In this episode, we welcome Bradley Kirschbaum. He started focusing on the stock market and understanding how it worked. He then realized that real estate was a more attractive investment because it is more stable and has the potential for more cash flow. Instead of hanging on to dollars, Bradley emphasizes the need for people to start investing in assets that will yield better returns in the long run. He also expresses his opinions on the current market conditions and shares why they are interested in holding properties for a decade more.
Bradley’s experience as a naval officer established the bedrock of his capabilities as a Co-Principal of Symphony Capital Group. He’s a former naval aviator with a well-demonstrated history of planning and executing in demanding management positions. Bradley is well versed in creating real-time solutions within complex environments. He embraces the challenge of finding and managing assets that will perform well for Symphony’s investors.
[00:01] – [04:02] Making Money Work For You
- Why Bradley started investing
- Discovering the stable and solid cash flow from real estate
- Their goal to be one of the biggest brands in the industry
[04:03] – [17:08] Navigating the Fast-changing Economy
- There is a lot of opportunity in the market, but things are changing in the blink of an eye
- Issue of supply and demand
- There’s not enough inventory
- Bradley on the Federal Reserve
- People need to own assets
- Even if investors don’t desire the property, the tenants still desire the property
- The advantage of longer asset holds
[17:09] – [19:09] Closing Segment
- Reach out to Bradley!
- Links Below
- Final Words
Tweetable Quotes
“It’s not just about growing some bank account into a certain number you think you need to hit. It’s about being able to cover down and cover your life expenses, your business expenses, and the unexpected next month.” – Bradley Kirschbaum
“Human beings are going to need units. And if there’s more human beings and not an increase in units, that supply-demand issue still favors the investor who’s accumulating real estate.” – Bradley Kirschbaum
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Connect with Bradley! Email him at bradley@symphonycapitalgroup.com and head over to the Symphony Capital Group website.
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
Want to read the full show notes of the episode? Check it out below:
Bradley Kirschbaum [00:00]
Cash flow is important because while people might not pay that premium price for my unit, I’ll still be making money because if a physical or economic asteroid hits the United States, tenants still need somewhere to live. And if the dollar rapidly starts changing up or down, that rent roll is going to reflect where the dollar went, and that cash flow is more important than what price people are paying today for the property so long as we know we can keep paying our expenses, keep paying our debt, and maintain the asset.
Intro [00:29]
Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson [00:41]
Bradley Kirschbaum has been investing since 2012. He’s personally grown to love real estate over the last decade. Right now he’s transitioning to a full-time general partner role after being 10 years as a helicopter pilot. Bradley, welcome to the show.
Bradley Kirschbaum [00:55]
Hey, thanks, Sam. I’m glad we could catch up after meeting at Best Ever Conference.
Sam Wilson [00:59]
Absolutely. Had a blast meeting you then as well. That, of course, is a great conference to go to, for that one, as always, every year. Tell us, 90 seconds or less, where did you start? Where are you now? And how did you get there?
Bradley Kirschbaum [01:10]
2012, I graduated, started making my first real paycheck and immediately knew I wanted to be investing my money so it would work for me. And long story short, I really started focusing on the stock market, started focusing on things that were fairly easy to get into, and got to know equities and understand that side of investing fairly well. And the more I understood it, the more real estate looked attractive to me, that’s really the long of the short of it. You do have to realize that there are a lot of things out of your control when you buy equities, limited amount of stocks have cash flow. And once you look at why you’re investing, and what you’re trying to get out of that, you really have to focus on the fact that it’s not just about growing your nest egg, it’s not just about growing some bank account into a certain number you think you need to hit. It’s about being able to cover down and cover your life expenses, your business expenses, and the unexpected next month. If you can’t do that next month, what does 25 years down the road matter? It really doesn’t. And that’s one of the aspects that I find attractive about real estate is that you can find very solid cash flow or dividends, if you will, from your rental income, which when you look at the different products people invest in, rental income, it’s not a sure thing, but a lot of your customers want to pay that check, right? Compared to buying into an Apple product or the next software product, whatever it is, people know every month, they’re going to be writing that check. And that’s how I start measuring the stability and kind of the risk evaluation of why I’m buying into one product or another. So I’ve got a million analogies and a lot of things to say on that. But when you talk about growing wealth, I like the stability, the scale and the cash flow of real estate.
Sam Wilson [02:51]
You’ve been a limited partner, would you say now for six, seven years? Is that right?
Bradley Kirschbaum [02:55]
I think my first investment as an LP in a real estate investment was seven years ago? Yep.
