The Power of Multifamily Investing with Christian Osgood - REIA 495

Welcome to Streams to Impact, the podcast where busy professionals are empowered to develop multiple streams of passive income built on solid, secure, hands-off commercial real estate investments. This show is not just about wealth development. Every episode, we dive deep into inspiring conversations with professionals who are living life to its fullest while making significant and meaningful impacts on a world in great need. Engage with us each week and discover how you can thrive and flourish abundantly in all areas of your life. Now, here is your host, Dr. Allen.

Welcome to Streams to Impact. We're so glad that you are with us again today, and we have a very interesting conversation for you today with Christian Osgood, who is the host of Multifamily Strategy Podcast and YouTube channel. Christian transformed a modest start into a portfolio of over 200 rentals, and he did this in just 3 years. After a wake-up call in 2020, his wife had an accident on the job. Christian decided that he wanted to retire his wife from teaching, and now through his mentorship, he and his wife help aspiring investors achieve financial independence through Multifamily ownership and creative finance. So, Christian, welcome so much. We're glad you are with us today. So just take us into the show and share one of the more meaningful aspects of your life.

Well, gosh, the meaningful aspects of my life— a great time to ask that question. So back, you know, going back to the beginning, My wife got a back injury. She was a teacher in the Seattle School District. And of course, this is 2020. So, this is during the whole, all of the political craziness in Washington State. Teachers did not have the best job of all time while she sustained that injury. So, I set this goal of, hey, I'm going to retire my wife. We finally got there where we picked up a couple hundred rentals over 3 years, have the cash flow to Build the dream house. And the goal was, I want to retire my wife. I want to build my house. I want to move to Texas so we can start a family. Right now, we're 38 and a half weeks pregnant with the first. So, you're talking about meaningful pieces of life. I can't speed up the last goal. That will happen somewhere between during this podcast and the next few weeks. I will have done the find financial independence through rentals. build the dream house and start the family. So we are, we're sitting here at the final, hopefully final 2 weeks before I achieve all 3 of the initial goals.

Well, congratulations.

Thank you very much.

I'm sure that has been quite the experience, and I'm sure many challenges that you have encountered along that path. So From what I understand, Christian, you started off essentially with 2 duplexes, and from those 2 duplexes, you moved into a 38-unit building. So just tell us about the 2 duplexes. How did you get started there, and how did you transform those 2 duplexes into 38 units?

Well, unlike about 95% of investors that I talk to on my channel, they're like, well, I read this book, Rich Dad Poor Dad by Kiyosaki. Almost everyone started with that book at some point. I was given Dave Ramsey's as my original model. My father eventually, I think it was around the time I went to college, finally went completely debt-free. And that was the model that my family had always followed. Friends and family had always, save your way to wealth, get a stable job, Scalable career. And so, that's what I did. I went to college, I graduated, I started at the very bottom. I started printing t-shirts for $11.50 an hour and worked my way up to the company providing the t-shirts, got a job at lands.com as a sales rep that got bought by CoStar, a long 8-year career where I started working for costarapartments.com, LoopNet. I scaled a scalable career, got to about $200,000 a year in sales. And I used that to buy my house and 2 duplexes. And at that point, I had no— I went down to like $5,000. Like, I spent my last dollar renovating the last duplex. I got my income in real estate to a little over $2,000 a month, which was paying for my mortgage, which was $2,000 a month. So, I got to this cool place in 8 years where my real estate was paying for my real estate. And that felt pretty good because I had a general goal of, I want to buy rentals to have more money. And what happened is over 8 years, I bought a couple of rentals and I had a little bit more money, $24,000 a year. When my wife had that back injury, that shifted for me. The 2 rentals went really well. I bought one FHA and I bought and then moved into it and then moved back out of it. But I did a house hack. And then the other one was a fixer-upper. I bought it 101% financed with mezzanine debt. 9% interest and refinanced it into a 4% interest rate at the time. So, I played the game completely conventionally with my own money for 4 units. And that's where I got. When my wife injured her back, I was looking at my pieces and I was like, if we want to get her out of teaching right now— and this was also, there's some stuff that you have to teach kindergartners in Seattle that don't align with our beliefs. We'll leave it there. We have a job that is no longer palatable. We don't have enough income to thrive. We have enough to, to make it by. I hate my job because my outside sales job got turned to inside sales. So I'm sitting at home with a phone job essentially, which is not what I wanted to do.

Hmm.

And we went, how would we get to the next level? Because it took 8 years to save to 4 units in a house. I don't want to do another 8 years to try to get to, you know, say 10 units. That's not financial freedom. I don't see how we're going to really hit retire early in the next 20 years. We're trying to do this in 2. It was at that time I met someone in my office named Cody Davis. He was a 19-year-old who had his only W-2 job. He worked for 24 minutes at Safeway and he's like, well, this sucks.

