How to Survive a Real Estate Cash Flow Crisis | Brian Estes

Brian Estes (00:00)
when you run out of cash in the real estate business, that’s a it’s a scary time because

All of these properties, you know, ⁓ they require money. I mean, we people always tell people all the time, I said, I guarantee you real estate always cash flows, always cash flows. That’s my guarantee to you. It’s just whether it’s positive or negative. And anybody who’s ever owned real estate knows that statement is true. And, you know, every time someone says you buy real estate because of always positive cash flows. Those are people who’ve never really owned a lot of real estate because real estate can go negative in a hurry.

Meghan Escobar (02:03)
Hello everyone. Welcome back to another episode of Real Estate Pros Podcast hosted by Investor Fuel. I’m your host, Meghan Escobar, and I have special guests joined with me today, who is making some making some ways in the investor in the investment world.

I have joined with us today Brian Estes with Estes Group. So tell me Brian, who are you and what are you guys doing out here in the in the real estate world?

Brian Estes (02:33)
Sure. Well, ⁓ first and foremost, thank you for having me on. ⁓ I really kind of enjoy doing podcasts sometimes. So but yeah, my name is Brian Estes. I’m actually headquartered in Jackson, Mississippi. ⁓ I own two ⁓

management companies, well, although we do more than management, ⁓ management investments. One is Estes Bush Real Estate and we’re a commercial ⁓ boutique, property management brokerage investment company. We manage about a million three to a million four square feet. What I call the Gulf South, which is Louisiana, Mississippi, Alabama, and we do some work in the panhandle of Florida. And I also ⁓

An owner of another company called Estes Manning Management Group, and we manage about 1600 apartment units. Again, mostly in the Gulf South, Mississippi, Alabama, in the Panhandle of Florida. So yeah, so that’s kind of the footprint of what we do and where we are. ⁓ But I would say by and large, my day-to-day tasks are much more centered around ⁓ finding investment opportunities.

raising ⁓ I won’t say raising capital, I’ll say finding capital partners and putting deals together and ⁓ and closing. So that’s kind of what I do. I don’t do a whole lot in which I’m sure we may get into, I don’t do a whole lot in the day-to-day operations of the companies ⁓ other than really do most of the deal finding.

Meghan Escobar (03:59)
Love it. Absolutely love it. And what caught my attention about you, Brian, was the way that you position yourselves as problem solvers. So tell me a little bit more about that.

Brian Estes (04:11)
Sure.

Well, I I I’ve started as an accountant right out of s college and ⁓ and I actually grew up around the real estate business. My dad owned a an insurance agency. And I don’t know what it was, but it seemed like in the seventies and the eighties that anybody that would owned an insurance agency also invested in small rental homes. And so I kind of grew up around my father buying a lot of small residential stuff. And so I mean I was literally in in

high school handling evictions and clean outs and that sort of thing. Swore I never get into real estate, by the way. ⁓ so I went to college, majored in accounting, got out, ⁓ took an accounting job for about a year and a half, hated, hated every day I was there, I think. So ⁓ I learned really quick that I was not a ⁓ corporate person. I just did not I I believe in meritocracy, meaning that I want to get paid for what I produce.

And ⁓ so I ⁓ started buying residential rental properties. And a ⁓ friend of my father’s called me what one day said, You know what a commercial appraiser does? I said, I I do not. And ⁓ he said, and he was an MAI appraiser, which is what one of the top designations that you can get. And he said, Hey, you know, with your love of real estate, and I know you need to make a living because you’re not gonna make a living buying a residential rental property right away. And he was right, you know, I thought I could, but I

You know, what I was doing, I was paying myself to do the renovations, which probably wasn’t the best, you know, fit for what I was doing. But anyway, he taught me into coming aboard as a commercial real estate appraiser. And ⁓ what was ⁓ great about it, and he, you know, dangled that carrot in front of me is he also owned a residential, pretty large residential brokerage company. And some of those brokers did a lot of distress real estate work. And so

While I was working for him, I probably ⁓ bought over a three-year period about 30 homes while I was learning the valuation appraisal business. So getting back to the problem solving is that today, you know, I only spent about seven or eight years in the commercial appraisal business, but that seven or eight years was just instrumental on me being able to solve problems, understanding value, understanding where value comes from. And so

So yeah, so you know, as I sit here today, I’m able to walk through properties, really identify ⁓ you know, ⁓ opportunities to turn projects around or add value and really understanding, you know, what the value would be if we were able to if we were successful. And we pass on a lot of deals because not every property you can buy and add value and it’d be worth your time, but there are certainly a lot.

