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Show Summary
In this conversation, Brian Fine shares his journey as a real estate investor, detailing his transition from flipping houses to building a multifamily rental portfolio and eventually moving into private lending. He discusses the importance of networking, the nuances of different asset classes, and the strategies involved in navigating the lending landscape. Brian emphasizes the significance of understanding market dynamics and tax implications in real estate investing, providing insights into how investors can optimize their portfolios and manage risks effectively.
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Investor Fuel Show Transcript:
Brian Fine (00:00)
It’s the top of the food chain. So the, ⁓ in, of course, COVID was a, was a pretty big impact. had the evening news telling, ⁓ everybody that they didn’t have to pay rent because the eviction courts were closed. So it was fine. so when you go to have from having, ⁓ pretty close to no vacancy to about 35 % overnight in a giant portfolio, that’s going to eat through your, ⁓ reserves very, very quickly. It’s a, it’s a really painful thing to have to deal with. And.On the debt side, we made sure those guys were paid. I never missed a mortgage payment. It hurt, but we did it because that’s what we agreed to do. And so it’s just, it’s a different level of security and it is much more passive in that way. And so as the dollars grow, I’m willing to take a much smaller return, but to make sure that ⁓ there’s a 95 % plus chance that I’m just getting paid.
Dylan Silver (00:35)
Right.Hey folks, welcome back to the show. Today’s guest is in the private lending space and has been involved in real estate across several different deal structures and asset classes from ⁓ multifamily to single family and now is involved in the ⁓ private capital space. Please welcome Brian Fine. Brian, welcome to the show.
Brian Fine (02:51)
Hey, great to be here. Thanks, man.Dylan Silver (02:53)
I always like to start off at the top by asking folks how they got into the real estate space.Brian Fine (02:58)
⁓ I tripped and fell. ⁓ I got fired from, ⁓ laid off from a job on my birthday and ⁓ a couple of weeks later heard a radio ⁓ advertisement saying we can teach you to flip houses. So I wrote a big check and started doing that. That’s pretty much how I got into it.Dylan Silver (03:19)
If I have it correct, you’re in Pittsburgh, right? Did you start out flipping homes in Pittsburgh?Brian Fine (03:22)
Correct.⁓ Yeah, in the suburbs around the city, yes. ⁓
Dylan Silver (03:29)
What ⁓ time frame or what year was this roughly?Brian Fine (03:33)
⁓ twenty thirteenth twenty seventeenDylan Silver (03:37)
A big part of what I like to do on this show is highlight guests’ journeys to really give folks a blueprint if they may be doing something similar. Did you have friends, family, folks who were encouraging you towards real estate at the time? Did you have an understanding of the real estate space prior to that period?Brian Fine (03:58)
No, I didn’t. And the family ⁓ wasn’t supportive. ⁓ I wouldn’t say they were actively against me. ⁓ My mother thought I was a drug dealer for quite a while. I had a lot of free hours and much more cash than made sense for somebody who didn’t have a job. that was a little odd to get used to. And ⁓ ultimately, it was the coaching program that I joined that got me the education and taught me the…ropes. And the first thing they told us to do is network, so I learned quite a bit from other investors in the space. ⁓ That’s what saved me from probably a whole bunch of mistakes.
Dylan Silver (05:24)
I want to ask you because you’ve scaled a successful business and you’ve also been active in other asset classes, single family, then it sounds like multi-family as well. Did you know when you were starting out, when you were getting involved in that course, that there was going to be like a destination for you in lending or was this a natural progression that kind of happened with time?Brian Fine (05:46)
It was kind of natural, happened over time. I ⁓ know a lot of investors, talk about pick a niche and specialize in it. And that’s very true, you should. But I think finding that is going to be more a function of a journey. You’re not going to just magically pick something that is right. And the thing you ultimately get into isn’t necessarily the most profitable thing. It’s what you’re going to enjoy doing, what you can do on repeat.⁓ We’re not working if we do something we love. finding what that is might take you little while.