That was his—

that was his career. He had 30 rental properties. And he was at the time, he had just turned 20 at the time.

Wow.

I was like, he's doing something different. And so, I started talking to him and he's like, well, I got someone to carry the contract on it. And then, I raised the last 10%. He bought all 3 deals, 90% seller financed, 10% down. And then, he found the 10%. I'm like, well, let's break that down into pieces. And that's where I found, okay, instead of starting with the money, which is what everyone thinks about, especially in the Dave Ramsey camp, You start with money. What happens if you start with the opportunity? What if instead of going, okay, I have the equity, now I'm going to find the debt product and then I'm going to try to match that to a deal. What if we did it exactly backwards and it went deal, debt, equity? Find the opportunity, find the appropriate debt product, could be bank, could be seller. And then if there's a down payment, either have the money. Or go find the money. And it can be additional debt or it could be an equity partner. But if we always do it in that order, we're now matching money, which is really flexible in how you can structure, to an opportunity as opposed to trying to find all the money and then force an opportunity to match the money. And what we found is that was the difference between having 2 duplexes in 8 years and today, 225 rentals in, you know, 3 years.

Wow.

The difference was Literally taking the order and flipping it around.

Well, very fascinating. And certainly the smart way to do that. Fortuitous that you met someone who could mentor you in that process. So you've gone from 2 duplexes to a couple of hundred units now. Are those units single-family or are they primarily multifamily?

All multifamily. I've never invested outside of my own residence. I've never invested in a single-family property. What I found— and it was the same problem with duplexes— they're very slow to scale. And there's, there's different models. If you're a volume person, if you're someone who's like, hey, I can make 100 calls in a day, or I can set up VAs and start this whole business where we're doing 5, 6 transactions a month, you can build a portfolio of single-family, and there are ways to do that. So, I don't want to, you know, I don't want to dump on someone else's strategy. There are people who do reach financial freedom in single-family. My personal opinion, I like leaving the single-family houses for families who want to own a home. It's not a market that I want to compete in. I have found a huge value-add where I feel amazing about my business in buying value-add multifamily, where it's properties that need a better manager, that need a fix-up. Maybe it's a building that has bedbugs. Something where you can come in and I'm like, when we fix this building, not only are we going to be providing affordable housing, but we're actually making the community a better place. I get to feel great about my job and it's scalable. The difference between the duplexes, the duplexes, I made 6 figures on both of them. I ended up selling them a few years later as I scaled up. I made $100,000, $200,000 per transaction on those deals. Good deals. On the 38-plex, we bought it for $2 million. It appraised for $4.1 million 11 months later. I had a 50/50 partner with that, Cody Davis. We each made $1 million in one transaction. I was like, this is much easier to scale. I could do 4 or 5 deals a year and make a couple million bucks as opposed to trying to do 100 transactions to do the same thing. And so, I I have only invested in multifamily and one boutique hotel, which I also made money, but I regret doing because it's not my core business. That's a lesson for another time. But if you learn how to buy anything with or without money, it doesn't mean you go and buy everything. That's a lesson for— that's a mistake of 2 young guys going, we can buy whatever we want. We bought a lot of multifamily, and I think that is, in my opinion, the simplest way to scale. If you can do it in less transactions, put more people under one roof, I found that really advantageous for the way I like to do business.

Well, I appreciate you pointing, uh, the difference between, um, single-family and, uh, and multi-family, uh, transactions. And because, you know, HGTV has so glamorized, I think, the single-family endeavors, and that's where so many people start. I— that's, that's where I started. And And quite frankly, I mean, I enjoyed that process of buying a shack and turning it into, you know, a castle. I mean, it was— it can be a fun process, but it's not passive and it's not scalable and it's high risk.

Mm-hmm.

And I think that that's the one thing that I think most people who go this single-family route I don't think they realize the risk and they don't realize the really small margin that is there. And certainly, I mean, like you mentioned, there are people who have made their wealth in single-family, but I can guarantee you they didn't do it passively.

No.

They work hard to do that and it's just not— it's just not the viable avenue that HGTV tries to make it out to be. So I appreciate you pointing that out and, and really illustrating the significant difference in scalability between, uh, the single-family and multifamily. And, and I, for those who, who may not be familiar with, uh, the difference between commercial and, uh, and residential financing, Mm-hmm. There is a specific cutoff point, and that is If you have a quadplex or 4 or less units, you can finance those and treat those as a single-family unit. Anything above that becomes a commercial. And so it's a whole different ballgame that you're into.