Meghan Escobar (06:52)
You know, and that’s that’s not an easy thing to to navigate through, you know, especially in this climate with the high interest rates and and in all the things that that come with it when it comes to being the investor, making sure you’re writing making the right investment, ⁓ even having the knowledge and experience of, you know, walking through properties and seeing value and opportunity. I mean, for you, what what’s been the key?

To helping you or keeping you being able to run the machine smoothly.

Brian Estes (08:08)
⁓ well, I probably has a lot to do with why I own two property management companies. You know, again, we do more than property management. We do a lot of boutique brokerage and advising and receivership work. ⁓ but I I I would tell you that that it’s one thing to be able to have a vision for a property and to see the opportunity to understand ⁓ that, hey, I can buy a property for $5 million, it’ll be worth $10 million in three years if we do XX and X.

That’s one phase of it. Second phase is you gotta be able to execute on that business plan. And ⁓ that’s why, you know, ⁓ I have two ⁓ management companies is because if we’re buying commercial or we’re buying residential or multifamily, ⁓ I wanna be able to execute those business plans. And ⁓ yes, you can and we do third party management and we tell people all the time that yeah, you can hire third party management and get it done.

But our management companies are much more focused and geared towards real investors who want to add value. So ⁓ I would tell you that we’re we’re staffed to be able to be nimble, we’re staffed to be able to take projects, turn around, deal with distress real estate. And so so yeah, so so again, yeah, great problem solving, but but how I get it done is through my management companies. And we have real data. I mean, we have real experience and we know what it takes to to change out.

you know, seventy five H VAC units. We know what it’s like to change out chillers. And so, you know, and unless you’re in the management business, sometimes you don’t really have a good handle on the time that it takes and the cost that it takes. So

Meghan Escobar (09:45)
Yeah. All right. And every operator and entrepreneur I know has a moment where things got real. And maybe that’s a deal that went sideways or just a a moment in a deal where you had to pivot really fast. Do you mind taking us back to one of those moments, Brian?

Brian Estes (10:03)
Sure. I I would tell you, ⁓ the worst deal. I mean, I’ve done some bad deals, but I I they really never lost money. I would tell you the only time I ever hit the panic button ⁓ was really in 2008 and nine and ten, which anybody I always tell people if you didn’t have any issues in two thousand eight, nine, and ten, you probably weren’t really in real estate. I mean, you know, so ⁓

But yeah, I’ve done some bad deals where we didn’t I don’t say bad deals. I just did some deals where the due diligence wasn’t good enough. ⁓ I had cost overruns. I had ⁓ tenants that I thought would stay left or tenants that I thought were really good, solid commercial tenants file bankruptcy. So, you know, so maybe instead of making a 14% return, we only made a six percent return. ⁓ but I would tell you.

The the moment in where I really thought things could could go bad would be 2010. I was plush with cash, believe it or not. I mean, I had tons of cash. And ⁓ but I had partners in my deals that were not. And when we had some of our loans renew in 2009 and 10, a lot of the banks, you know, didn’t just renew the loan, they wanted a

They wanted debt pay down. They wanted, you know, they wanted if if I owed a, you know, if we owed a million dollars or we owe two million dollars, they might want a five to ten percent debt pay down to renew the loans. Meaning we had to bring two hundred thousand dollars to the table. Well, the more properties you have, the more likelihood that you had loans that were renewing that you continually had to to buy down to get it renewed. And the the you know, and and most people who were in real estate in this side, you know, you didn’t just go down to the other bank down the street and say, hey

This bank’s being a pain. I cannot, you know, renew my note with you. Banks at that point were way oversaturated with ⁓ commercial real estate loans. And so yeah, I mean, you’re talking about a liquidity crisis. I mean, we I ran out of cash really, really quick buying those loans down. And I see not buying them down, it was just that was a requirement to get a renewal or there was a smaller note and foreclosing.

So, you know, when you run out of cash in the real estate business, that’s a it’s a scary time because

All of these properties, you know, ⁓ they require money. I mean, we people always tell people all the time, I said, I guarantee you real estate always cash flows, always cash flows. That’s my guarantee to you. It’s just whether it’s positive or negative. And anybody who’s ever owned real estate knows that statement is true. And, you know, every time someone says you buy real estate because of always positive cash flows. Those are people who’ve never really owned a lot of real estate because real estate can go negative in a hurry.