Dylan Silver (06:21)
The single-family space, there’s a lot that has changed over the years. When you were getting in, it’s a totally different ballgame than where it is now. I think it may be in some ways was the great time to get in when you were getting in. Were you doing a lot of fix and flip? Was that the first years, those deals, was that a lot of fix and flip?Brian Fine (06:41)
Yeah, I didn’t hold anything. I didn’t have the capital to do it. We did buy a few rentals early on. It was a terrible, terrible experience. I bought them wrong, managed them wrong, and sold them at a loss. that my initial, we did all that inside the first two or three years. So that was a kind of burned me on rentals for a couple of years until I got comfortable again and had some of my own capital to…to buy some equity and give us a cushion.
Dylan Silver (07:09)
Whenyou pivoted, sounds like, from fix and flip to multifamily, what was that process like? And was it like a conscious decision, hey, I’m gonna move into multifamily? Or was it, again, a little bit of a natural progression?
Brian Fine (07:23)
It was mostly a function of the market because especially late 2019, early 2020 in my market, there were no single families to buy. Anything you’d find would be way overpriced for an investor. So moving to buy and hold assets just made a lot more sense. And so we moved into that and started creating equity that way. And initially we did it as flips. We would buy a multifamily with the intention of turning it over in the next year or two.And that stopped pretty quick because cash flow and tax benefits were holding them were very significant. And so we learned that pretty quickly.
Dylan Silver (07:57)
Now, multifamily coming from single family, different space, different capital requirements. You can do single family somewhat as a solopreneur. Multifamily is a little bit more challenging. Did you have partners with this? Also, was there ⁓ a learning curve that was involved? How did you get into multifamily? How did you build in multifamily?Brian Fine (08:18)
⁓ We built into multifamily mostly because of ⁓ just availability in the market. It’s not that we wanted to do it. We had heard enough horror stories that we wanted to avoid it. And dollar per dollar, a single family will outperform a multi every day. They have a lower expense ratio, ⁓ lesser management overhead, all that. ⁓ But when it’s all that’s available and you need to do deals to build your business, that’s what you get into.I did have partners when I got into that. ⁓ We have changed our mind over the years of the class of multifamily we’re interested in. And that’s a function of our experience and our markets. So I went from buying ⁓ lower end section eight type assets to now we’re, we kind of naturally gravitated towards the ⁓ class B, not quite class A, but higher end, which have much lower returns.
Dylan Silver (09:06)
Right.Brian Fine (09:16)
but the stability is there. And so it’s the long-term appreciation and we have an easier time with tenant management.just…
Dylan Silver (09:57)
I want to askyou somewhat selfishly about ABC classes because I’ve heard this from multiple investors, guests of the show, and to me in my head kind of thousand foot view on the outside looking in. You mentioned C, I’m thinking ⁓ section A, very much cost effective government subsidized that type of deal. B, I’m thinking ⁓
rental grade, but it’s not like brand new. You’re not looking at like HGTV level apartments. You’re not having like two pools and gyms and amenities and this type of thing that might be one. And then class A, I’m thinking, you know, it’s, you know, practically a flex use commercial. There might be a shopping plaza tied in with it. You’ve got pools, you know, you’ve got gyms and it’s the top market rents that are gonna be available.
Brian Fine (10:44)
Yeah, it’s actually a commercial appraisal language because when you do an appraisal it would be bad to call a place the ghetto. They aren’t allowed to do that. So they came up with the A, B, C, D, and E language. That’s all that is. But essentially your ⁓ B, that’s middle class. So your upper middle class, lower middle class type zip codes. ⁓ A would be your upper class zip code.And then you get into D, that’s lower income and E is either a blasted out war zone or an industrial. So it’s not, not even residential. So that’s kind of the way those break down. It’s, it’s, it’s, it’s a, it’s a politically correct terminology, but you, you pretty much get the point, right? And then the, and then on any kind of investment, risk and reward are attached, right? So if I go for, I only want the class A stuff, that’s extremely low risk. It’s very expensive. My reward will reflect that.