And you know what's beautiful about the commercial products? And that's 5 units and up. On 5 units and up, you're specifically rewarded for your ability to be a good operator. So you mentioned— I love, I love what you mentioned. Single-family is hard work. I want to point out multifamily is hard work too. You just get— you're working with more zeros. You get paid more for good operations. And the other reward is you're rewarded for net operating income if you're good at managing your expenses and pushing your top line in a way that still provides great housing for great people within market rent. If you are doing deals where you are a good operator, you are specifically rewarded outside of what your neighbor just sold their property for. If I do a great job on a single-family house and then the market tanks, that just decimates my value. On commercial, you have some ability to outperform. And your value. Like, you're still subject to the market, right? Rates go up, prices go down.

Right.

You're not immune, but you actually have an ability to outperform your competition. A better manager will make more money, whereas on a house you're rolling the dice on when I finish this property, where will the market be? It is a huge difference and it's my favorite piece. Yeah, I don't want to lose financial freedom once I get it. So I want the least variables possible. I want control. And you have more of that in commercial.

Yeah, absolutely. And, and that's, that is a different way. A significant difference between the single-family and small units and commercial is the way that they're valued. And anything 4 units or less are always going to be valued upon their market value. It has nothing to do with your net operating income, which is the way that all commercial properties are valued, is on that net operating income. Significant differences there. In terms of beyond just learning to flip that scenario around from money first to opportunity first, what are some other lessons you've learned along the way?

Oh my goodness, there's a lot. One I touched on was the resort. I believe that in any business, you need to focus on the core business. And this is something that I knew. What we did as young, dumb adults at the time. I was 29 when I bought the resort, so I was still in my 20s, and my business partner was 22, I think. When we, when we closed on that property, we identified what we do is we are experts at seller financing and creative contracts, and we can buy real estate. That is way too broad. So when we came up to, oh, seller finance resort, I'm like, this is an add-on to what we do. The operations for short-term rentals, and this is, I mean, it's a beautiful resort, foothills of the Olympic Mountains on the water. Every few years, you can see the orcas going through the canal on Hood Canal.

Wow.

We have kayaks, we have all the cabins are individual cabins with hot tubs. It's 90 years old. It's this amazing historic property. It's amazing. We bought it because it's amazing and we could, and we can make money on it. What ended up happening is I have 20 cabins and I have 8 employees and I have to manage the employees and we have to do all this website integration. And it ended up being a huge time suck. In the meantime, my property management division started doing really well. I started taking on a lot of third party. That company grew. Our multifamily holdings grew. Multifamily strategy, a huge blessing, That community absolutely took off. We have 2,000 people in Multifamily Strategy. As all these things started happening, everything else was flourishing in my core business. And then I had this giant distracting project that needed a lot of attention, a lot of love, and ended up probably being the worst business decision I've made so far. So, it's not hard to do seller financing or creative finance in general. You get what you negotiate. The problem is, The ability to do that. You get what you negotiate. If you negotiate yourself into a hard job that you don't want, you have that job until you sell the property. You have to be careful about what projects you choose to do and how you choose to structure them. In that particular deal, we would be much, much, much farther today if I did not have to spend the time on that particular project.

Yeah, that shiny object syndrome can get Many of us off track. And, uh, yes, good advice to really focus up on the core. Um, and it's that 80/20, uh, factor that, uh, that, uh, 80% of our profits come from 20% of our efforts. And, uh, That was a good lesson to learn there, that shiny objects are great and wonderful, but it wasn't your core and it's not where you are taking your business. So outside of that, what is the most costly mistake that you've made in buying and operating Your units.

Most costly mistake, I would actually say the resort because at the time, the opportunity cost was the highest there. If we're talking just straight monetary, we made a couple million dollars on the 38. Simultaneously, I did not have a mentor on how to do this. My original mentor was a guy I worked with who was the best capital raiser I've ever met, a creative finance genius. no business ethics, and had a habit of building real estate portfolios and then losing them. He was a horrible operator. And I think he had a— he treated real estate like a gambling addiction. Everything was, I'm just going to bet on crazy stuff, and if it works, then I'm rich. That is a horrible model. You buy things on 2 principles: how do I buy it and how do I never lose it? He never had a plan not to lose it. We didn't know how to structure these things. I just knew that I had an opportunity that could make— we underwrote it. where we're going to bring it from $2 to $3 million. The fact that it went from $2 to $4 was a huge bonus. Outperforming is great. We underwrote it where I'm like, I believe this opportunity will make $1 million. We put together a capital raise. It was 15% down for this deal. So we raised $300,000. We offered a 2-to-1 in 5 years. It was, hey, this deal's a little light on cash flow, but we have a ton of upside.

Mm-hmm.

If you guys put in $3, in 5 years, we'll buy you out for $6. So we have an option clause in there that says, hey, fixed time period, fixed price, here's how we're going to own it. The problem is, is we made the decision where we want to do a cash-out refi to continue to invest in the project. To execute that, I had to buy out the partners on month 11.