And so you always have to have cash to weather certain storms. ⁓ and not only was I in the middle of a of the great financial crisis, I was in the middle of the great financial crisis without any liquidity, without any cash to weather storms of tenants that were leaving or couldn’t pay or shutting their business down. I remember one I remember in our portfolio of commercial properties, we had I think seven mortgage companies.

and again, anybody that was in the real estate industry, especially residential back in two thousand six, seven, eight, nine, ten, remembers all these mortgage companies were popping up all over the place. Well, they all basically went out of business, you know, by two thousand nine and ten. So, you know, that was just to name a few. we had several real estate companies that were in our portfolio. They all went out of business. And so point I’m trying to make is is that yeah, I I wound up at two thousand ten.

realizing that I owned a lot of real estate, but I had a lot of negative cash flow and properties and the banks took a lot of my liquidity to be able to renew my notes and I had partners that were filing bankruptcy. So yeah, it was a pivotal moment for me. Yeah. ⁓ never wanted to get in that situation I I luckily weathered the storm. I never lost any properties. ⁓ I took a beating for a couple of years, but worked my way out of it. And ⁓

I would tell you that my philosophy on investing today is a much lower leverage. ⁓ picking the right partners that actually have cash that aren’t leveraged up themselves. So, you know, a lot of what I do today stems back from that pivotal moment in 2010 when I wasn’t really sure how things were gonna end back then. So but they ended fine. So

Meghan Escobar (15:03)
Y you’re here today, right? And

Brian Estes (15:05)
I’m

here today and I’m better off for it. I’m I’m I’m not I won’t say I’m more conservative in deal making, but I’m more conservative in my capital stack, meaning that my debt to equity, my partners, how I fund projects is a lot more conservative today. Exactly.

Meghan Escobar (15:21)
You want to make sure that’s a bit more balanced

from that experience. Thank you for sharing that, Brian. That’s that’s honestly the kind of stuff that people don’t talk about enough. And truly what separates the folks who are here to just dabble and, you know, make a quick sale or create a quick flip versus the ones who are in the game long term. So ⁓ let me ask you this where where are you most focused on or

⁓ what are you most focused on scaling next? What’s the next real big goal for Brian Estes?

Brian Estes (15:54)
it’s trying to take advantage of some of the distress opportunities, but I would tell you that I’m entering more into the private equity world ⁓ where I’m helping other people. It’s kind of we’ve talked about this earlier, but ⁓ helping other people source deals to where we can become their JV partner because there’s a lot of great operators out there. And I firmly believe that and we’re an operator too, but we’re we’re an operator in our our

wheelhouses, the Gulf South, but I believe that there’s a lot of good operators out there who are finding great opportunities themselves. And so I’m aligning myself with some pretty instant pretty high net worth institutional money to where we can provide ⁓ equity capital to some of these operators. Well we’ll come in and be their JB partner. And ⁓ we’re not an LP. You know, again, we’re not I’m not LP money. We we would not be interested in working with

what I call true syndicators that are just out for LP money. We want to find good operators who want a good capital partner because not only can we bring good capital ⁓ to a project, but we can also bring a lot of experience. And ⁓ you know, and that’s really what Blackstone and a lot of these other large private equity companies are doing on the business side. They come in, they take an interest of the company and then they

provide their experience and their oversight and whatever. And then when they sell out in two, three, four, five years, they take they take a piece of the ⁓ of the profit. You know, so my I, you know, what I would like to scale in what we’re trying to do is that same model just doing it on the real estate side. And so we’re out really looking for good operators who need capital, ⁓ but they’re also looking for

you know, a J V partner. They’re not just looking for what I call quiet capital because w we’re not quiet capital. We’re gonna be, you know, we’re gonna be capital. We wanna be there at the we want to we don’t have to make every decision, but we wanna be in some of the decision making processes. So so that’s kind of exciting because it gives me an opportunity to put some of my money to work and J V with some other money. And again, find good operators that that are either my age or a lot younger who who really do need capital.

And they have a lot of good opportunities and they have, you know, remind me of myself back when I was 30 and 35 years old and I had a lot I had a lot more ambition than I had money. And I think there are a lot of good operators like that. And I would love to help them provide capital and some experience.

