The School Of Cash Flow

We all want a passive income we can rely on. Bernard Pierson believes that investing in real estate will do just that. Listen as he shares his over 10 years of international experience. He started his real estate business in Latin America, but upon analyzing the data, he realized that the industry is more abundant in the US. Find out in this episode, and stay tuned to learn how he started and grew his business!

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Finding The Right Passive Income For You Through Real Estate Investments With Bernard Pierson

I have been doing more networking with more GoBundance members. You guys know I have been a member of GoBundance since December of 2020. We call each other GoBros. I was connected by a colleague named Gary to my guest now. It was not even to talk about real estate but we were talking about virtual assistance. One of the auxiliary businesses that have helped me scale up my real estate sales business has been the use of virtual assistance from the Philippines. I picked up the skill to help other entrepreneurs and place them with full-time virtual assistants as well, and that is how Bernard Pearson from Equiti Partners and I connected initially.

It was only through my initial conversation with him that I learned that he was a syndicator in multifamily space. I wanted to bring him on as a guest to learn more about his real estate business and what he has got going on. I find it interesting that he has done both real estate in Latin America and the United States. Here is a little bit more info about Bernard. He has had over ten years of experience in international real estate and financing. He is focused primarily on multifamily assets. He has been in general partnerships in management totaling 500-plus units over 10-plus assets. He has also participated in the acquisition of 1,500-plus units across 20-plus properties with limited partnership interests.

He previously specialized in ground-up development. He has led the development of over 100,000 usable square feet of condo buildings and single-family home communities in addition to the related development of land and infrastructure. During his free time, he enjoys traveling and spending time with his family. He is also an avid golfer, skier and tennis player. Without further ado, welcome to the show, Bernard. How are you?

How are you, Dale? Thanks for having me.

I am great. Thanks for connecting and jumping on with me. For my audience that does not know you yet, where are you based geographically?

I live in Miami, Florida, which is where I was born.

You also have two boys. Is that correct?

That is correct. I have a 3-year-old and a 9-month-old.

I have two boys as well, but mine are 7 and 11. They are much easier. I am curious because we connected through GoBundance. How did you even hear about it? What has it done for you so far?

I must have heard about GoBundance on the BiggerPockets podcast. I had already joined other networking groups that were more real estate specific. I had inquired, I liked it and joined. It has done great for me. I have met partners and great friends there. The networking is amazing not just on the business side but also on the personal side. I feel like I now have access to a community that is all over the country, whereas before, that was not the case. It is amazing. I love it.

When I joined, at first, I thought there was nobody else that was weird or different like me. Now, I’m like, “Everybody is like me,” so I feel less alone.

It is pretty lonely being an entrepreneur. I have been entrepreneurial most of my life, so being part of that group fills that void.

Were you at Park City by chance?

I was.

I did not get the chance to meet you, but hopefully, I will get to meet you at a future GoBundance event. Jumping back into you and your story, tell me more about yourself. Elaborate more on your bio and what your main focus is right now.

I was born in Miami. I am originally from Nicaragua in Central America, or my family is at least. I am American-Nicaraguan. I have both nationalities. When I was born, my family was living here. They had fled a war. There was a civil war in my country. They were living here during that time. When I was six years old, they moved back to Nicaragua, so I grew up there. I moved back to the US when I was eighteen to go to college. I went to college in DC. I probably never went back full-time to Nicaragua after that.

Several years ago, I started getting involved in real estate. First, I started investing passively as an LP in many multifamily deals. I did all sorts of commercial real estate, multifamily, industrial and self-storage, but my focus was always multifamily. I always liked that sector better. The rest or most were not better. At the same time, I met some guys that became my partners in development in Latin America. I got involved in real estate development in Latin America, specifically in Nicaragua and Costa Rica.

I was living in Miami but I would travel every week to Nicaragua. It is a two-hour flight from Miami, so it is not bad. You get back in, you have the global entry and everything else, so it is not bad. Occasionally, I go to Costa Rica once a month, and I would go to Nicaragua 3 or 4 times a month. That is where I did most of the development work. I did that for six years. It has been a couple of years that I have been full-time multifamily investing and syndicating, so I am a multifamily operator and syndicator.

