth, job growth, income growth, it's more landlord friendly business friendly people move there because it's warmer all the retirees. So there's all kinds of reasons why we love those areas.
Mike Stohler
Yeah, I grew up calm, you know, three states. Yeah. The land of the free and you know what some, some people are a little more freer than others, depending on where they live. That's true. And you know, and that's what I learned. I don't know how, you know, COVID affected you. And that's what I learned in the hotel space is like, my god, I can't imagine owning a property or owning an asset that I was. My own stick forced me to close it.
Bronson Hill
Yeah, yeah, it's, well, it's funny, I run a large meetup in the Los Angeles area. And so we have about 6070 people that show up every month. And I just I try to encourage people look at out of state, because there's a lot of local opportunities, but I just say no to pretty much everything. But there was something that was like, basically, somebody would give me a property and like seller finance, something that really made sense, I'd consider it but I'm not chasing that stuff, right? I know, like what I want to buy, I know what it looks like, I know what I want to be doing. And it helps you avoid shiny object syndrome, when you have a very laser focus of we do this and this market with this vintage a property with this time horizon. Successful doing it. And that's where a bunch of people that I really admire have done very well, because they're really focused.
Mike Stohler
Yeah, and you know, talk a little bit about that the difference in multifamily of when you get into it, you know, ladies and gentlemen, it is very important to know, what are the state laws regarding landlord tenant rights? And how easy is it for them, for you to evict?
Bronson Hill
Yeah, that's a huge, I'm glad you brought that that's a really big deal. I've got a guy in my men's group at church, and he has a rental in LA and he didn't really use a management company, he kind of did himself and there was some basically the people had forged documents that showed they had great income and they had work and here's a background check. But if we didn't do the background check, is it all this stuff, and so then it being a four or five month eviction process, we're just he couldn't get these people out. And that's that's honestly kind of like a pretty normal thing here. If people know what they're doing, and they know how to work in a system, versus I think it's Alabama's either Alabama, Arkansas, they have a lot of it's like, if somebody stops paying, and they like, I'm not going to pay whatever I think like within, like three days, you can get them out. Now, as a landlord, you want to try to work with people. So it's not like you're just like, hey, they're done. You want to try to keep them in, because it's easier as far as better for them. It's better, less turnover, it's, you know, it's hard on the unit, that kind of thing. So you want to work with people, but it gives you the ability to manage the property how you want. And so when you have all these things in here, and I think the eviction moratorium in the city of LA, I think is still going until June of 23. They might have rolled that back. But like, I mean, that UCLA came out with a study and they found that this sounds just absolutely unbelievable. To me that found like something like 49% of residents in Los Angeles that were renting had stopped paying rent. And this was like, at some point in 2021, or 2022. It was like, it just it was absolutely unbelievable. Like, how is that even possible. And if you're a small landlord, you're dying, because all the all the you know, they were given out some fees and stuff from the state to kind of cover, you know, some of the rent and stuff. But that I mean, when you're in a place that's landlord friendly, and business friendly, and you can do what you want with your property, it is so much easier, it's so much I think it's so much better for everybody. And it actually means housing, when you have things like rent controls and other things, it actually makes housing more scarce. Because people owners don't want to own their just for the reasons you and I said we don't want to own a California, right. So it has the exact opposite effect of what some of these laws, their desire is, which is actually limits housing, which is unfortunate.
Mike Stohler
Yeah, yeah. Okay. Off of that, that kind of good topic, but it's a very good topic. And I always tell people, you know, if you get an assets, you don't just look at properties and things like that. You have to research state laws, and, and is business friendly or not. So let's talk about you know, what you're doing in multifamily. It's interesting, because, I don't know, in Florida, where you're at, you know, the cap rates are coming down, and how are you dealing with that, you know, with the compression of the cap rates, and all the rate the the inflation that's coming up?