Meghan Escobar (19:10)
That’s huge, you know, especially when you you’ve already got a ⁓ a lot on your hands. I mean, you mentioned you’re you’re managing currently ⁓ a little over four million square feet between both companies, I believe, right?

Brian Estes (19:23)
Yeah, probably closer to yeah, three, although we yeah, in the multifamily it’s sixteen hundred units. We don’t go by square feet, but yeah, it’s ⁓ but yeah, it’s it’s well and again I have partners that are operating the companies. I don’t ⁓ yeah, I’m I’m kind of more of the strategy guy. I’m more of the if you have a major problem, you know, let’s talk about it. I like to train the agents in our commercial company, ⁓ and because I like strategy and I like business development. And so yeah, it’s but

You know, again, my my goal is ⁓ I would say is I’m kind of a professional opportunist. ⁓ if you if anyone watching this podcast loves reading books, one of my favorite books is Sam Zell’s book ⁓ called Am I Being Too Subtle? And ⁓ Sam Zell’s probably one of the, you know, one of my favorite real estate gurus. I mean, he’s passed away a few years ago, but

in his book, that’s what he mentioned. And I thought that sounds a little bit more like me today. You know, 20 years ago I had my hands full with all the operational stuff. But today I would probably classify my classify myself as the same as I like I’m looking for opportunities. Either we’ll invest direct ⁓ and I’ll and I’ll bring the JV partners, or I’ll have the capital and I can and I can JV partner with another operator who wants to be boots on the ground.

Meghan Escobar (20:33)
Love that.

So it sounds like this next move or opportunity you see, it’s really going to be either compounding things for you guys or creating some chaos, depending on how it’s played, right? Sure.

Brian Estes (20:59)
Yeah, yeah. ⁓ you know, and and again, that’s why I like this model is that if I find the operators and JV with them and can provide strategy vision, help them understand where I think the projects are and let them do their job, then it’s very scalable. ⁓ I don’t, you know, I don’t have to be in the middle of, you know, a an apartment renovation or I don’t have to be in the middle of taking a big box warehouse and cutting it up into small.

smaller bays to rent out. If I have good operators that that are partnering with me, then ⁓ then once again I can provide some capital, I can provide the vision and some oversight, but let the operators do what they’re supposed to do.

Meghan Escobar (21:40)
Nice. And you know, a lot of people listening, they’re either early on in their journey just getting their feet wet in the real estate world or they’ve been in it for a while and they’re looking to level up. And and I really think that they’d benefit from hearing this. Like when it comes, Brian, to when it comes to building relationships and growing your network in this space, what’s made the biggest difference for you?

Brian Estes (22:03)
⁓ doing what you say you’re going to do. ⁓ I think that’s very important. And ⁓ and I think it’s worth mentioning because we talk a lot about the management companies and the square footage that we manage. But understand, I mean, I started buying houses. I mean, that that was where I started. And, you know, and I made mistakes. I made a lot of my mistakes early mistakes buying houses. So the they didn’t cost me much. You know, yeah, I bought

The worst deal I ever did on the housing was I bought the wrong house at at the ⁓ courthouse steps and the guy that was helping me transpose the lot and block numbers and so you know it it was a you know, probably lost twenty thousand dollars, which I laugh at now, but not not that twenty thousand doesn’t mean a lot, but it was that was a lot of money to me at twenty-seven years old. But but yeah, I mean I started in the residential business. I own ninety-three residential homes.

There were homes, duplexes, triplexes, templexes. ⁓ and then I flipped another 400 houses probably ⁓ in about a four-year span, five-year span. ⁓ so I made a lot of early mistakes, but they were mistakes that were made that were not insurmountable because you know they were smaller projects. And although that was still a lot of money to me back then. So

My encouragement is is that, you know, I didn’t just land in the commercial business. I wouldn’t just start buying shopping centers and office buildings and, you know, seventy-five unit apartment deals. I mean, they those those came with a lot of blood, sweat, and tears early on. And ⁓ and I think I mentioned earlier when I went to work for this MAI appraiser that he had a residential brokerage business. And that was so I put myself in the right place at the right time.

so not only was I learning about how to value real estate, but I had I had agents bringing me deals and then they would sell them when I turned them around. And so I I I aligned myself with the right person at the right time. And so relationships are key. And you’re all and I try to tell my agents the same thing today or anybody I come in contact with.

