Do you want to know how to use inflation to your advantage? Many people are talking about inflation and how it affects their everyday lives. In Bronson's free report on his website and in this episode, Bronson Hill sheds some light on the subject and gives you the information you need to make informed decisions about your finances. You will learn what cash-flowing assets to invest in so that you can generate returns greater than inflation. This is an important decision for anyone who wants to protect their purchasing power now and in the future. Listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Invest in Cash-Flowing Assets and Use Inflation to Your Advantage
• A Value-Add Opportunity
• When You Use Inflation to Your Advantage, You Get Two Types of Appreciation
• The Wealth Effect
• You Can Help People When You Use Inflation to Your Advantage
• Modest Projections
• There’s Incredible Volatility When You Use Inflation to Your Advantage
• How to Reach Bronson Hill

Invest in Cash-Flowing Assets and Use Inflation to Your Advantage

Darin: Bronson Hill lives in California. He invests in Florida, Atlanta, and Alabama. He's a big believer in investing in cash-flowing assets that will generate returns in excess of inflation. He left a high-paying medical sales job to go full-time in the investing world, and he's so glad he did.

Just a little bit about how we know each other. This is our first time talking, but I know of Bronson through social media, and I'm excited to get him on here. He's doing great stuff. With that, can you share with the listeners how many properties and how many units you're invested in?

Bronson: We just sold multifamily yesterday. We've got nine properties, and it's right around 2,000 units total.

Darin: What markets do you focus on?

Bronson: We're a value-add multifamily, mostly in Jacksonville, Florida. We love that market just because the growth is happening. We're seeing some huge upside as far as population growth and rents and other things. We also have about 500 units in Atlanta, and then we have a property in Huntsville, Alabama. It's about 300 units.

Darin: You live in sunny LA, so why don't you invest in California? You're flying all the way across the coast.

Bronson: I do it just because I want to get the mileage. I just want to be upgraded and all and I wish that were the case. No, it's funny, people ask, "You don't own anything." I literally don't own the house I live in California, and we have over 2,000 units.

Invest Where the Numbers Make Sense

Bronson: People say, "Why do you do that?" There's this saying, live where you want and invest where the numbers make sense. Since COVID, I've had a lot of questions about, "Why do you live in California?" Because it's like the common sense way of doing everything. It’s just like we just find the exact opposite. All the California neighbors look at each other and say, "This is a really good idea," and I'm like, "No, it's not a good idea."

But anyway, I live here and there are some reasons for that, which is another topic. We have about 1,500 units just in Jacksonville, so I spend a bit of time out there and some partners. We do a lot of work out there. I just love that market a lot. Eventually, maybe one day we'll move, so we'll see.

Darin: You probably have heard, I look for landlord-friendly states, states that are growing population, and growing income. Jacksonville definitely fits in that category. Atlanta definitely fits in that category. I like Tennessee, Arizona, and Texas. So I live in Texas. It's been going like gangbusters. But it's tough when you're in California or New York and you have tenants and they stop paying. It's difficult to get them out. For the listener who has not had that problem before, that's why you want to be in landlord-friendly states. You have laws that benefit the landlord versus the tenant.

Bronson: Basically, you just take the opposite of California's policies like rent control, no landlord rights. They extended the eviction moratorium in the City of Los Angeles. I live in Pasadena, which is nearby, but the City of LA, it's extended now to June of 2023.

Why Invest in the Southeast

Bronson: There's really nothing you can do to get people out of your house or anything. UCLA recently did a study. They found that about 50% of tenants in the City of LA have stopped paying rent. Can you imagine? At this point, as far as I understand it, there's no more state relief, and there's no more local relief for landlords. Again, it's very difficult versus I think it's either Alabama or Arkansas, if somebody stops paying, you can get them out in three days.

Darin: Four apparently.

Bronson: There's a very short one. I don't know if that's right. You want to work with anybody you can. But it's just this idea of waiting months and months or having no recourse to get people out and you're still having to pay for everything. I do invest for a lot of reasons in the southeast and the Sun Belt. Those are a couple of reasons why.

Darin: I checked your website, and saw that you've got a free ebook that people can download. I think it's extremely pertinent to what's going on in the market right now. There's huge inflation. Talk about that ebook and what that's all about.

Bronson: The ebook is at bronsonequity.com and it's about how to use inflation to your advantage. It's 50-plus color pages. It basically just tries to give strategies instead of you going to the pump and saying, "Everything just costs more." Or buying food at the store, just being hit by the negative parts of inflation. There's a way you actually can be on the other side of that. Where you're not only weathering it but you're thriving through inflation.

Understand What Inflation Is For You to Use Inflation to Your Advantage

Bronson: So debt such as real estate debt, having an interest rate of 3% or even 8%, I personally think inflation is somewhere around 15 or 18%. If you look at a website called Shadow Stats, they say that if you use actual information, actual data, that's what inflation really is right now. But the federal government likes to have this fudged number about this called the CPI where they make it what they want it to make.

But again, if you're taking real estate, you're using debt to buy these assets, and the debt is at a lower rate than what inflation is. You're buying the asset which you know will be worth more in the future because they're going to keep creating more currency. It's just almost inevitable, so it'd be worth more in the future. You get to pay it off in future dollars that are worth less.

There are so many advantages. Again, if a property goes up by 20% and you only put 20% down, you haven't increased by 20%, you've actually doubled your equity. That's really the magic of a high inflation time. It’s getting into as many assets as you can, particularly real estate or multifamily real estate.

Darin: To simplify that for the investors, if you're in a fixed debt, you've locked in your debt service costs. Like you said, whether it's a 3% rate or an 8% rate that is fixed throughout the term of the loan. But then if there's massive inflation, whether it's the CPI at 8, 9% or you mentioned Shadow Stats at 15, 18%.