Sam Wilson [03:02]
What’s your goal long term? Is it to be a general partner, not be a general partner but to have a giant active portfolio? Or is your ultimate goal to be a passive investor?
Bradley Kirschbaum [03:12]
Oh, that’s a good question. Sometimes I question that myself. You know, life ebbs and flows. And some days you want to build the dominating brand of the industry and other days, you’re like, Man, why don’t I just treat myself to you know, sitting back, picking out deals from my laptop and drinking cocktails on the beach, right? But for the next 10 years, I’m dead set and my group Symphony Capital Group, we’re focused on building a brand that’s synonymous with some of the biggest in the industry. And we enjoy and we like getting into the weeds on all of these things. And being an LP is eventually the end goal. And I think, you know, down the road, when I’ve got a little less energy, and I want a little more time to myself, I’ll enjoy looking for great groups and other people to invest with. But for now, I enjoy bringing my capabilities and my understanding of this business and this market to other people and being able to run a business model off of it is just the cherry on top.
Sam Wilson [04:02]
What are you looking at right now on the active side of things? Like where do you guys see opportunity?
Bradley Kirschbaum [04:09]
So there’s a lot going on in the market, a lot of aspects are shifting, all the prices are different than you would have seen two years ago. And in the course of real estate, that’s basically things changing in the blink of an eye, right? We’re not, I’m in favor of a few things. Fundamentally, I’m in favor of anything that has heavy cash flow, because, you know, all returns are really theoretical until they’re in your wallet. And as you receive your cash flow, you’re really taking risk off the table. And of course, as I alluded to, before talking with you, you know, if you’re not getting paid that investment is just a rock and it’s not really doing anything for you. I’m a fan of that. But in some of these hot markets, there’s things that can’t be ignored either. I mean, people are, you know, using this large delta between the previous rent roll or I should say going rent rate of a market that was seen a year or two ago to what people are paying Today, because of the large delta, how quickly that’s changing, you know, syndicators and groups are able to do some, some interesting number manipulation and get into a property and get out of it in just two or three years, and make some serious equity for investors. And I’m not going to ignore that opportunity either. And right now Symphony has seen that throughout Texas in particular, in the DFW Dallas Metropolitan Area.
Sam Wilson [05:23]
We’re seeing that. Obviously, we’re all seeing that, is there any concern that you know, the musical stop, and maybe that same two to three year turnaround that we’ve seen in so many properties, I’ve been a recipient of that myself, it’s been great. But what if the winds shift? Then what do you do?
Bradley Kirschbaum [05:39]
I’m not sure that the window will last, right? This rapid of change would basically annihilate most of the population of the United States. I mean, if we keep having rent increases of 10 to 15%, or greater in the major metros, it’ll very quickly not work, right? There are huge growth in the populations that we’ve been hunting around. So it’s not just about rent growth, it’s about more foot traffic, more individuals needing units, that’s huge and critical. But at the surface level of our underwriting, we’re really ensuring that should the rapid rise stop, whatever number it stops at, we don’t need an increase, right. So we’re we’re buying today, our numbers on a five-year plan worked out with very minimal increase of bottom-line cash flow that the property is currently creating. We don’t really need the markets rise. But that’s a huge cherry on top and enables those very quick transitions in two or three years. You know, being able to do that and get a property off your hands and provide people a substantial return in two or three years, is the icing on the cake. But realistically, we’re prepared for much longer holds. And that’s what we underwrite to being able to condense everything into a quicker timeline is just a bonus when it’s achievable.
Sam Wilson [06:54]
Right. Tell me about your expectations on cap rates. And maybe we’ll compare that to rising interest rates. Do you think there’s a correlation there? I hear this both ways on the show all the time, one’s like No, there’s not. Yes, there is. What’s your take?
