SHOW NOTES FOR EPISODE 489: CREATING A BILLION DOLLAR REAL ESTATE PORTFOLIO

They do not look rich.  They may even live in a humble tract house in the suburbs and drive a mid-sized car that’s 10 years old. But, underneath it all, they actually have a net worth over one billion dollars because of the properties they own.  In this podcast, commercial broker and author Brent Sprenkle shares stories of how his own clients have created billion dollar commercial real estate portfolios and the secret to how they quietly acquired super wealth one property at a time.

What You Will Learn

• How the average person could grow a billion dollar commercial real estate portfolio
• What are the attributes of an investor that grows a billion dollar portfolio?
• Where is the best place to invest?
• How do people grow their billion dollar portfolio without taking in outside investors?
• Why are there no “overnight” billion dollar investors
• What is the number one attribute all billion dollar real estate investors have?

About Our Guest

Brent Sprenkle

Brent Sprenkle has worked as a commercial real estate broker and investor in Los Angeles for two of the nation’s top firms, Berkadia and Sperry Van Ness, specializing in apartment sales. He brings more than twenty years of experience and expertise in assessing his clients’ real estate portfolios, helping them achieve their objectives of exchange, expansion, consolidation, and disposition. He is also the author of Amazon #1 Best Seller Billion Dollar Portfolio.

Brent has been one of Berkadia’s top ten brokers for the last six years. With more than 350 apartment buildings sold, his sales of commercial properties have exceeded $1.2 billion. He lives in Manhattan Beach, California, with his wife and four children.

More About Brent

• Originally from Philadelphia
• Got a college degree in mechanical engineering
• Moved to the West Coast to work for Hughes in the late 90s to work on Direct TV satellites for 3 years
• He found out he was not a very good engineer – lost his job
• He was wondering what he was going to do next
• A friend of his, who got into real estate at a very early age, encouraged Brent to become a broker
• He said he was smart, cleaver and would figure it out and would make a lot of money too
• And with that money, he could buy some of his own deals
• He had no money, no experience and he took the test for his real estate license and passed
• Got a job with Sperry Van Ness
• The requirements for the job at that time were: Do you have a driver’s license, Do you have a computer?  Can you work for free?

From Engineer to Commercial Broker

• Immediately, started pounding the pavement making cold calls
• He had no idea what he was doing
• Over time, he figured it out
• He’s been doing it for the last 20 years
• He got to know his clients very well
• The stories his clients shared with him were unbelievable
  • A retired dentist that, on Saturdays, would look in the L.A. Times classifieds to see what commercial properties were for sale
    • He would drive around and buy a building here and there
    • He also found out that that same dentist owned 150 apartment buildings
    • When he died, he had still lived in the same 800 sq ft house, on a cul-de-sac in Los Angeles that he had from the beginning
    • He never spent the cash flow, he just reinvested it to buy more properties
    • It was just like he was playing a real life version of Monopoly
  • An Air Quality Control Management employee from India
    • Found out that property managers often got free apartments
    • He became an on-site manager
    • He bought a building from a seller who carried the entire note for
    • He happened to tell his doctor what happened during a check-up and the doctor said he wants to invest with him
    • Brent did a deal with him and when he got his Poof of Funds statement, it showed he was worth $2 billion
  • These are stories of just normal, average people that have done what seems unbelievable but they did it slowly, one deal at a time
  • This prompted him to write his book: Billion Dollar Portfolio.

His Book: Billion Dollar Portfolio

• The book features these “everyday people” who shared their stories
  • Some were very open to share
  • Others were concerned with the liability if tenants found out, for example
  • Out of 20 he called to interview, 17 were interested in participating
  • They shared what they did to get started, what they did wrong, what they could have done more of and their plans for the future
• The people featured in the book never really did anything all that unique
  • They came from multiple occupations, various backgrounds, some from other countries
• They are mostly modest people from humble beginnings
• They were all just consistent, worked incredibly hard, and they had a vision and a goal that they stuck to
• They never took a day off
• They just did it over and over and over again
• There didn’t care if there was a recession, they just kept buying in any season
• Some of the people are in their 60s and probably started buying in their 30s
• They started with smaller buildings and just built their way up to larger and larger properties
• Some people did the same in 10 years
• Some brought in institutional funds, brought in investors to scale their business much faster
• The ones that really impressed him the most were the ones who bought with just their own money or with a few family members
• Some would bring in an acquisition person because the scale was so large they couldn’t do everything
• Some started very small but as they got larger that started their own REITS