True Wage Inflation

Darin: If there's true wage inflation, then tenants should be able to pay higher rents as time goes on. That top line is going to continue to increase at the property, yet your debt service costs are going to remain constant. That's if you have fixed debt. So that gap is what is the inflation hedge that you're referring to in that book?

Bronson: Exactly. It's really an arbitrage. Another way to take advantage of this is, about a year ago, I found something called a personal line of credit. It’s basically a bank saying, "We're going to loan you money." It's like a HELOC, or home equity line of credit, but it doesn't come out of your equity. So it's just simply somebody saying, "I'm going to loan you money believing you're going to pay it back." I got terms of 2.75 interest rate, so a very low-interest rate fixed for 10 years.

It was an interest only for the first two years. I'm basically getting almost free money to borrow because I know I can get probably around 15 or 20% per year in my investments. It's basically an arbitrage. You're borrowing at a cheaper rate to go get a higher return on investment that you feel secure about. I'm not giving you any specific advice. Those are strategies that a lot of wealthy people use because they're able to use them to their advantage.

Darin: There are a lot of people that have the thought process, and it's what you're comfortable with. This is not purely advice, this is talking about different options. There are some people that just have peace of mind that they just want to pay down their mortgage.

Use Inflation to Your Advantage by Assessing Your Risk Tolerance

Darin: Say you have a $500,000 house. If you pay down the mortgage, if there's appreciation in that house, you're getting appreciation on that 500,000. But if you were to take out a home equity line and then put that into another deal. Then now you have two assets that could be potentially appreciating. Some people are comfortable with that and some people are not.

Bronson: It comes down to your own tolerance of risk or just how certain you feel your investments are. You heard about the stories in 2008 or 2009 where people lost everything. It's because they had too much leverage. There were adjustable-rate mortgages, and they had too many things going on. Then everything turned all at the same time and they didn't have the liquidity to cover that.

But if you're talking fixed long term, if I know I can get a higher return and that's more of a fixed rate or there's much more certainty in. If it doesn't go well, am I able to cover that? So you want to make sure you're wise in how you approach it. But these are strategies a lot of people use them. You see it even in businesses.

When a business will buy another business as a private equity or a buyout, a lot of times, they'll finance a lot of the costs or they'll try to find a way to finance it. It's a way that they can basically say, "We're buying at a lower rate. Or we're getting money at a lower rate to go buy something that we see at a much higher return." It's really a value-add type of thing.

A Value-Add Opportunity

Bronson: You're taking money and you're finding a way to basically find a higher return on it.

Darin: Like you said, buying other businesses, they do the same exact thing. They're looking at, "Okay, I can borrow at this rate, but it's a value-add opportunity. If we come in there, we think we can increase the profitability of that company that much more and we can get that spread."

Now talk about the difference between fixed financing versus floating. I know a lot of syndicators in the last two, or three years have been predominantly bridge financing, so floating 3-1-1 type of structure, floating rate debt, three years with two one-year extensions. What's your take on floating versus fixed? The people that were paying higher were fixed, they look like heroes now. But last year and beginning of this year, people were like, "Why aren't you taking the cheap floating rate debt?"

Bronson: It's really challenging. There are two sides to this. Anybody in large multifamily real estate, do you take to fix or do you do bridge floating? About 85, 90% of the large debt out there is bridge debt. It is more than two, or three years with maybe some extensions built in.

We've done a lot of that and we've also done a lot of fixed stuff. But the challenge with the fixed stuff is that if you sell it in less than five years or you refinance in less than five years, often there's a huge prepayment penalty. We've paid millions of dollars in prepayment penalties for having a fixed rate that we ended up selling early.

Where It Gets Challenging in Multifamily

Bronson: This is where it's getting really challenging in multifamily, finding a deal that makes sense with debt that makes sense. The thing that's really changed is, obviously, the interest rates have come up, but also the interest rate caps. So the insurance you're paying to have a cap on your floating rate, most deals now make you buy those. You can be paying a million dollars a year for those cap rates just to cap how high that will go.

There are some issues. We had some that are lower and we've had the caps that we bought a while ago, so they're doing fine. Some of the rates or the costs of those have come up. I’ve felt in general it's still a great time to buy the right multifamily deal. I personally like B and C classes with a strong value add. If you have a brand new apartment, first of all, you're getting premium rents. Where I live in Pasadena, California, two-bedroom apartments in a nice area are going for 4,200 a month. This is a nice part of Pasadena.

But in a recession, they're not going to get 4,200 a month. So I look at that as more of class A. They're not brand new but they're in the best part of town, they're really high-end. Above some shopping center kind of thing, and they're really nice. If there's a recession, they might end up getting 3,500 or 3,000, which will come down, versus people in B and C class or working class apartments. We know if we can do renovations on these units and we can renovate 80% of the units, we can see sometimes a 50% or greater upside in the rents.

How to Use Inflation to Your Advantage With a Margin of Safety

Bronson: That puts what Warren Buffet calls a margin of safety. The margin of safety is just that if things don't go really well, do we still have some margin there? With Class A, it's harder to find that. Now, people do it and they love it and that's fine. I think you got to do what business model makes sense. There are people who say class A is lower risk, but I personally think class A is a little higher risk for that reason. That's why we focus on it.

We feel like, I'm bringing this around. If we're able to do this value add on our property in Jacksonville with 350 units, we can renovate 80% of those units in the next two years. Because we're increasing the income dramatically, we're increasing the value dramatically by doing that. It's different in single family, which is based on comps. The value of a property is based on what the house across the street or across town sold for.

Multifamily's based on the value of how much income is coming in. If we can increase the income, even if interest rates keep going up, and even if other issues happen with valuations, we still feel like we have a good margin of safety. We're going to be just fine, the deals are going to perform really well.