Dylan Silver (11:18)
Okay.Yeah.
Brian Fine (11:37)
That’s a capital retention play. Whereas if I get in the BC middle class stuff, we can make some money. You start getting into the C minus the D stuff, you could make a lot of money, but the risk is there that it won’t work out. So where does it fall on your own investing timeline? How much effort are you willing to put into it and how much can you control your risk?Dylan Silver (11:48)
Right.You know, it’s interesting because when you think about ⁓ distressed real estate, a lot of times, having worked in the fix and flip space myself as a wholesaler, you look at some of these deals and you kind of are excited to come across the distress. But then I’m thinking about the multifamily space and I’m thinking because there’s leverage, because there’s increased risk, you know, especially someone who may, even if you’ve done deals before, this may be new to you working with distressed multifamily.
That has to be a niche within a niche, right? Is there a large market for folks who are looking at, you mentioned D and E asset classes, is there a large market for folks who are looking at those Ds and saying, can we value add and appreciate? Or is it, if it’s in that bad of an area, it’s almost like hands off, no one wants to touch it.
Brian Fine (12:45)
So it’s it’s it’s a different play So it’s not about the cash flow. It’s about the taxes so you buy those for tax losses and Most of those areas are opportunity zones, which means if we hold it for ten years when we sell it. There’s no capital gain So we can we can do cost segregation speed up our losses on that and you can end up saving a substantial amount on the tax bill soDylan Silver (12:51)
Hmm.No, it’s practice. Yeah.
Brian Fine (13:10)
We work with a lot of different investors who have a big tax bill. You make a couple million dollars this year, IRS is going to take 40 50 % of that. And it’s a lot easier to invest in an asset class. We want to lose money on paper, not in reality. But you can buy it pretty close to cash neutral and do very, very well. And so the whole reason that the tax code has those programs is to attract investor dollars into it. They want us to pay for that.Dylan Silver (13:36)
Yeah,yeah, someone has to come in. Right. You know, when I think about that space and all that’s involved there and the tax strategy and how really high level that is, I’m curious, know, there’s lots of opportunity in multifamily. You had the single family background. I have seen this progression very often.
Brian Fine (13:37)
and they incentivize you to do it. Yep. So that’s what those are for.Dylan Silver (14:01)
of folks going from single family to multi-family to lending and the lending space is broad. But you made a similar transition. Did you see lending at some point in time as hey, that’s the ultimate destination that I wanna get to? How’d you get into lending?Brian Fine (14:57)
It’s the top of the food chain. So the, ⁓ in, of course, COVID was a, was a pretty big impact. had the evening news telling, ⁓ everybody that they didn’t have to pay rent because the eviction courts were closed. So it was fine. so when you go to have from having, ⁓ pretty close to no vacancy to about 35 % overnight in a giant portfolio, that’s going to eat through your, ⁓ reserves very, very quickly. It’s a, it’s a really painful thing to have to deal with. And.On the debt side, we made sure those guys were paid. I never missed a mortgage payment. It hurt, but we did it because that’s what we agreed to do. And so it’s just, it’s a different level of security and it is much more passive in that way. And so as the dollars grow, I’m willing to take a much smaller return, but to make sure that ⁓ there’s a 95 % plus chance that I’m just getting paid.