Becoming the Billionaire Next Door

• Some are well-known
  • Bob Hart from TruAmerica started very small and today has over $10 billion in properties
• Others are not
  • A man who moved to the U.S. from Indonesia to become a company’s tax auditor
    • He needed a place to live
    • A friend of his said you should buy a fourplex, live in one of the units and rent the others out
    • He re-financed the fourplex and bought another building and just kept going from there
  • A friend of his graduated from medical school
    • He and a friend bought an apartment in Miami and it  just snowballed from there
    • He never spent a day practicing medicine
  • Most of these people are very humble
    • They don’t drive around in Ferraris
    • Real “meat and potatoes”
• You’re not going to become a billionaire overnight – it takes time to grow
  • It’s a long, slow game
  • If you don’t play by the rules, you could risk going bankrupt
• The people who have amazing success are the people who have a business plan
• It involves…
  • slow growth
  • making good business decisions
  • buying buildings that don’t have a lot of downside risk
  • and just slowly accumulating
• Most people do sell off their smaller properties as they grow into larger assets

Start-up Funds

• Most everyone has to put some “skin in the game,” whether it’s 10% down or 30%
• Average person is putting 30% down
• But in Midwest and the South, where cap rates are higher, go can get 75-80% Freddie Mac loans
• Whether it’s your money or from friends and family, you are going to have to come up with a down payment
• You can start with a condo, it doesn’t have to be a 30-unit apartment to start, and then go from there
• Donald Sterling, who owned the L.A. Clippers, started with small multis – fourplexes in the San Fernando Valley region of Los Angeles
  • He started small and worked his way up
  • His law practice supplied the income to make these other purchases

Billion Dollar Investors Who Started Later in Life

• He had some clients that didn’t even start until they were in their 60s
• They were retired
• They didn’t want to be bored
• They didn’t like golf
• They didn’t have any other hobbies
• They watched friends who were buying commercial real estate and they said, “I would like to do this, too!”
• Some had a…
  • vacation house they weren’t using so they sold it to get started that way
  • A 401K
  • Took out a HELOC
• They made a few small purchases, were comfortable with it, and decided to keep going
• It may take a while to grow it but you have more time to spend on it than someone working full-time

Buying Coastal vs. Nationwide

• 75% of Brent’s clients are located on the coast
• Buying properties on the coasts is a different business plan
  • You’re not going to get the homerun 6 cap deal, with the 75% loan, that makes a screaming return right away
  • You’re going to buy something at a lower cap rate that has long term growth
  • Rent control is outrageous and getting worse over the next few years
  • Many of his clients are moving to red states – Texas, Florida, etc. where they don’t have the legislative restrictions
  • They’re also investing in office and industrial
  • These other areas have higher cap rates that support higher leverage loans
  • In California, you’re going to have put 40% down to buy a building
  • You can buy apartment buildings in other states at higher cap rates where you can get incredible cash flow
    • They may not have much rent growth and appreciation
    • But if you buy a deal at a 7 cap and are getting 75% financing at 3% fixed interest for a period of time, appreciation may not be that big of a deal
    • 20-25% of his clients are now buying out of state
      • David, a client mentioned in his book, has switched his entire business plan to Florida
        • A friend of his moved there and now they’re building condos and apartments
        • He feels a red state is the way to go for tax purposes, legislative issues, etc.
        • He’s going to keep most of his holdings in California because they make so much money, and he has a business plan is set-up there, he has the scale and the crew
        • Moving forward, though, he’s going to switch to other states – California, Nevada, Texas, any place that fits their business plan
        • They are moving away from places like California, Oregon and Washington, where legislative issues (rent control, restrictions on zoning, etc.) will hamper their efforts
        • Unfortunately, the competition in these red states like Texas will get more and more competitive, thus driving down cap rates by paying over the asking price
          • Austin is very hot with Tesla and other major California and coastal companies moving there
          • Cap rates are getting more and more like California
  • 90% of the people he deals with are private capital (normal average individuals who just happen to own commercial real estate).  They’re not pension funds, REITs, nor publicly traded companies – just mom and pop human beings

As An Investor

• Brent also likes to buy apartment buildings on the side
• It’s been a long game
• There’s only so much money to go around
• He tries to be selective on what he buys
• But that was also one of the inspirations for his book
  • He started making excuses for why he didn’t want to buy more buildings:
    • It’s too expensive
    • It’s been 8 years
    • And the economy should be ready to crash
  • At the same time, he kept watching his clients keep buying
    • They weren’t making excuses
    • They kept finding ways to buy
    • And they kept finding great deals, even at the top of the market
    • And he would ask them, “How did you get such a great deal?”
      • And they would say, “You have to write a lot of offers to get a home run.”
        • It’s like fishing.  You have to cast that rod a million times to get the really big fish
    • They are tenacious
      • They just keep chasing deals, writing offers until they got a homerun
    • In ANY market at ANY GIVEN TIME, there are homeruns to he had
• The most successful people practice consistency
  • Everyday, they…
    • Look to see what’s for sale
    • Make phone calls to brokers
    • They’re following up on something they looked at, submitted an offer or took a tour of
  • Maybe, on one year, they buy nothing but the following year, they buy 10 deals
    • It’s not that they worked hard in the year they bought 10 deals
    • It’s just that in that year their business model works for all those 10 deals
  • They never let up on the gas, you must stick to your criteria/requirements and always keep trying
    • Keep underwriting properties
    • Keep looking
    • Keep touring properties
    • Keep making offers
    • And keep talking to brokers
    • The second they let up on the gas, they’re out of the race and you’re not going to buy anything
    • If you keep trying, you’ll always have success