Darin: Two questions off of that. One is the million-dollar question. If your top line is growing and your debt service is locked in or your debt service is going to be less than your top line, there's still going to be growth in profitability.

Growth and Profitability

Darin: But, is that growth and profitability going to have a bigger impact than the increase in cap rates? Because as interest rates rise, cap rates should rise as well. That negatively impacts the valuation of properties. Now you've got a greater NOI but you've got a higher cap rate, so which one has a bigger impact? I'm not sure that anybody has that crystal ball.

Bronson: You can actually calculate that. What it means is if the value of properties goes down based on how much income they're making, cap rates are going higher. It just means that you're being able to buy and pay less money to get more income. So it's basically reducing the value of properties. If that happens, and we expect that to happen at least in the short run, you can calculate that out.

We feel like we can increase the income of the property by 40, or 50%, which we feel is confident based on knowing what the rents are already in Jacksonville. We feel like they're going to continue to grow because of rent growth and other things that are happening.

But the other side of this that's really interesting that most people don't think about, because I want to play this in reverse a little bit too, is that rates are rising. There's the thought that, oh the Fed's going to raise rates for the next year or two. They're going to go sky-high. We're going to keep going higher and higher. Personally, there's going to be a point where things shift, where one of two things are going to happen.

Use Inflation to Your Advantage At a Time When We Get Into a Big Recession

Bronson: Something in the financial system is going to break. I don't know necessarily if it's going to be in real estate, but something's going to break. Something's not going to be able to handle lending jumping this quickly. Somewhere there's going to be some freeze-up and supply chain or something's going to happen. They're going to say, "Oh my gosh, we just can't handle this."

Or we're going to be in some big recession, and they're going to say, "We just can't keep raising rates like this." I think they're actually going to start reversing the course again. Historically, if you look at it, there's a friend of mine, Jeff Clark, who is a part of goldsilver.com, he does more stuff in the precious metal space. He says, "Typically, the Fed will raise rates from five months to 13 months. The longest they really ever keep raising rates before they lower or they have a lowering of rates is 13 months."

If that's the case, we're already 7, 8, 9 months into it. I think March was the first time they raise rates, so we're in the middle of this. At some point, the momentum will shift, and then what happens, this is the big aha moment for investors. We're going to have a moment where we look back and say, "Remember when rates went really high and everybody was afraid to buy? Well, we should have doubled down and bought more." Because when you buy, two things happen. One is the buying price is fixed, that doesn't change, but the interest rate can be adjusted later.

When the Money Floods Back Into Real Estate

Bronson: What happens if rates go down from 7 or 8%, whatever, they're down to 4, 5%? Then all this money floods back into real estate and people that own stuff, it's now worth a lot more. It's a great plan to buy now if you can just make the cash flow work. There's not as fewer buyers out there, and ownership costs are going up, which I think are also going to drive rents. I personally think it's a great time. People are a little concerned, but I think we'll kick ourselves that we didn't buy more right now.

Darin: That's really interesting because it's true. You can end up buying a deal now, even if you have the prepayment penalty. Let’s talk about if you buy the deal now. Even if you have a higher interest rate, somebody can come in with lower debt with new financing. They can make the deal work at a higher valuation. Or you could potentially refinance into lower-interest-rate debt and pull money out of the deal. Those are two attractive things.

I read an article this morning from BiggerPockets and it was saying exactly just that. "Look, there's never any guarantee. But there are a number of people that are now thinking that in 2023 mortgage interest rates should come down because of one of those scenarios." Now again, we don't know, we'll see. Some syndicators at the beginning of the year say that the Fed's going to raise rates once and be one and done and have to turn around. That obviously was not correct, so who knows?

When You Use Inflation to Your Advantage, You Get Two Types of Appreciation

Darin: I want to get your take on it because you were talking about B, C. A couple of things, one, I want to share with the listeners that Bronson is not guessing when he buys a deal and says he can raise rates because he looks at the properties around the deal he is buying, and he can see these properties are already getting those rents. If I just do the upgrades, I should be able to get the same rent. It's not like he's trying to push rents 50% past where they already are. Would you agree with that?

Bronson: Yes. There are really two types of appreciation in deals. You've got market appreciation, which we've seen in Jacksonville. The market rents have come up 19% in the last 10 months. That's just saying whatever rents are or what they've been, they're just continuing to come up. That is happening in the market. There's a different type of appreciation, and it's called forced appreciation.

It's saying, "I can come into this particular unit of this size because we have 1,500 units in Jacksonville that are within a few miles. Just in that area, we know that the going rate is $1,000, what we're getting. But we know people move, half the people are going to move every year. When people move out, we'll come in and we'll do a renovation and spend $6,000. We know the going rate is $1,550 for that unit. That's why we have confidence going in. Again, that's not even just external.

A Huge Upside

Bronson: Even if we're wrong on that number, even if we're like the rents come down 10 or 20%, we've still got a huge upside. Maybe we raise them by 40%. We just know as long as we can keep renovating units, and keep getting higher rent in an area that's growing, we're going to be just fine. That's why I feel really great about being in that market in particular. Also, buying value-add properties that have the opportunity for forced appreciation.

Darin: A lot of syndicators have shifted from B, C to wanting to get more into the B plus A type assets. One of the arguments for that is that, on a B, C deal, the income qualification typically for a tenant is three to one. You want to have the rent be 30% of their income. On an A property, it's really one out of six, so they have a lot more buffer if there is a downturn. That's their argument. In addition to that, because there's been inflation, some of these A properties, they're raising rents without even having to upgrade the unit on a renewal by 15, 20%. What's your take on those two things?