Bronson Hill
Yeah, so cap rates, I think I think compression is when they get more compressed. So they have compressed now they're starting to come up a little bit more. So we're seeing cap rates rise a little bit. And but in reality in, in where we're at, in Jacksonville, Florida, we're seeing something like 1000 new people show up every week or more. So it's just there's so much growth still happening in these areas that I think the city is something like 95 or 97% occupied, and so there's just not enough room. So again, if you're buying in Cleveland, Ohio, or another, it's flat or declining and populations can be very differently affected than a place like Jacksonville, Florida. So So we found, I mean, the biggest thing that concern at least at the time recording the second week of January here, the biggest concern we have is just our interest rate caps. So we have, you know, for those that are familiar, you have, you know, fixed long term debt, and about 90% of debt somewhere. 85 90% is used by bridge, you know, two year type of debt with some extensions potentially. And we thought we thought were really smart by getting that and then putting a getting an insurance, which is like an interest rate cap, that limits how high that rate will go and who actually pay if it goes above a certain percentage goes up 5% or 5%. So it is they are paying out. But the insurance part of that is now costing about 20 times as much as it did a year ago. So it's a very interesting time, as you know, right now in multifamily, where it's harder to see the deals that were cash flowing really well, that now some of those debt costs and insurance costs are eating into some of those cash flows. I think personally, and this is I believe we may get to this, but I think it's a great time right now to own a lot of multifamily. And I think there's a couple of reasons for this. I'm explaining this. Right now, Bloomberg came out with an article about a month ago that said that Americans today have $5 trillion in savings and bank accounts, the highest we've ever had in the history, you know, we recorded was 1.2 trillion, which was in 2020. So we have four to five times the amount of cash on the sidelines, it's just sitting there. And then front understandably, right, the confused mind was I don't know what to do, I shouldn't invest, I'm gonna wait. But of course, inflation is a huge risk there, we can talk about that in a little bit. But basically, the, you know, where that's gonna go is basically there's a huge demand for apartment buildings, you know, there's a huge need three, and if we were between three and 8 million apartment units short, as far as pending, what study you look at that we're on a huge shortage of apartments, right, now it's a little hard to get different deals and get them done or contract a loan devalues have kind of gotten a little wonky. So if you can own them, my thought is what's going to happen at some point in the next three 612 months, the Fed is going to start stopping their raises, and they're gonna start lowering rates, and when they start lowering rates, and historically, they've never had more than 13 months from the time of the first raising rates to when they start cutting, I think it might be a little bit longer this time, but not much longer. So they're gonna find a reason to cut. And when they do that, lending is going to stabilize, all these lenders are going to start to lend, the deals are gonna be out there, and then all these investors are gonna say, I'm missing out, they're going to try to get all this money on the sidelines into deals. So I think the valuations are gonna go way up, I think we're gonna see, like, Man, I wish right during this time when things were a little tough. I wish I'd bought a lot more right now. So that's my opinion on why I think multifamily is still a great deal right now, if you can make if you make the numbers work.
Mike Stohler
Yeah, or so are you noticing that your, your loan to value or the bank's saying, hey, it's a little more risky, because my interest rates are at, let's say, 6%? Now, here in Arizona, the cap rates are three, three and a half. So I'm paying more percentage of depth and I am making percentage wise, are they requiring, like more like a 40% 50%?
Bronson Hill
Yeah, yeah, the days of 20% down or 25% down really are gone, at least at this point. You know, it's typically 30 35% 40%, even though it's 50%. Down. And so that really changes your numbers. And, and maybe someone that, you know, we we do deals, we raise money from investors, it's getting harder and a lot of levels, right, because you're having to raise more money now for deals. So the numbers, numbers don't work as well. And investor sentiment is, I don't know, I'm going to wait and wait and see. And so it is getting harder to do deals. But I think the reason I wanted to share that about multifamily is that I think it's important that people like feel good about what they are invested in no matter how it's performing right now. Because if you're in a deal is different than if you're trying to acquire a deal right now. And that it's important that people continue to pay attention and they're continue looking and that they're open to that because when that changes I think it's going to shift pretty quickly. And when that starts shifting if you're if you get in right away versus if you get in a few months down the road that could be a very different entry point.