Passive Income: The whole passive income side of real estate, where rents are going to continue. You just acquire more properties and it doesn’t require that it’s not as transactional as food brokering was.

When you were doing all the development over in Latin America, what property types were they and what was that experience like?

It was strictly residential. It was all for sale condos and single-family homes. We built communities and condo buildings. The market down there is a lot smaller, which is one of the reasons why I transitioned to the US. I started realizing that my investments as an LP in different syndications and commercial real estate investments I had in the US were already active and doing better than my developments in Latin America financially. They were making more money.

I started studying why that was the case. There were a lot more works on development. My conclusion became that the risk-adjusted return of Latin America is inferior to the US. There is a lot of research. I looked into a lot of numbers. I am very analytical. I try to look at the data. It is not that I am a data analyst, but I always try to look at data as much as I can. With that said, there are opportunities in Latin America. I am not saying there are not, but it is a lot more straightforward here. There is less risk in the US than there is in Latin America in general. That is how it went.

To my knowledge, because I do not know much about real estate over there, mortgages are completely different out there. Is there a big discrepancy in rates between US mortgages and what you can get over in Nicaragua?

Yes. Throughout Latin America, it is going to vary. These countries are going to have different rates or different mortgage programs. First of all, you are not going to find a Fannie Mae or Freddie Mac supporting mortgages, so you are not going to have that downward pressure in interest rates generally. Interest rates have gone up here in the US, but the rates over there are a lot higher. A 30-year mortgage to buy a primary home in a country like Nicaragua is going to be an 11% or 12% annual interest rate. It’s probably higher since the interest rates have increased. If they increase here, they have increased down there. Throughout Latin America, I would assume the countries with the lower interest rates are going to be somewhere from 8% to 9% in this environment.

You were getting involved in real estate in the last couple of years. Was that something that you knew you wanted to do or did it somehow find you? How did that work?

It somehow found me. Before I first got involved in real estate, I was doing food trading. I was a food broker. It was a very transactional business and we did well. We made good money, but I very quickly figured out it was very transactional. It required us to be there day in and day out transacting, buying and selling to make money. How I got interested in real estate is the whole passive income side of it. Tenants will continue paying their rent and you can acquire more properties. It’s not as transactional as food brokering was.

I do not know how you discovered being an LP or a limited partner investor in deals, but I fully believe in syndications as well. I am in many of them. Some of them are multifamily spaces. I am curious because you got started in syndications even before I did. How did you even learn about it? Did you start in syndications as an LP investor? How did you start knowing about that?

I met a friend who was already investing in syndications and private investments. He is a friend that lives here in Miami. In 2013, the JOBS Act passed and the rules became more flexible where they can advertise and whatnot. That was the start where a lot more people had access to this. Before that, a lot of it had to be done at the “country club” or from relationships.

After the JOBS Act, that is where it was allowed to advertise depending on the syndication you are doing and the assumption you are using. Now, you can advertise and the word is out. You can post on social media, send emails and whatnot. It gave access to a lot more people. Through a friend who had a great experience, he introduced me to a sponsor he was investing with. In short, I was doing well on my food brokering and I was trying to see what I could do with my money. I was like, “How can I make money with my money and not have to transact as much?”

How long did it take you from you being an LP to becoming a GP? Was that transition rather fast?

It took about five years. Also, if you consider my development work with GP, we did not have investors when we were doing our development work. It was mostly the partners who invested. That was even before my first LP. In 2012, I must have started developing. In 2013, I started doing LP investments.

This is a question for me as I potentially will transition to become a GP. How did you initially become a GP? How did that work?

There was a sponsor I had been investing with for some time. I still invest with him, his company and his team. At that time, I asked him, “How can I be more involved? How can I be on the GP side and the manager side? I want to learn more, be involved and be a part of the team.” I got involved with asset management and sourcing funds for that bridge gap between when you are under contract and closing. I started sourcing funds for that part. I’m not necessarily raising funds for the deal. Eventually, I started being more on the capital raising side and continued being on the asset management side of the deals.