Bronson: Right now you look at what REITs are doing, and when I look at the class As there are lots of REITs. REITs are real estate investment trusts. What does that mean? That's basically a publicly-traded company that owns hundreds or thousands of many large properties. Typically, they're buying the nicest, newest properties in the best areas. But if you watch the performance of REITs, they really go, "You own it, you own the real estate market." So you're just simply going up when things are going up, and you're going down when things are going down.

A Way to Add Value Is to Use Inflation to Your Advantage

Bronson: What I've realized is you can basically invest in just owning an asset, which is fine. But where people really do exceptionally well is they find a way to add value. You see this in flipping houses. Somebody comes in and they flip a house. They find a house for $300,000, put 50K into it, and they can sell it for 500. They've been able to add value, and they find a market for this because they took something and made it better. So I just think it provides much more of a margin of safety.

I know guys that are doing really big deals where they're raising $100 million a year or raising a lot of money. But the challenge is when you're a really large REIT or some really large influencers that can raise 100 or 200 million per deal, they have too much money. So they only can go after the nicest, newest stuff. I've watched this with syndicators, and as you raise more money, traditionally you're right that people would say class A is safer because it's newer. It has fewer things going on, and different things that are there.

I've just found out that if you have a good team, you have a degree of confidence that you can fulfill the business plan. There are always deals that go wrong and there's underperformance, there are things that happen. But I think, in general, you can find some way to increase value but it's a similar conversation. Do you buy a brand new house and live there, or do you buy something that's a little older and maybe fix it up? I think it depends on your approach.

How People Choose Asset Classes

Bronson: It's interesting how people choose asset classes based on their personality. I've never done any ground-up development. I have friends that only do ground-up development, and they love it. It's the same with class A versus B and C. I've just found that I love B and C. I personally see some risk in class A, but some people feel more comfortable with it. You got to do what you feel comfortable for you.

Darin: I like what you said that in B, C you can find the properties around it that are already achieving the rent. But you guys already have 1,000 units or 1,500 units in that area that you can see your own data and have that additional confidence. So it's not just looking at competitors, it's looking at the performance of your own data as well.

Bronson: Basically it's a repeatable business process. That's where I see deals that get in trouble. I passively invest in things outside of multifamily. Even within multifamily, I passively invest in other deals, but I'll see somebody saying, "We got this great deal. We've got this property manager in this market and they're going to go to this other market two hours away. They're a great property manager, but they're going to go over there. They have no units over there. They're going to go over there, and we're going to do our first one over there. It's going to be awesome."

I've just seen issues with it because they have a repeatable thing with this manager. They've done very well, but in this other area, this property manager, they may not have staff over there.

Giving More Strength to the Team

Bronson: They probably don't have any staff, they don't have maybe local vendor contacts to help do these renovations. I've seen property managers struggle with that. The more repeatable, the more it's like, "Okay, we see this. This is a mile, two miles, five miles away. It's the same team, it's the same construction crew, it's the same property manager. We had this performance over here, we can show case for case how we've done that." That's why people get really comfortable when they say, "Oh okay, this is not your first time doing this."

One of my partners has 28 years of experience in 13,000 units. He'll be able to smell a problem even before it happens. I only have four years of multifamily investing experience. I've been in real estate for years, but I have a partner who's got all this experience. So it just gives more strength to the team that you know you're going to be able to handle the things that are going to come up.

Darin: In today's time, you are bullish. From my experience and the experience talking to other syndicators, there are a lot of passive investors that are part of all these deals that are scared. They're nervous. In this show, the listeners are a mix of passive investors, syndicators looking to scale, and potentially people that are looking to just break into the industry. For the passive investors that are scared now, what do you tell them?

Bronson: We've noticed that. It's getting harder to raise money, and you're having to raise more money for a deal because the loan values has changed. Instead of putting 20% down on a deal or 25%, we're going to put 30, 35%, or more.

How the Margins Are Squeezed

Bronson: There's more money needed closing, and it can be a lot. The margins have gotten squeezed a bit. I would say this to a passive investor, the confused mind will always just say to wait.

It'll just say, "I'm just going to wait and see what happens." Well, I personally think inflation is actually 15 to 18%. If you've got money sitting in the bank, if you wait two years, because it could take two years before things come back to normalcy, you could be losing 35 to 40% of your purchasing power. Now, you still have your money, it just buys a lot less.

I think that's the other side. That's something we really haven't encountered in the last 40 to 50 years. We haven’t really encountered a time like this. Saving was a virtue. Right now, saving is a curse. If you save, you're in trouble. You're going to lose your money just by saving.

Robert Kiyosaki has this thing, and Ray Dalio says it too, savers are losers. If you save, you're actually losing money. Again, my conversation earlier was about putting money into deals that pay you to hold them. There are actually some great deals out there right now, but, not everybody's going to be able to see them.

We’re still doing multifamily deals. We have some things, we have an ATM machine fund, which is something outside of the real estate. It's in real estate, but a fringe thing. We've got a very high-upside oil technology deal we're working on now. We're working on some other things, and we've noticed that investor sentiment has changed.

The Wealth Effect

Bronson: There is also something called the wealth effect. If my stock market portfolio has gone down 30% or if my distributions on my deal, which is happening in some deals, have gone down, I'm a little more scared. I don't know, want to hold more cash. But I do think for people that are willing to get in, I’d rather have very little of my net worth in cash and I'd like to have to have almost all of it in deals. That's not everybody, but that's where I'm at.

Darin: I appreciate you sharing that because I think that's a common thing right now. People don't know what to do, and when people don't know what to do, they typically do nothing. When COVID happened, the stock market dropped dramatically for two weeks. If anybody bought at that low, then it just went up and up and it just never came back down. People kept just waiting like, "It's got to correct."

This year has been another story, the stock market has come down. But that's what happens. You can't see it until after the fact. I like what you said before. You'd rather buy and then look back and be like, "I'm glad I bought," rather than kick yourself for not buying.