Bradley Kirschbaum [07:09]
So I’ve read so many articles and listen to so many people. Ken McElroy is great. I love his data. Neal Bawa has some interesting data. And I’m starting to fall into the camp and I think I’ve been falling into the camp of they’re just simply isn’t enough inventory. And that’s probably a greater factor on cap rates than interest rates have been, even if interest rates go up another 100 dips, they’re starting to trickle up there. And the Fed has finally established that they’re officially raising them this year through a series of events. But even if it jumps back up to two years prior, the current rate two years prior, right, we’ve pushed another $24 trillion into the economy, right? Like that money’s going somewhere that’s spreading out. And that money’s pouring into all different types of assets, including commercial real estate, combine that inflow, which is the simple fact that another 100,000 people moved to Dallas last year. And by the way, how many units were created? I don’t believe it’s even 112 of the amount of foot traffic that came to Dallas, like that’s a huge, huge supply-demand issue. And it’s not going to be alleviated quickly. So there are great fundamentals here at play. And one note that I want to attach to this Federal Reserve conversation, and I think everyone should consider it is that most of the individuals I talked to who are 65 and older, and I’m talking to them, because for some advice, or one or two of the specific people I’m thinking of, they are mentors to our group, more efficiently or so. And they never ever considered the Federal Reserve rate prior to about 2009, right? Like, that was not in their daily conversations. That’s something that we’ve become fixated on. That’s something that’s become powerful. That’s something that’s become a part of public policy. Modern monetary theory has become a dominant conversation and course of action in Washington, DC, but interest rates existed in the 70s. And in the 70s, they were not concerned with where the interest rates were moving. Of course, they cared about what their debt was, of course, they cared about what the rate would be. But the general conversation over what the Federal Reserve’s actions and activities would be for the rest of the year was not being discussed. And why? Because at the end of the day, regardless of what the Federal Reserve does, human beings are going to need units. And if there’s more human beings, and not an increase in units, that supply-demand issue still favors the investor who’s accumulating real estate. If I can add another 30 seconds to this, with a slight shift of gears, it would be that, at the end of the day, even if you are paying a premium and we do not do this, but when I do see teams beat us at best and final and there are individuals that are paying a price per unit that seems absurd, or people wonder how you could ever make money, right? The real key right now, and the fact of the matter is that people need to be getting out of cash and getting into assets. And the only way to create more money than what you currently have today is to own an asset. That is more fundamentally important to your value and your ability to create more money than what price you purchase that. You cannot expect. Let’s say real easy example, if you hang on to dollars, you’re probably going to lose somewhere between five and 10% on that dollar over the next year, at least. If you purchase a piece of real estate, and you pay an extra 5%, more than the next guy, you’ve already, you know, shielded yourself from inflation, because now you own an asset is going to appreciate with whatever that inflation is on your dollar. And the next year, you’re quite simply going to recoup that overpayment, right? It’s there a lot of fundamentals here that people are ignoring. And think it’s just very important to realize how many people and how much cash is really flooding this space right now. And I think that will continue out for the next two or three years.
Sam Wilson [11:05]
Oh, for sure. There’s two different, you know, people, schools of thought, someone, I’m not going to name names right now with a pretty prominent advocate of a potential short window of deflation coming. And I’m like, I just don’t see it. Like, maybe I’m wrong, and they cite some pretty historical stuff. And I’m like, Oh, that’s interesting. But we’ve never printed this much money. So you know, finding things that that you can reprice with inflation, as you’re saying, you know, you buy it today. Okay, so you pay 5% more for it. Can you reprice it with inflation? I hope so. You know, that’s the question that we asked commonly on this show is, at what point in time, can the rent increases? I know you guys aren’t necessarily underwriting, rent rate increases to be critical part of your business plan. But at what point in time, does the end user not the tenant not able to keep up? You know, if they at some point, they just can’t pay anymore. It doesn’t matter what the demand how much they need it, if they just can’t afford it. I don’t know, it’d be an interesting thing to see out shake.
Bradley Kirschbaum [12:06]
This is what’s important too. And I know you have a certain flow to your show, Sam, but I want to throw another 30 seconds in here. Because this point I made to a potential investor the other day really summarizes my train of thought right now in this hot, hot market, right? Let’s imagine an economic asteroid hits the United States, okay, you know what will happen? People probably won’t continue to flood into real estate as investors, a lot of people have to change their decisions, a lot of thought processes will change, a lot of people hit hold. And that’s why the cashflow is important, because while people might not pay that premium price for my unit, I’ll still be making money because if a physical or economic asteroid hits the United States, tenants still need somewhere to live. And if the dollar rapidly starts changing up or down, that rent roll is going to reflect where the dollar went. And that cash flow is more important than what price people are paying today for the property. So long as we know, we can keep paying our expenses, keep paying our debt, and maintain the asset. I can wait 5, 10, 15 years theoretically to outlast whatever is keeping people from wanting to purchase multifamily real estate. And in the meantime, I’ve got that delta I have that cash flow coming in from the tenants who pay us for what is currently something they desire, a place to live for walls and a roof. Even if investors don’t desire the property, the tenants still desire the property. That is what protects you with those short-term hiccups and the potential for something crazy to go down in 2022. I’m not too concerned what happens in the next six or 12 months? I’m concerned with whether or not I could theoretically hold this asset for decades.