The short answer to your question and what I would encourage many to do is invest with an operator that you know, like and trust. Try 1 or 2 deals and on the 3rd or 4th deal, ask them. There are a lot of different hats you can wear in syndication or a real estate operation. We all need help. We all have an area where we can use help. After you have invested some time and they know you, there is a good chance that there will be some area where you can add value.

It sounds like you brought in a complementary skillset to the table with these guys.

At that time, I had more time than they did too. There is a lot of work involved in this business. In my opinion, there are three main sides to it, deal sourcing, capital raising and managing the asset. It is not in that particular order, but the three of them are extremely important. I would say that asset management is the most underrated one and the most important one too. You can have the worst deal but if you operate it well, you may be okay. If you have a great deal and you operate it badly, you are not going to be okay. You are probably not going to do well. Asset management is key and that is an area I try to get involved in as much as I can. On most deals, I am the GP. I am pretty involved on the asset management side. I’m on all the weekly calls and do more on the properties.

In your business, what is your team like? Do you have folks that manage different parts of that or are you doing a lot of that yourself? What does that look like?.

Passive Income: There’s a lot of work involved in this business. There are three main sides to it: deal sourcing, capital raising and managing the asset. Asset management is the most underrated one and the most important one too.

I do asset management myself. I am on the weekly calls. Depending on the deal, I am more specialized in the Oklahoma and the Charleston deals. On the other deals, my partners are more on the asset management side.

For your properties in multifamily deals, how are you picking your areas?

There are three main areas I invest in and buy in on the active side. On the passive side, I invest with other operators too. I still do that to diversify. There are three general areas that I invest in, Atlanta MSA, Charleston MSA and Oklahoma City. Those are the three areas that I am pretty focused on. One of the things that are pretty important in real estate is to have that local knowledge or that local feel. They call it boots on the ground. Someone once told me that boots on the ground do not necessarily mean a partner that lives there, but maybe someone you know and trust like a family member or a good friend that lives in that city.

Even if they are not involved in the business, just have someone local that you can rely on and call and ask, “What do you think of this address? Is it a safe area?” They are going to have that local feel. I have leveraged that. It is hard to focus on a single area if you want to buy many assets. There is a limited amount, depending on the properties. If you go into larger multifamily, there is going to be a limited number of properties that you can buy in a single area, especially in this competitive market. I always start by finding a place where I have some local knowledge or access to like a family member.

I look at the demographics. They have to check all the boxes where there is household growth, which is usually tied to job growth. I like to invest in landlord-friendly states. As you can see, I am in Oklahoma, Georgia and South Carolina. I diversify employers. I do not like to go to places where there is just one employer or one industry. I like areas where there are different industries and different sources of income, and a diversified economy. Job growth is extremely important. The crime rate has to be low too.

I know that most of the projects that you are doing are syndication businesses or multifamily. What is a typical type of property that you guys go for? What unit size or price points? What are your hold times?

We try to stay over 50 units and sometimes even over 100 units. With the competitive market, we found a lot of success on the smaller properties with the 30 and 40-unit size deals because we tend to be the better-qualified buyer at that size. There are not as many buyers looking at those. Our strategy has been to build portfolios of smaller 20 or 30-unit properties and eventually sell them as 180 or 190-unit building.

We try to focus on Class B and some Class C properties. Our hold time is 5 to 7 years. Now, we extended it a little with the rising interest rate in the environment. We set expectations that we may have to hold onto the properties a little longer than expected. We have had very good years over the past couple of years. Everyone was projecting a 5 or 6-year hold and everyone was exiting in year two. Going forward, that may continue to happen, but we are not going to bet on that. We are projecting 5 to 7-year holds, but we have been on the seven-year-hold side recently.

Speaking of setting expectations potentially for longer holds, on the underwriting side of things when you are looking at deals, what about preparing for a downturn in the event that there is one? Are you doing anything different on the underwriting side of things when you are looking at deals compared to a few years ago?