Bronson: This is a very different time, going back to the '70s and early '80s. Most of us had never lived or really been investors at this time. Now, one thing that's happened that also changes this. It's really important that you don't just pay attention to real estate. People that were only paying attention to real estate in 2008, and 2009, got in trouble cause they didn't see the picture.

Inflation Reduction Act

Bronson: They didn't see what was happening up here. We talk about the Fed, monetary policy, and all of this. They created 40.9%, 40.9% new currency between February 2020 and February 2022. That's just a literally, "We're just going to give money to everybody, everyone." It wasn't just at the top level, it was in people's bank accounts, and it was all over. You think about that, that's a lot of money.

Now, once we create the money, there is no mechanism that we know of actually to put the money back or to reduce it or anything. Everything is going to cost more. Even these things like the Inflation Reduction Act and these other things, they're all just more spending bills. We're addicted to debt and spending.

The reason I share that is, in the future, all goods and services are going to cost more. Everything is going to cost more. Now, you have to look at debt and you've got to look at how all this stuff works, and whether you can manage it. All this stuff is very important. But in the long run, the more real assets you own, the more valuable that's going to be in dollar terms. That's something I think a lot of people really miss. They don't see that that's actually possible. Anyway, that's something that I just encourage people to really look at.

Darin: You own a lot of units and nine properties. What are some of the learning lessons you've learned by getting into these deals and managing these deals? Any learning lessons that you can share with the listeners?

Certain Set of Values You Need to Use Inflation to Your Advantage

Bronson: One learning lesson I've had is just making sure that you find partners that really share similar values. Not everybody you talk to or meet at an event or even you do a deal with is going to be a great long-term partner. I've had partners that I've worked with, they're all great, and all things and strengths about them. But I've realized I've discovered a certain set of values. I've spoken with 1,300 investors one on one and had a lot of conversations.

I feel like I really understand what it means to be a passive investor because I invest passively. I've spoken with so many people. I really care about having a long-term partnership with investors, clear communication, and really good performance. Both of them are important. You can have a great performance on a deal and poor communication, or vice versa, and it's not a good experience.

Not everybody operates that way. Some operate in a more transparent way, and that's just how I like to work. I found some partners that I love working with and we have similar values. I've had some that we realize we're not the best fit for. That's okay, just we're not always the best fit. I think that's something that you only learn in time. When you're first starting out as a passive investor or you're first starting out as a syndicator, you're excited to get into a deal.

Either as a passive investor, you get stuck in analysis paralysis, which is a trap. It's maybe looking at five deals and actually start to invest with one of them and developing a relationship.

Finding a Great Partner

Bronson: Or as a syndicator, maybe you just get into it, you just find a few, and you try to find a way to get into a deal. Because it's the hardest as a syndicator to go from zero to one. I think just trying to meet a lot of people, going to events, going to meetups, and finding a great partner is really helpful.

Darin: Look, that's very consistent with what I've heard from other syndicators. The bad partnerships that I've heard about have not been, "This guy was not competent." It was more, "Our values didn't align. When there were some question marks on what to do in a certain circumstance, I wanted to handle it this way. They wanted to handle it that way." That impacted how they looked at their next partnership. They really spend a lot of time getting to understand, "Look, do we look at the world the same way?" It seems to be very important to have good partnerships.

Bronson: It really is a values thing, for sure.

Darin: Talk about getting uncomfortable. Getting in your first deal is uncomfortable, and then you move on and do other stuff. The people that I've found that are successful, keep looking for ways to get uncomfortable. Talk about that a little bit.

Bronson: I have a good friend, Robert Helms, with the real estate guys, and he talks about this. You have your comfort zone, things that you know can do, people you enjoy hanging out with, places you enjoy going, and things that you're comfortable with. That's on the inner circle here. The outer circle is the panic zone. It's where you go to a place and you just shut down, you're absolutely panicked.

Use Inflation to Your Advantage and Cross the Growth Zone

Bronson: In between those two is what we call the growth zone. It's out of your comfort zone, it's something that you've maybe never done before. Maybe, it’s a deal you've never done. So maybe you've never been to a certain event. You've never got up to sing karaoke, you've never done a Spartan race, or you've never run a marathon. Then you get in there, and then once you start doing those things.

I'm a big person that's like, "Do the hard thing. Do things that are challenging." I just finished a 13-mile Spartan race and I trained for these races. It's a whole process of how I did that. I also set up an ice bath at my house that just stays cold all the time, so I'm going to start doing that every day.

Just try to do something hard every day because that's where all the growth happens. What happens is you go from your comfort zone, which is smaller. You do something outside of it, and then your comfort zone expands. That's that idea of perpetual growth. I have found in my own life, the biggest growth comes from doing these things that are hard. As we say yes to those things, we have a breakthrough.

I've had breakthroughs in my personal life. I did something really hard for me personally, and I have all sorts of stuff I could share on that. But it led to a breakthrough in my business, where, okay, I started a meet-up in Pasadena, California. That's how I got started in multifamily. Met my first investor there, and raised $100,000. Went to this expensive event on a cruise in 2019 and made a partnership there.

Rocket Ship Moment

Bronson: Together we raised $15 million over the next 18 months. That was huge, I call this, rocket ship moment where I went from, "I'm doing this." But even getting the first deal, was a big deal. Then, getting somewhere where I found a partnership where I'm adding value, was huge. As an approach to life, doing things that are challenging, having goals, and doing something that you said you'd never do. Going through it, it gives you more confidence to be able to do that in other areas.

Darin: I love that because once you do something that you are scared to do, then it gives you the confidence to do something else scary. Somebody told me the definition of courage is taking action when you're scared. Even though you're scared, you still take action, that's courage. It's difficult. But think back, what was your first real estate investment? Was it single family or multifamily?