Mm-hmm.

Now, a seasoned investor would, one, on the front end, put some sort of tiered system so that if I bought you out in year 1, I don't double your money. Or 2, they would go to the investors and incentivize them to be bought out early. We did not know to do that. So I ended up borrowing at a little over 100% interest, is effectively what I did. We did double everyone's money. We did buy them out, but we bought them out at a 2-to-1 in 11 months, which is offering an insanely expensive return. Had I gone back in time, those investors would've been thrilled if they got a 25% return in 11 months. I think I overpaid by like $225,000, which when you start with $0, I like, I realize we made a couple million, but when you overpay by $225,000, I will tell you over the last 3 years, even with how well that project did, there have been so many times where I'm like, you know what I could really use right now? About a quarter million dollars would help this project, would help this refi, would help this.

Yeah.

There's so many things where, I mean, It's still a lot of money, even in the context of we've made millions of dollars. But even in the context of that, a quarter million dollars is a lot of money. That's, that's more than a lot of people make in a year. And losing that on structuring a deal incorrectly was really expensive.

The lessons we learn. Yes. And of course, hindsight is, is 20/20. Well, Christian, tell us about Multifamily strategy and what that is and how we can find out more about that.

Well, multifamily strategy is actually a really interesting evolution of things. And yes, there are a lot of people who are like, hey, I have this skill, I should make a course. There's so much— there's so much garbage online. We were resistant to the idea at first. I didn't have anyone talk about the— we call it the stupid tax. You don't know, you don't know. It costs more to operate. And for us, it was, you know, about a quarter million dollars. What we learned is there— we couldn't find actual education specifically on how would one creative finance a commercial building. The best I could find was there's this book, it's out of print now, but it's called Deals on Wheels by Lonnie Scruggs. It's on seller-financed mobile home parks. There was no unified place for how would one simply and repeatably buy deals with or without money in the commercial space. We figured out how to do it on the 38. We did it on a 6-plex, a 12-plex, 7-plex, all in the same year. I went from 4— in year 1, I went from 4 to 86 units. They all cash flowed positive from day 1. And I was like, there are principles here that should be replicated. So, the first thing we did, we always had the YouTube channel. I had that before I bought anything. You can go back to my first video and it's me in a cheap suit in a dark basement with my buddy going like— We are going to buy 100 units in 2 years. And then we go out and we do the thing. It's a fun adventure. We recorded it, but there was no, how would one do this? We put together a little mini course and then we had an episode on BiggerPockets that got a million views.

Wow.

And that was really helpful. A lot of people took the course and they liked the course. And then there was a need for community. So we started a mentorship group. We meet 3 times a week. And the problem that I found with courses and mentorships is that people will set up these systems where it's basically just a funnel where it's like, here you go, you buy my course and then I've hired coaches and you're gonna just fall into this program.

Mm-hmm.

I hated that. So we just said, what if, what if there was just a course where that you actually learn with the operator? And we never changed that. So 3 times a week, every week I teach live and that's just part of my cycle and I'll never change that in a million years. I love this community. I've learned so much from the community. Again, we have a few thousand people through it. It is so fun to be part of people's adventures. I have a— now one of my best friends, Caleb Hommel, he joined at 18. At 19, he bought a 10-plex and he bought an 8-plex. He bought another 10-plex. Today, he has 79 rentals. He's 21 and he just went under contract for another 126 units. He's an absolute freak of nature. He started with $300 in his bank account, no college degree. And I watch people like that and I'm like, it is so cool. to see people a decade younger than I was when I bought real estate do better than me in real estate. Like, by all metrics, his deals cash flow on a percentage basis better than mine did when I— my first 2 years. Like, he's bought excellent deals in excellent locations. It's fun watching other people come in and have success at a higher level than me using a strategy that we've developed over a few years. So, that's what multifamily strategy is about. It's like, is there a place where we can kind of just cut out the BS and have a community that gets together, buys, and operates multifamily under a basic principle of how would you buy it with or without money and how do you never lose it? And if you do that every time, every deal, your income goes up, it gets easier to buy your next deal. That's a simple concept. And then building community around that is really what Multifamily Strategy is.

Yeah. Well, it sounds like a wonderful journey, Christian, and We are so glad that you were with us today. And once again, folks, you can find Christian at multifamilystrategy.biz, that's B-I-Z, and that's /free-training-page. And of course, these— the information will be in our show notes as well. So thank you so much, Christian.

Thank you.

For being with us. It has been a pleasure getting to know you and having you with us. Viewers and listeners, thank you so much for being with us on Streams to Impact. And if you can, take a moment to like and share and subscribe. And it would be wonderful if you would leave us a rating and a review. Until next time, live abundantly, and we'll see you in the next episode.

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