Dylan Silver (15:32)
Right.Brian Fine (15:52)
no matter what’s going on in the market. And then if it does go bad, well then I become the landlord again. Well, I know how to do that, so it’s not very scary.Dylan Silver (15:58)
I toask a granular question about the the lending space and your involvement in it. mean, there’s so many guests that I’ve had on the show and then my awareness of the space has grown in general. There’s so many different niches within lending and it seems like everyone is doing DSCR loans, which I thought would have been very much a creative type financing. it turns out traditional, you know,
Brian Fine (16:19)
Mm-hmm.Dylan Silver (16:23)
Mortgage brokers are doing DSCR loans now in order to stay competitive. Do you have ⁓ a niche that you focus on, whether it’s these multifamily deals, single family, or do you lend across the board?Brian Fine (16:36)
We lend mostly across the board. We’ll look at a whole variety of things. Most of our borrowers are doing ⁓ fix and flip, ground up, or buy and hold. I kind of have those three, and we’ll do that either as residential or commercial. We do a lot of the SDR, a whole lot of it, because most people don’t know that we can do 30-year fixed. So that’s a new piece of knowledge to them.They think of us as lending at extremely high interest rates on short term. don’t necessarily look at, wait, these guys can give me a 7.5 % 30-year fixed on my rental property.
Dylan Silver (17:04)
Yeah.That’s interesting. I’m the first person telling me that that’s an option. So they could effectively come to you for really all of their needs because if you’re giving them a rate that that’s competitive for 30 years, what’s the need for them to go anywhere else? So really it’s one size fits all as far as any of their lending needs.
Brian Fine (17:26)
Yeah.⁓ For investing, yes. I would never touch or get near the owner occupancy space. That’s an entirely different world and I have nothing to do with it. So business purpose investment only is how we look at it.
Dylan Silver (17:46)
I want to ask you about the regionality of lending. I know that you’re in Pittsburgh, you’ve got partners that are in the Florida area. I’ve had so many guests on the show, again, in the lending space. I’ve seen a trend, which I don’t know exactly how recent this is, but lenders seem to be lending really everywhere. And I’m curious how that works, especially as someone I know myself who’s experienced how different eachlocality can be and how also there’s risk if you have to take over this deal, you have to have boots on the ground, have be familiar with it. How do you approach lending across state lines?
Brian Fine (18:23)
It really boils down to an appraisal, right? So we use an appraisal management company. It’s a neutral third party. When we initiate an appraisal, we order it, they pay for it, neither of us knows who’s going to be the appraiser. So it’s the most neutral valuation of the asset we can get. And we use that as our basis for ⁓ loan amounts and DSCRs and all that. ⁓ it doesn’t matter what market I’m in because I will get all the relevant data.What really changes state over state are the foreclosure laws. And so we have legal that we use, and that’s why there’s a legal fee with every loan, because there are custom loan docs for every state updated to the latest case law. That’s where your biggest changes are. And there’s certain ones, like I’ll give you a simple example. in Pennsylvania. Pennsylvania has a rather silly law. It’s just the way it’s ⁓
Dylan Silver (19:07)
Thank you.Brian Fine (19:16)
basically means you can’t do prepayment penalties here. That’s never been really challenged, but the assessment is we should just not do prepayment penalties. So when you get a loan in Pennsylvania, there won’t be an option for a prepayment penalty, which adds a little bit of a cost up front. But it’s just a state-specific thing, and every state has their own corpse.Dylan Silver (19:20)
Hmm.Sure.
We are coming up on time here, Brian. Where can folks go if maybe they have a deal that they’d like your feedback on? Maybe they’re looking at ⁓ private capital and business purpose loans themselves, or if they may be along the same journey, maybe they’re looking at getting into the lending space and would like some feedback.
Brian Fine (19:57)
Sure, sure. Our website has everything they need. It’s ⁓ always A-L-L-W-A-Y-S, capital, LLC.com. There’s a giant button to borrow funds. You can see about our fund if you want to do some passive investment with us. And then there’s a phone number across the top if you want to reach me and just talk shop. No problem.Dylan Silver (20:17)
Brian, thank you so much for coming on the show here today.Brian Fine (20:20)
Yeah, thanks for having me, Dylan. Great to be here.