Clustering Properties

• Bob Hart shared this concept with Brent
• Bob’s company buys on a national basis
• Let’s say they’re interested in Dallas, Texas
  • They’re not going to go to Dallas and just buy one building
  • They’re going to buy 5 buildings in Dallas
    • That way, when they fly to Dallas, they’ll see all 5 of their buildings in one day
      • Meet with all the property managers
      • Find out what’s going on in the market
      • Maybe see a few potential buildings in the area they’re interested in
      • Go right back to the airport and fly back home
• “Clustering properties” is buying a number of buildings in an area to get economies of scale in a certain area that is not in your own backyard
• It’s a way to develop better operations, economies of scale and you also get better reach
  • When you own 5 buildings in an area, the local brokers know who you are
  • They know you’re looking for properties in that area
  • When something is getting ready to go on the market, the local broker makes their first calls to those types of clients
  • If you only own one building in that area, you haven’t done anything in a while, the broker has already forgotten about you
  • And getting access to new deals is the lifeline of this business

To Syndicate or Not to Syndicate

• Active, expanding buyers will eventually run out of money
• There are always other multiple means to obtain money when you already have a large portfolio
• But if you want to buy more buildings, you are always going to have to bring in more investors – whether it’s through syndication or by bringing in one high net worth individual
• At some time, you may want to do that
• But there are also people who only want to own their own buildings
  • There is  a certain piece of mind that comes with not having to have someone to report to
  • Being able to take a vacation, without having to return the calls of angry investors who did not get their distribution check that month
  • Unfortunately, syndication may be required if you want to continue acquiring more properties faster and that’s what most people have to do
  • Or they may take in pension funds or other forms of equity
  • However, Brent does have clients that own hundreds of buildings and don’t have a single investor.  They just did it over a longer period of time
    • They usually had a good job, though, that brings in the cash they need for the down payments for those properties to further fuel the growth of their portfolio

Biggest Mistake(s)

• Most people look back and say, “I didn’t buy enough buildings or didn’t buy consistently.”
• Once you buy the buildings and, if you didn’t do something crazy in the financing, you can usually find a way to make the deal work out
• The people who have the biggest regrets, are usually the ones who just had missed opportunities
• For the last six months, he has been hearing from clients that are not buying because of Covid
  • All that has done is drive the competition away
  • Interest rates are down
  • Those who are buying have found amazing deals over the last 6 months
  • Yes, there have been operational issues like vacancies and tenants incapable of paying rent but those will go away and what will you have?  A building you bought at a great price with incredible financing!
• Or, there are those who regretted not buying because they were being too conservative or were too concerned about the future.

Biggest Success(es)

• The most successful people have a good idea of what a good deal is and if the property met their criteria, they would buy it
• They weren’t looking for homeruns (but if they found it, they would buy it) but they were also happy hitting just singles and doubles
• They grew their business long term by consistently hitting singles and doubles
• The people who are only looking for home runs, never end up buying anything

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• One of Brent’s clients told him the greatest thing about real estate is that you can work as hard as you want to
• You can work an hour a day, once a day
• You could work 12 hours a day, 7 days a week
• Regardless of how much you work it, you can be incredibly successful
• If it doesn’t feel like a hobby, then it’s probably not for you anyway
• It needs to feel like something you want to do long-term
• The people who have done amazingly well at real estate investing are the people who have a passion for it
• They enjoy it
• It’s not a job
• Buying commercial real estate should feel like playing Monopoly
• The people that feel that way do the best

Current Business

• He’ll continue being a broker and buying apartment buildings
• It has been financially rewarding
• It has been challenging as well
• He personally is looking forward to transitioning into being a full-time principal
• It could be 3 years.  It could be 5
• A client told him that you’ll know when it feels natural to make that transition
• Buying properties in Los Angeles at this time is not the best but when things change, he’ll be more motivated

How to Connect With Good Brokers

• Look at sales comps in the area you want to buy and see who the broker was handling the deal
• Look at the listings and find out who is selling the properties you would want to buy
• Call the brokers to establish a relationship
• Take them to coffee or take them to lunch
• Try to do something that will make them remember you for when I deal shows up
• Go for the signals and double hits – those deals are always there on the internet
• Make offers
• Be patient
• Cast a wide net to get a decent bite

Rap-It-Up

• Favorite business book: Dale Carnegie books
• Most valuable web site for success (other than your own): MLS, Co-Star, Loopnet – where the deals are
• Favorite app: Loopnet, MLS, Redfin

How to Reach Brent

• Email: SprenkleApartments@gmail.com
• Phone: 310-621-8221

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