Sam Wilson [13:43]
Right, when you guys underwrite, are you underwriting an exit in five to seven years? I mean, because that’s a lot of times what people I think are wanting. That’s just, all right, yeah, we’d like to, you know, double our money in five years if we can. And obviously, it’s all projection, like you said, I think the word you used earlier was, it’s theoretical until you have the money in your wallet. Well, it’s some guy named Bradley on my show, that what you guys are doing is underwriting five to seven years with that asterisk, they and hey, you know what, that’s if, and otherwise, we’re just gonna hold it and collect the coupon along the way if we need to,
Bradley Kirschbaum [14:14]
We are doing it to five years on every property we’ve entered into. And here comes the big caveat, because I find interest in holding for decades. It’s hard to convince investors to continue to hold when you know, today, we could give them to extra money. And we could do it at a very nominal, if any tax liability, right? They’re like, What are you talking about? Give me my money. And then my question always is, what are you going to put that into? And when you’re 2x in something in a couple of years, that’s a substantial change in your portfolio. I mean, that’s great. Whether it’s a large piece or small piece of your portfolio to 2x just naturally makes you want to receive that income and take your gains. But, you know, again, we’re going to be around not just for two to five years. But we as people are going to be around for hopefully another 30, 40, 50 years. And that’s what I’m worried about. And when you go back to what could happen in the environment, I want to keep holding, so the tenants pay down our debt service coverage ratio, because that’s true wealth, doubling up your money, that’s fantastic. You’re getting rich, having an asset that has a larger and larger delta, between, you know, remaining your asset, or needing to be sold. That’s so critical to outlast, seeing those economic events that are eventually going to happen, eventually going to happen as the money makes its way through the economy and other factors come up, there will be issues one day, and I want my delta between covering my expenses, and having been forced to sell the property to get larger and larger so that I sleep better at night. Sure, that means holding off on taking that sweet equity increase that we’re doing through forced appreciation. But that means my cash flow will continue to go up, and my investment will get safer. And when you go back to why am I investing, it’s so that I can be 67,70 years old, with a very stable portfolio with a very stable income. And guess what, waiting that long coincides with paying off that assets, it coincides with making these assets safer. So we are pursuing and I think as time goes on, myself, and the symphony crew will pursue working with more investors who have that long-term vision. And there are interesting things where you could even hand off and kind of sell yourself, your short term flip, if you will, that was a three to five year business plan and sell that to your capital that’s interested in longer hold, you create some efficiencies there becomes less expensive for everyone. But really, we are interested in decade plus holds in the long run, I think that will continue to be more attractive, as the ability to quickly flip becomes harder and more and more difficult.
Sam Wilson [16:50]
Right? Yeah, I love that. And that’s where I’m starting to see that shift in the investor conversations. I’m hearing that more and more people are like, you know, I love the equity multiple, but it’s also really nice, just to have a set it and forget it never have to find. I mean, that’s another problem. I’m sitting on Capitol myself right now. And I talked to at least seven people a week, you know, deal sponsors, I could put, you know, passive income out there, you know, with and it’s like, I’m not even sure where to put it. And I think other people run into that to where they’re like, alright, so much opportunity but what makes sense right now? Where do we as bad to investors want to put money that it makes sense? You double your money, it’s cool, and then they’re back to square one going, okay? Now what I do with this, and again, that’s a good problem to have. It’s a great problem to have. But it’s also just another one of the kinks in that equation where people go, okay, maybe we do hold it for a decade or longer. What does that look like? Can we harvest the equity through refinance and continue to hold the asset? Man, that becomes a very, very attractive thesis. So love you breaking that down. Thanks for doing that with us, Bradley. And thanks for coming on the show today. Certainly appreciate it. Last question for you is this if our listeners want to get in touch with you or learn more about you, what is the best way to do that?
Bradley Kirschbaum [18:00]
bradley@symphonycapitalgroup.com. symphonycapitalgroup.com is obviously our website. I’m very easy to find on social media, right here, this side. There’s the info right there as well for those of you who are watching this, but I’d love to talk to anyone about anything in this industry, both as a GP and an LP I think it’s a great setup and as the syndication industry grows, I think only become a more and more refined situation with more and more people aware of, there is something else out there besides Wall Street to invest in, and a way to do it without needing to put a whole lot of time or effort into it via the traditional methods of investing by yourself in real estate. There is a great and a better way.
Sam Wilson [18:39]
Awesome, Bradley, thanks so much for your time. Do appreciate it.
Bradley Kirschbaum [18:42]
Thanks, Sam.
Sam Wilson [18:43]
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen, if you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening. Thanks so much and hope to catch you on the next episode.