Mike Stohler
Yeah. And you know, even if there are some say some losses are just some stagnation if you do the tax portion correctly it's still possible and and I hit this with the viewers all the time or you know the listeners about even though you're the LP The limited partner, you get that same tax benefit. So even though you're not it's like hey, you know, I was supposed to get these monthly distributions another done and I'm not seeing a lot of that right now. But you still they're still seeing a lot of tax benefits.
Bronson Hill
Yeah, yeah. And I think and this is some I wanted to mention too, is just that you know, the confused mind a lot of people just like I don't know what to do here. I just speaking with somebody on my podcast yesterday and very smart data person and they were just like, it's you It's kind of a bipolar market, right? Is the economy strong? Is it weak? Well, it's, it's, we have the lowest unemployment we've ever we've ever had in history, it was like 3.2%, it's like keeps going down. And so the Fed is trying to kind of stall the economy trying to kind of slow things down. And yet things are still going well, and so yet, but then other numbers are saying, well, you know, real estate is way down in certain areas, and a lot of single family is down. So a lot of people are just like, I don't know what to do. And so we're in buffet, and I follow Warren Buffett stuff a lot. And it's quotes I love, he talks about be fearful, when others are greedy, and be greedy, when others are fearful. There's a lot of fear right now, people are very afraid, they don't know what to do. And I think, you know, really, there comes a point of inflation, when we look at how inflation is impacting investments, and it's just impacting our lives, right, everything's costing more the store at the pump. And you know, we're on the side, there were a lot of people getting hurt by that, there's a way that you actually can use it to your advantage. And how that is, is using, hopefully using debt to buy assets that pay you to hold them, where you have a hedge there, and you and you're paying out these debts off for these properties or assets with future dollars that are worth less, and you know, these properties are gonna be more valuable, right? So there are things that I think if people are just sitting on the sidelines waiting, if you were to wait, you know, I think inflation is not 7%. And it's more like 15%, when you look at actually the actual costs of things. So if you wait a couple years, which you know, could be a year or two, you could be losing 30, or 40% of your purchasing power. And so I think just being in cash, I'm mostly deployed, I have a little bit of cash, but not a lot. And I'm trying to really find as many deals as I can that make sense. And not just, you know, multiple, I'm looking at other assets and other assets and different things as well. But I think being invested right now, it's great to be invested in and just sitting in cash. I'm not a big fan of that right now.
Mike Stohler
But what I'm saying is, you know, so what you're saying is, don't hold on, don't be fearful during these times. If there's something that someone knowledgeable, like you're, you know, like Bronson equity, if you have some extra cash, it's, I think, a lot safer. If you go ahead and say, hey, look, you know, I'm going to put it into somewhere, instead of keeping it in the market or kidney at an IRA that's not doing anything. And you know, if China sneezes or anyone sneezes, mate, I'm you're just the stress of it going up and down. And one thing about real estate, you may be hurting a little bit right now. But real estate always recovers.
Bronson Hill Yeah, yeah, it's you look at, you know, a lot of times we think of, and this is hard for people to think about. But a lot of times we think of wealth as being dollars, right? Wealth is how many dollars you have. But in reality, you know, the dollar has lost 98% of its value. Since 1930. In the year the Fed was created, so just over 100 years. So it's not that and I do so my daughter, my daughter's 10. And I will look at old pictures that are In and Out Burger in LA and I say, oh, you know, hamburgers are 10 cents. And I say, but we just paid $3 for hamburger. So what does that mean? I don't know. And I said, Well, you know, it's not that, you know, the hamburger cost more, it's just that our dollars are worth less. So finding a way to get out of the dollar. And really, really my friend Chris Martenson talks about this, that wealth is not, you know, dollars or staff or things like this, it really is it's it's it's something productive, right? Like a, like a commodity, you can actually use oil to do something you can use, you know, precious metals have intrinsic value, you know, real estate has it produces cash, productive assets, I think are the best because they have a great inflation hedge and then they pay you to hold that right. So it's not just like I'm holding precious metal, I know that the more money they print, it's gonna be worth more and I do have a lot of in the background, I've got the MSC I've got a bunch of gold, fake gold bars. But, you know, basically, when you hold something that it's like it cashflows you have not only the inflation hedge, but you also the cash flow is hedged as well, right? You know, they can't You can't just create another house or more land or you can't create more stuff. And that's why even with you guys with hotels, I mean, you're you're creating something of value that actually pays you to hold it. I think that's a really great strategy going forward.