In general, I am trying to go and better capitalize than before, like putting higher reserves. I do not think that we are going to encounter a recession. We may and we have to be prepared, but I am not thinking that it’s going to happen soon. It is going to happen at some point, we just do not know when. Being on the sidelines is not necessarily the best strategy. For some people, it may be, but not for us. We do not think it is the best strategy. Things may keep on going up. We used to think we were at the top of the market a few years ago. Sitting on the sidelines can also be risky, especially in an environment with inflation and rising interest rates. There are also risks sitting on both sidelines.

Going back to your question about underwriting, we are being more conservative with rent growth. We are also taking into account the inflation for our expenses. Before, we used to grab the seller’s expenses and adjust those to what we thought our expenses were and maybe add 2% or 3%. Now, we are adding 10% in some cases. We are not being as aggressive with the rent growth rule, especially after years 2 and 3. I can see a case for rent growth being strong in 2022 and possibly even in 2023 and going forward, but we are not underwriting a strong rent growth past 2023.

All your deals are pretty much value add plays. Is that fair to say?

That is correct. They are not heavy lifts where we are going to have to remodel the whole property. Most of it is going to be cosmetic interiors. In some cases, we may look at properties where maybe five units had been turned or remodeled with heavier upgrades. Maybe the upgrades are $10,000 a unit, new countertops, a new kitchen and new PVC flooring. They are all going to have some value add. Value add is not always going to be on physical improvements. It can also be on the operational side. You can add other sorts of income. There are all sorts of things you can do.

In real estate, nothing ever goes as planned exactly. Are there any stories that jump out or unique experiences where something did not go as planned on any of these value add types of deals, and you learn something from it? Is there anything you can share related to that?

There have been a few. The most significant one has been in development. There are a lot of things that you control and a lot of things you do not control. No matter how well you execute, there are going to always be things outside your control that may show up, and those are the things you have to prepare for. In my case, I was developing different residential properties in Nicaragua. We had a pretty bad socio-economic-political crisis in 2018. The lending dried up from one day to the other. It is similar to what we had during March of 2020 here in the US where nobody knew what was going to happen. We had that but for a longer period of time.

That experience was interesting. It gave us tough skin. Our buyers needed financing. There was no financing in the country. The country had collapsed. Everyone was striking. That takes me back to my point of Latin America versus the US. We may have issues in the US too but you can’t even start to compare. There are a lot of other issues that are incomparable.

We had to hold on to the last ten properties that we had not sold. We had to hold on to those for about three years. It took us to sell them more than expected because we were already finishing off our project. We were supposed to exit 2 or 3 months after that event happened and we ended up holding the properties for two years. The good part is we came out relatively well and unharmed. We did not lose money, but the hold time was a lot longer than expected, and the impact after the project was significant.

In terms of raising money, how are you finding your investors? Is it networking with friends and family? What is the best way that you are finding to raise money?

Passive Income: No matter how well prepared you are, how well you execute, there’s always going to be things outside your control that may show up. And those are the things you really have to prepare for.

I would say a lot of friends and family and networking a lot. Networking is key. Being in Miami, there are a lot of people from Latin America that either visit or live here. There is a huge Latin American community from different countries, and they are here for different reasons. A lot of them are here because they have had bad experiences in their country or some others are here on vacation. One thing I have found in common is that there is a lot of interest in investing in real estate from Latin America to the US because Latin America does not have the concept of commercial real estate.

You may see a little bit of multifamily in Chile or Mexico, but for the rest of Latin America, you are not going to see it, or at least not the way we see it here. You will have condo buildings but not a whole building for rent. It is very little. Going back to the investors, there are different reasons. There has been a pretty interesting thought of capital from Latin America to the US, and I have been invited to a couple of conferences here in Miami to speak. I have talked about multifamily and real estate investing in Spanish. There are not many operators that speak Spanish in this industry. I have met a lot of investors at those conferences by talking to them in their language and having similar cultures.

A lot of times, they are probably even brand new to the idea of investing via syndication. You go through that process of getting them comfortable and explaining how that all works. How do you do that? What is your education process like for somebody brand new to investing in multifamily syndication to get them to the point where they are comfortable pulling the trigger?

My experience with these foreign investors has mostly been explaining that it is going to be a lot easier for them to invest if they write a larger check because there are going to be tax and legal implications. The cost of investing $50,000 is going to be very similar to the tax and legal costs of investing $1 million. The ones that tend to invest are the larger check writers. They tend to write a larger check if they have the funds to do it.