Bronson: It was single family. I was in my mid-twenties and I bought a house. So I was living in Montana. I had moved there to take a job as a youth pastor, and I bought a house there. Then I ended up keeping it as a rental and just sold it a couple of years ago.

Darin: Was that scary for you? You already bought it, and you were living in it, so it was just a decision as to whether to rent it when you were leaving or to sell it.

Bronson: There was a little bit of fear around that.

Darin: Listeners need to understand that everybody starts with one investment. You talk about your comfort zone and then your growth zone.

You Can Help People When You Use Inflation to Your Advantage

Darin: Then you got your first deal and then you got into multifamily. You couldn't see all the other things that you were going to push yourself to do until you did it. There are listeners that think, "Bronson has 2,000 units, but I'll never do that. I just want to get my first deal." Three years down the road, that person that just got their first deal. They have people in their network that are going to ask them, "How did you do it?" All of a sudden they're going to be helping other people.

Bronson: Doing the hard thing, I never thought I'd be doing this. I had a job and was making over 200K a year doing medical sales. And I was a top performer. I did it for about 10 years. Yet, I wanted to have control over my time. I wanted to do more. As I started to do this, I found a way. Some people think you have to replace your income, but you can also find a way to replace your expenses. They call your rat race number. But it does involve courage, stepping out, and taking chances. But I always think, "If this doesn't go well, what's the worst that could happen?"

Darin: What's the worst thing that can happen? So many people have told me that they've thought that.

Bronson: A lot of times in our minds we're just, "Oh, that'd be terrible." I'm a big mindset guy. A lot of times we feel like, "I would be a failure if this didn't work out.”

Transform Failure Into Learning

Bronson: "If I made a goal or if I told my friends or if I actually did this, then it would mean that I tried and failed, and therefore, I'm a failure." In reality, I understand that because I've totally felt that. But then I thought, "It doesn't have to mean that." Actually, I've really come to a point where you transform any failure into learning, and then you succeed. It's all how you look at it.

I think the mindset piece is so important because I'm going to go do a lot of things this year and I'm going to fail at a lot of things. But yet, I'm going to learn a ton. I'm going to get better next year. We're afraid to try because of the commitment, because of the time. I went to my first Tony Robbins event recently, and he said, "It's in your moments of decision that your destiny is shaped." So it's in your moments of decisions.

When I decided, "This is enough. I'm going to leave my job. I want to be financially free, be able to travel, and be able to do this." It actually changed when I made the decision. Then it actually happened two or three years later. Actually, I think two years later it happened. It's amazing when you actually make a decision. You can actually change your life, but a lot of us, don't think that that's possible.

Darin: There are so many people that are just afraid to try. I have another company that trades loan portfolios between banks, residential, multifamily, and commercial. Don't deal with the end consumers, just between banks.

The Hardest Part of Starting a Business

Darin: I started that company in 2007, and people were like, "What was the hardest part of starting your own business?" I was like, "Signing the lease to the office." They're like, "Why? Was it a big number?"

I'm like, "No." It was exactly what you were just saying. It was once I signed the lease, I was afraid. At that point, I had to tell my family, I had to tell my friends, I had to tell my ex-colleagues, "I'm in business for myself." I'm so thankful that I pushed through and did it. That little moment of decision can stop so many people from going after their dreams and their goals.

Bronson: This is pretty personal, about six years ago, I went through a divorce. I was married for nine years and never saw myself being divorced. It directly relates to what we're talking about because I went through this. Anybody's ever been through a divorce or known somebody who went through a divorce, to the core just cut me in a lot of ways. It really broke me down.

I had to say, "What's my life about? What's important? What do I want when I'm 80 or 90 years old to say, you know what, but what do I want it to look like?" There's this saying, "At the end of your life, you regret more the things you didn't do than the things that you did."

I was turning 40 about that time, and I said, "I would regret if I didn't go 100% and really try this and really go for it. Then really say, 'I'm going to do everything I can to be successful as an entrepreneur and make it in real estate as a syndicator.'"

When You Use Inflation to Your Advantage, You’ll Have No Moments of Regrets

Bronson: Honestly, that was almost about a year and a half ago, and I've had no regrets. I literally had a moment, I was sitting right at this table. Anybody who's in sales or has done 10 years of sales, at this moment where I was imagining the end of the quarter. This was a few months after I left my job. I imagined my boss calling and saying, "Bronson, how's it going? Any more sales coming in?" They always bug you at the end of the month, "What's going on?"

I remember what came out of my mouth while I was just sitting there imagining this in my mind. It was, "Thank God I'm not doing that job anymore." It's funny, we look at the downside, but to have those moments. I'm leaving for my sixth international trip this year. Next year I'm going to Patagonia and Chile. I'm able to do some of these things that really have been a bucket list things for me.

It comes down to somebody being able to dream and being able to say, "You know what? I don't have to do this, but if I don't do this, I know I will regret it one day." You have to treat those things as being incredibly valuable, incredibly precious because the world needs what you have. Whatever your gift is, whatever your passion is, the world needs it.

Darin: The big man upstairs made every one of us unique. There's something inside you. Some people love what they do. They're a W-2 employee and they make a lot of money. They want to potentially passively invest and work with a syndicator and pass their money off.

Knowing When to Pivot

Darin: There are other people that want to do something but they're scared. They just can't get over the edge. Some people left their job and went to do something, whether to start a business or invest or whatever the case may be. Sometimes you have to pivot, and sometimes the first thing that you go after isn't a home run.

But what I've noticed is people don't go back to where they were before, they pivot to something else. Like, "This may not be working, but I see this opportunity over here, and I'm going to pivot and go over here." On the real estate investing side, there was a syndicator that I talked to. He was a software engineer who started to invest in retail, and it was really tough raising the capital. Then he got into multifamily and he hit his stride. He pivoted. Other people start their own businesses. Good job for freaking taking that chance because it's scary, and it worked out for you.