You’re only one or two relationships away from your world completely changing. And so always be on the lookout for those one or two relationships. Never burn a bridge. Always do what you say you’re gonna do.

Meghan Escobar (24:21)
Solid advice right there. And it you can’t fake that. You know, relationships are truly everything in this space.

Brian Estes (24:26)
Sure.

Meghan Escobar (24:27)
All right, Brian. Well, before we wrap, if somebody wanted to reach out to you listening in and you know, wanted to connect with you, learn from you, collaborate with you, what would be the best way for them to reach you? Do you have a phone number, email, website?

Brian Estes (24:40)
Sure, I would say email is the best way to get me. ⁓ Like everybody else, I’ve gotten, I feel like I’m I’m held hostage on my cell phone. I can’t answer anymore because there’s so many calls. So a lot of times if you call and leave a message, I will return it. ⁓ but I would tell you email’s the best way. ⁓ but my email address is Brian B-R I A-N at Estes. That’s E-S-T-E-S group, G-R-O-U-P.

Which is N-E-T. ⁓ and also one other thing I want to mention, and this is not self-serving, but ⁓ but you’ll notice I have a CCIM and a CPM designation. ⁓ one of the things that’s changed my life, even back when I was buying houses, was getting my CCIM designation, the classes that you get. ⁓ and another person told me I would have never known about it.

I have to remind my kids, I said, you gotta understand when I was your age at 21, 22, we didn’t have internet. Like if you like you didn’t just go look up and research stuff. I mean, you actually if you didn’t know about something unless somebody told you about it or somebody’s dad or uncle or whatever did something. But but I had a really good person that was trying to mentor me and he told me to go take a CCIM class, which teaches you how to look at investments, real estate investments.

And so went and took the 101 class, which is kind of the basic four-day class. It changed my world. I mean, it gave me the tools how to understand how to underwrite real estate, put it on a pro forma. So ⁓ and again, I am a CSAM instructor, so this is not a self-serving deal, but I but I do encourage you to do that because that would be my other ⁓ advice is do not be scared to invest in yourself first before you start investing in a lot of real estate.

invest in your skill sets, invest in your knowledge. don’t be scared to spend a little bit of money taking classes or or getting a coach or a mentor or whatever, because I can assure you, once like I said earlier, you’re just one or two relationships away or skill set away from changing your life for the better. And ⁓ so anyway, I I would I would just encourage someone to look and see what’s the best fit for them.

Meghan Escobar (26:53)
I think that’s a great p great piece of advice, especially for anyone listening that’s just getting their feet wet, you know, investing in yourself, ⁓ mastering some skills is probably the foundational the foundation where you wanna start and before any getting into any big deals.

Brian Estes (27:11)
Yeah, because the biggest question I get when people do call or email me and say, hey, such and such attorney referred me to you. And, you know, ⁓ my biggest question is how do I know when I have a right deal? I mean, yes, so it all comes back to understanding what are you buying and where’s the value. I always encourage people, don’t go investing in real estate until you understand how much money you’re gonna make. Can you put it on a a pro forma, understand, you know, you know, understand vacancy is real.

Meghan Escobar (27:25)
Right, right.

Brian Estes (27:40)
Anybody that tries to sell you a piece of real estate and says that it’s always a hundred percent occupied is lying or delusional ’cause I’ve never had a piece of real estate. I mean, I’ve had a few that I bought and sold over a four or five year period that never some of that didn’t have very little vacancy, but that’s a that’s a rarity. ⁓ so so my point is is that yeah, so the biggest question I always get is is I think I found a property but I don’t know if it’s a good deal. And so

Meghan Escobar (27:57)
Yeah.

Brian Estes (28:05)
So yeah, so don’t be scared to invest in classes and in yourself and ⁓ before you go out and buy real estate because you have to be able to answer that question. So your real estate career is going to be very, very short if you go out and buy a couple of deals that you overpay for and they don’t cash flow, then yeah. So you’ll you’ll you’re you’ll have a very short real estate career.

Meghan Escobar (28:25)
Perfect. Well, listen, Brian, I appreciate your time, your story, and more importantly, your perspective. ⁓ we need more people in this space who are doing things the right way. And it seems like you guys got a pretty good handle on that. ⁓ you as an individual and the group. So thanks again for being here. And for those of you who are tuning in and found any value here, be sure to hit subscribe and you know, catch us on the next episode.