With that, the profile of an investor that I have encountered is a little bit more sophisticated. The way you have to talk to them is you have to know who you are talking to. You have to know your audience. They do not know US multifamily. It may be something new to them but they are sophisticated. They understand numbers.

They are not your typical investor in syndication where they are like, “I want passive income,” and that is it. It is not the financial freedom and passive income concept. Imagine the person who writes a $1 million check. They are going to know a little bit more about how to analyze your proforma. It is more about making them feel comfortable, how we are mitigating the risk, and where the opportunity lies.

They are more financially savvy than somebody that is going to potentially invest $50,000 as a first-time LP investor. I get what you are saying. You got to get them more comfortable about it all. What are the challenges in the multifamily space? Are there things that you keep being cognizant of?

There are two main challenges that I see. One is the competitive market. It is hard to find a deal. There are a lot of people that may be overpaying. At least, that is what we think, and we may be wrong. In five years, it may seem that they were not overpaying but for us, it seems like they are overpaying. There are also rising interest rates. Those are the two challenges.

The solution for us has been to put in more offers, underwrite more, and look at more deals. That is on the deal sourcing side of things. A few years ago, we used to underwrite too. We are probably looking at twice as many deals and getting fewer contracts. For interest rates, we are trying to steer away from refi. We are trying not to do deals with refinances but if you are, you have to make sure that the interest rate you are pulling up in 2 or 3 years is high enough because we do not know where they are going to be. They may be higher. You can’t underwrite now and refi in two years at 4%. You have to go above 5%.

I have some final questions for you. The first one is, what are you excited about in your business?

I am excited about continuing to grow my Latin American investor base. I was talking with my investors from Latin America. I have been doing that for a year. I am excited about growing that, bringing content to them in Spanish, and formalizing that side. A lot of it has been organic and I want to make it more formal.

The next question is, do you have any big goals that you are working on in 2022 that are either personal or business?

I have a small portfolio of single-family homes and a couple of duplexes. I am starting to sell those off one by one. After 2022, I should have only a couple left. That is something I want to do. The other goal is to bring content to investors from Latin America in Spanish. There aren’t many operators catering to them. My goal is to give them the space and the opportunity to invest in this space.

What does success mean to you?

On the personal side, it is my family and being present. It is about being with them and being there for them. Being present is more important than anything else. On the business side, it is making my investors happy. It is all about the investors because it is their money.

What is your superpower that has contributed to all your success so far?

I am introverted, but my superpower is networking regardless of my being introverted, and bringing together the culture in the US with the culture in Latin America.

I could completely relate. I am introverted as well by nature. I do all this networking myself and run a business. You got to stretch yourself. It is how you get yourself to the next level. Lastly, how can somebody get ahold of you?

I am on all the social media. I am on Facebook, LinkedIn, and Instagram. You look me up by searching Bernard Pierson. You can also send me an email. My email is BPierson@EquitiPartners.com.

That is a wrap. That is all the time we have for this episode. Thanks, Bernard, for joining me on this episode. Thanks for sharing your story, your real estate journey, and your knowledge with us. I found it very inspiring and I wish you all success as you continue to scale your business and your portfolio. I can’t wait to meet you at a future GoBundance event. To my audience, feel free to reach out to Bernard directly if you have any questions for him. Thank you for checking out this episode. Remember to leave me a review on iTunes as it helps me attract even more great guests like Bernard. Until next time, live life abundantly.

Important Links

• GoBundance
• Equiti Partners
• Facebook – Bernard Pierson
• LinkedIn – Bernard Pierson
• Instagram – Bernard Pierson
• BPierson@EquitiPartners.com
• iTunes – School of Cashflow

About Bernard Pierson

10+ years of experience in international real estate and finance, most recently focused on ground-up development and real estate investments. Experienced in entrepreneurial ventures, comfortable handling transactions of both small and large scale. Unique traits include ease for developing and maintaining trustworthy partnerships and strong analytical skills. On a personal note, avid skier and golfer, passionate about travel and quality time with family.