Bronson: It can look different for different people. For passive investors, I see this a lot. "I want to leave my great job as a passive investor, but I've never invested in a deal." It's just getting into that first deal. It doesn't have to be as extreme as, "I'm going to leave this job right now." But you're right, one thing builds on another, and it's all momentum.

Darin: Just being a passive investor, I remember I was scared wiring the money on my first investment. It's not like going in and buying 1,000 shares of Amazon. All of a sudden you got to sign all these documents and then you got to wire the money.

From a Return Perspective, Is It Smart to Use Inflation to Your Advantage?

Darin: The first time I was nervous, like, "Did I just wire the money to never never land?" But then when all of a sudden you start seeing the returns, you're like, "This is pretty darn good." Talk about some of the returns. How have your deals been done and what are the passive investors seeing from a return perspective?

Bronson: Typically, we try to be pretty conservative on our projections where we're looking at 14 to 16% IRR, so that means an average return per year. A five-year deal, usually that's like we're trying to say, "Can we double the equity in five years?" That's like, "If we can do that, we feel pretty good about it. Maybe not quite or close to doubling it in five years." Usually, there's a mix of cash flow and there's appreciation when you sell. Then, usually, you get paid quite a bit when you sell.

We've had several exits. We had one that was about a 26% annualized return over two and a half years. There’s one that was around a 15% return per year. We just sold another one, I haven't seen the total numbers. That one sold yesterday in Atlanta. My guess is that one's going to be in the twenties or up to between 20 and 30% per year. Then we have one that was about a 90% IRR in 10 months.

We bought it in Jacksonville for 27 million, sold it 10 months later and we planned to hold it for six years, but we sold it 10 months later for 37 million. Because we had leveraged that, that was like a 60, 70%, or more investor return.

Modest Projections

Bronson: We actually 1031 everybody into or a lot of the people into a larger deal. Again, I try to tell people, "Make modest projections." But there are some of these that we're going for base hits. But once in a while, we really get a hold of one and you hit a home run. So it happens. You can't count on that every time, but people that are in that deal are pretty excited about it.

Darin: Look, I'm 52. I started investing 47, so four or five years ago. The returns have been phenomenal. I wish I had started in my 20s and 30s. So the returns are 15, 26%, I've seen that. I've talked to so many people, people are getting double your money in 2, 3, 4, or 5 years. Crazy numbers that you don't see in the stock market. The one thing you give up, which is definitely true, is liquidity.

If you invest in the stock market, you can sell at any point in time. It could be down 20% or 30%, but you could sell. In these real estate deals, once you wire the money, you lose control from a passive perspective. It's up to the lead syndicators that they're going to run the deal. They're going to sell the deal or refinance the deal when they think that the moment is right. That's when you get your return.

It could be two years down the road, it could be five years down the road, it could be seven years down the road. You don't have control. But the returns are phenomenal or have been phenomenal. It's not a guarantee, but they have been phenomenal.

Why Buying a House Is Not Passive

Bronson: I've spoken with a lot of investors, and a lot of people, they bought a house or a couple of houses. It's really not passive. You have a single family. It's just really not passive, in my opinion. You can get 20 or 30 of them and then it becomes a job. But when you get started in real estate investing, it does allow you to be able to scale. A lot of people that haven't tried it.

I imagine there's this call that I had with a doctor who's worth five million, we'll ask net worth questions, "What's your net worth?" He'd never invested in real estate before, he'd only done stocks. Those conversations are a little more basic just about how syndication works, and what it is. The guy's invested in 10 syndications, that's a different conversation. We're talking about cap rate inversions and assumptions of other things. But for a lot of people, it's just getting them to be able to actually take action in a deal.

Because for that doctor, if he is able to invest in one or two or three deals, it's almost like a muscle. He understands that "I get into this," and then he starts seeing the cash flow or he starts seeing how it performs. Then he can start to say, "Maybe I could do this with more of my wealth. Maybe I actually could replace my income or most of my income or my expenses by just doing this." It develops this whole other bucket or this whole other pie that you didn't know was there.

Use Inflation to Your Advantage and Make Money While You Sleep

Bronson: That's the thing, I really love helping people turn the light on that. A lot of people just don't see that that's even possible, that you can actually have this. Warren Buffet says, "Unless you learn how to make money while you sleep, you'll work until you die." So a doctor that makes a million plus a year, they're still working for money rather than having the money work for them. A lot of people just don't know how to get money working for them. That's the amazing thing that you and I get to do in your deals and my ideals, we get to help people to experience that.

Darin: I've been in the church where they talk about serving, and I just couldn't get myself to go out and pick up garbage and paint houses. But in these syndications, it's like you get to help all the passive investors grow their wealth. They all have different needs for it. Some people are going to use that for college education, some to buy a car or go on vacation, and some for their retirement. I feel like it's a way to serve and give back.

Bronson: You talk about spiritual principles. There's this parable in the Bible called the parable of the talents that are talking about gold. Basically, this master went away and gave out all this gold to basically have a return on his investment. There were a couple of servants that just invested in it and they found a way to double it. They found a way to find a return on the investment.

Financial Freedom

Bronson: It's the idea of stewardship, that all of us, regardless of our belief system, have a very limited time on earth. So what are we going to do with it? Whether you believe in God or not, it's just that I've got a limited amount of time. What do I want to make this life look like? When you can have financial freedom, I think it opens up the ability to be able to serve and give back and contribute in many more ways.

I have a big cause or a big why, there are 20 to 40 million human slaves today. There's something called modern-day human slavery. A lot of people don't even know this exists, but there are actually more human slaves today than there's ever been in the history of the world. It's in almost every city in the world, even in the US. People don't realize it. About 99% of people that are in this modern-day human slavery are never rescued.