Mike Stohler
You talked a little bit about the oil, and the gas. And, you know, I know that there's some things with the federal government that you can actually get into oil and gas and the was like zero tax or, you know, there's something that they actually pay you to hold or get into the oil.
Bronson Hill
Yeah, yeah. So I'm not a tax professional in that giving tax advice, but we are, this is a big area of interest for me, because a lot of professionals and a lot of physicians I used to work with they'd pay, you know, 50% in taxes, the federal rate, the highest federal rate above any foreigner 93,000 Or if you're a married couple 690,000 or something, it's it's 37%. So every dollar above that amounts 37%. And then if you live in a great state like California that has a state income tax, you're paying another 12.2% or something so it's 49.2% Plus, if you have Social Security other things you're paying Around 60% in taxes, which is crazy, but there are investments, there are strategies to be able to reduce taxes through government incentives. So people call them loopholes. I call them incentives because the government intentionally does this because they know they need things like affordable housing and energy and things like this. For most people, they can only use their investment depreciation or losses or things from syndication, like they can only use that toward their investment gains, right. So if you sell a house or something, you can use the depreciation from other investments to kind of cover that. But when it comes to ordinary income, w two or tenant and an income, it's harder to find ways to do it. There are some things in the energy space, there's oil and gas, if people invest directly in oil and gas, a company that does drilling, usually 80% or so of that first year investment is able to be a direct reduction against your income. So if I make 200 a year, and I invest 200k, into a well driller this during drilling, I can basically reduce my taxable basis for that year by about $160,000. So it shows me okay, I only made about 40,000, this year, right? So it's on paper how it looks. So and there's not there's that there's others was one called carbon carbon capture, or there's other ones that are out there, even solar and other types of energy that are government incentives. And I think it's just amazing to look into, because people just look at, well, these are the returns, or these are the risks, but what are the risks, you know, it's a certainty, you're going to pay taxes, if you're a high earner, right? You know, you're gonna be paying such high taxes. So maybe the investment returns 15, or 10, or 20% per year. But what is the taxable benefit to right, you may have a 40% return, when you count of how much you're saving in taxes by looking into this. So this is something we're actually looking into a friend of mine, we're looking into create a zero tax Summit, zero tax investing summit to try to create a one day event to just talk about this and bring in experts, you know, that are CPAs. And also people that have case studies, I know a guy, I have a couple of brothers here in California that sold a business for $5 million, and their taxable Bill was going to be $2.4 million. And they got it down to one point, they got it down to 125,000. And I could talk about how that happened. But they literally this is money they were going to pay, and they reduced it by like 95%, which is incredible. So I think those are stories we need to tell, and people don't talk about that.
Mike Stohler
Well, um, that's That's wonderful. And yeah, definitely let me know when that when that comes up. And if you get it, you know, prior to this show going live, we'll put in the show notes and, and all that. So we kind of hinted on syndication and things like that. So listeners are interested, they're still like, Okay, I want to do some of this stuff. But they don't have the time they don't have the knowledge definitely don't want to be a landlord. How are they getting involved with you?