My big why is, I want to generate a lot of resources, but I want to give a lot of it away to this cause. I want to help educate other people. At some point, I may say I want to start my own organization in this cause in this one part of the world. Saying, "No more human trafficking here. No more of whatever this is. We need to stop this." I think having a big why really helps both as an investor, as a syndicator, or just as an individual to say, "It's not just about the money. It's about once you're financially free, you actually can give back to causes you believe in."

When You Make More, You Can Give More

Darin: No, I love that. I had somebody say, "You know what? I don't need anymore." I'm like, "I get that you don't need anymore, but you have the capacity to generate a lot more. You don't have to keep it. Give it away. Be productive because you have the skill set, you have the energy. You're still young enough to go out and do more."

Talk about conferences. People talk about going to conferences, and some people see a lot of value in it. Some people are like, "They just want my money to pay for the ticket to go there." So people that typically I'm interviewing see value in it. But explain to me why going to conferences, networking, and meeting other people is of value.

Bronson: A lot of people do say, "Why would I go to a conference? It's time away, it's money, it's effort." I really feel my life began to change in a very profound way when I started going to conferences, I started going to national events. Whether you're a passive investor or you're wanting somebody who wants to be active or you're both.

The two things that really can change your life in this field or I think just about any field are networking and education. So if it's networking and education, those are the two things, what does that really mean? Well, there's a quote by this guy, Charlie Tremendous Jones. He says, "You'll be the same person five years from now." The story is, he was a motivational speaker and they'd always say, "How are you doing, Charlie?" He said, "Tremendous."

Networking and Education

Bronson: I think Zig Ziglar, somebody talking, he always said tremendous. But he would say, "You'll be the same five years from now except for the books you read and the people that you meet." So, what is that? Well, that's networking and education. Networking is meeting people. I met somebody at a meetup and they said, "I'd invest in one of your deals." I was thinking, "I don't even have a deal."

But because I was the one in the front of the room with 60 people, he said, "I want to invest." So I got coffee with him and that opened up a door. When I met this other syndicator who was really successful, I said, "Can I help you with your money? Can I help on this side, or whatever?" It led to raising 15 million together. It’s very transformational.

For a lot of passive investors, you need to meet other passive investors, you need to meet other sponsors, and you need to be in the room. That will really change who you are. The second thing is you can read books, you can get educational stuff, you go to conferences and you get a lot of information. I'm a little bit of a conference junkie. I probably need to cut back on my conferences. In 2022, I've probably been to 15 to 20 conferences this year.

I'm more on the side of, "Yes, it's really good." But I feel like there's always something serendipitous that happens. There's always a door that opens. So, I go to all of them. I take pictures and put them on social media. They’re like, "You're everywhere." I want to be in a place where I'm meeting new people. I'm learning. I think they're awesome.

There’s Incredible Volatility When You Use Inflation to Your Advantage

Darin: You've done so much already, what's the next big stretch goal for you?

Bronson: I'm a big goals guy, so I got a lot of goals. Next year, in 2023, my goal is to release my first book. I haven't written a book yet, so that's a goal on my list. I'm considering starting at a high-end mastermind just dealing with creating a community around deal flow and working on that. Maybe create some courses and just continue to do more deals.

I love the business, I love doing deals and I love educating people and helping them to get into a place. Just like you were saying, it's very meaningful to help somebody start to experience an investment like this. To me, it's so backward that we've been taught that. I was a registered investment advisor for a couple of years, but we've been taught that traditional investments are stocks and bonds.

They're paper assets, first of all, they're not actually physical things. They have incredible volatility. If something could down a good 50% in the next 12 months, would you want to do it? But that happens all the time in stocks. There are certain stocks, individuals, or even a group, and even indexes. For most people, that's what they stick with, and that's fine, but there are other alternatives.

I'm super passionate about trying to help people to understand how to grow in the main street type of investments is what we call them. Things like your deals or my deals or other people's. Just things not in Wall Street because I think Wall Street is just fundamentally set up to steal from you in a way.

A Way to Get More Wealth With Much Less Risk

Bronson: That sounds really harsh, but I think it's set up to really take advantage of individual people. Even if things don't do well in the market, they're still going to get their fees. They're still going to make their money, they're still going to get even hidden fees. I feel like it's a real cause to say, "Let's all of us continue to reach people and really share the message. That you can get way more wealth and do it with much less risk in things like multifamily or other sorts of assets."

Darin: It's about getting the word out there. For other people that are only in stocks, what's the harm in diversifying and seeing, and then you compare? And you're like, "Holy cow, I'm going to do more of that," like your doctor buddy.

The other thing is liquidity sometimes can help the illiquidity. In COVID, I had passive investors in deals. It was a scary time, like, are people going to pay rent? That may have been a time when a bunch of passive investors would've sold their investments. But they couldn't because they were in the deal and it wasn't a good time to sell.

All of a sudden, a year goes by and then you're cash flow positive, and then the value of the property goes up and you sell and you get a big win. The passive investors are like, "Thank you." Well, some of those passive investors, if they could have sold, may have sold. Sometimes that illiquidity can help you.

A Big Mindset Shift

Darin: If people want to reach out to you and get to know you better, what's the best place for them to do that?

Bronson: I appreciate you having me on. This has been a lot of fun. My website, bronsonequity.com, I got this ebook, and people can download it. It's a great way to get started. We also have our Investor Club, also on social media, LinkedIn, Facebook, so you can reach out. Love to connect with anybody.

Darin: I appreciate you coming on. You shared so many different things, one, being about investing in multifamily. Two, I think there's a big mindset shift that people have to do in order to get into this world, and you talked a lot about that. You had personal experience with that, so I appreciate you sharing that as well. Listeners, until next week, signing off.

How to Reach Bronson Hill

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