Bronson Hill
Yeah, so it's a good question. Because a lot of people that we work with, you know, they they don't want to manage, you know, maybe they've had a rental house or had a vacation home. And it just ends up being a lot of work. And I always tell people, if you can't 10x Your current strategy, meaning if you have, you know, one house or five houses, if you can't go to 10 or 50, then you're not really a passive investor, right? You're actually an active investor. And so that's when I talk about passive investing and actually involves you finding and vetting a good team that matches your values, and basically vetting the deal that they're in the market they're in and then you decide to invest. And then what happens is, the name of my podcast is called the mailbox money show. And it basically is all about how do you invest in things that your your workers have, it's not completely passive, not fully passive, but it's more passive, right? So you're doing the looking at deals on the front end, you're meeting and you're networking, you're trying to find that and then when you find a good deal you invest. And so that's kind of generally how that works. Some a couple of the best ways that I look at as really growing as a passive investor is going to local meetups, right. So if you go to a local meetup, we were on one in Los Angeles, and was welcome to join us the first Wednesday of the month, you can meet really interesting people. Another great way is national conferences, you can go there's a lot of multifamily other investing conferences, and it's really you the people, you're going to meet there. And one of the most powerful relationships I've found for somebody who wants to be a passive investor is another passive investor, somebody who has invested in other deals, who has some experience and they're one of the few people that really are unbiased, right? I mean, you and I, we have deals, we do that kind of thing. But obviously, you and I, we both want to make sure we're taking care of people, but I've had an investor has nothing to sell. It's like they're just interested in the relationship. And they're happy often to share information that's like, here's how it worked with this operator. Here's how it worked over here. And it's very, very, it can be very powerful.
Mike Stohler
Yeah, it is. It's, it's so important, ladies, gentlemen, to diversify. You don't want to work your entire life. And then the stock market go down. We're seeing that now. I see a lot of older individuals that are really stressing because they just lost 40% of the retirement and they're not getting any of that back until the stock market goes back up because they're not working And so it's very important to diversify. Get with a general partner or syndicator that knows what they're doing that has experience. And just talk to him. Bronson, how can people talk to you? How can they get a hold of you?
Bronson Hill
Yeah, so the best way I have this guide that I wrote called How to Use inflation to your advantage, it's ebook on my website, you can go to Bronson equity.com, give some of the strategies we talked about here using dad buy assets or other sorts of assets that will, you know, retain value and grow even at a higher rate than inflation. So, yeah, I look forward to, you know, connecting with anybody that wants to talk about real estate. I also go to a lot of live events and I'm on social media a lot. So I appreciate you having me on today, Mike.
Mike Stohler
Absolutely. And again, his his podcast is called the mailbox money show and if you're interested in his multifamily meet up in Pasadena, it's Phoebe, if IV i pasadena.com, Phoebe pasadena.com and bras and I appreciate you coming on today. And hope it stops raining where you're at now.
Bronson Hill
Yeah, they actually stopped reading.
Mike Stohler
Take care.
Thanks for tuning in to the richer geek podcast, where we're helping others find creative ways to build wealth, and financial freedom. For today's show notes, including all the links and resources from our show, and more information about our guests, visit us at www.therichergeek.com/podcast. And don't forget to jump over to Apple podcasts, Google Play Stitcher, or wherever you get your podcasts and hit the subscribe button. Share with others who can benefit from listening and leave a rating and review to get the podcast in front of your eyes. I appreciate you and thanks for listening
ABOUT BRONSON HILL
Bronson Hill is the founder and CEO of Bronson Equity and has raised over $20M for real estate investment. He is a general partner in over $150M worth of real estate around the US.
Bronson is an authority on apartment investing and is continually putting out new content to help educate investors and help them achieve financial freedom. He spent his earlier years as a sales consultant for several large and startup medical device companies.
He has been a guest on many podcasts and has written this report about the best investment strategy during (and after) a pandemic.
You’re probably like most people who are looking for a way to become financially free by investing your hard earned money. You may have tried the stock market and invested in owning rental homes, but these are either very volatile (stocks) or they require a lot of work (rental homes).