2023 Real Estate Forcast and Strategy -Creative Finance Live

Not sure why that is.

Oh, how about now?

Looks like he's picking stuff up now.

Wow, that is odd. Let's try it with this and then we are good to go. Are we still getting audio? And if I go to this, are we still getting audio?

We are. There we go.

Right. And to the YouTube, everyone, thank you for bearing with us. I hear an all good from Edmund in the chat, which means we are actually live on all platforms. Everyone who's been bored watching us figure this out, welcome to the channel. I'm Christian. This is Cody. This is Creative Finance Live today. As we get a few more people in the chat, we're going to start getting into our topic, which is our forecast for 2023 and our strategy for how we're actually going to make that work. Going into the questions, I'll pull a couple from the week. Actually, I'll pull those up on your, on your cell there, Cody. That'll be fantastic. As we go, ask some questions in the chat. We're looking at Instagram over here. We're looking at YouTube right above that and we have a chat going here. So we'll start answering some of those questions and we're doing our first ever giveaway. If you guys have seen the Cody Doing Cody Things shirt, We're going to give those away to anyone in the Super Chat. I don't care how much you put in. You can donate a dollar, you can donate $5, but every single person will be entered into the raffle and we will get you a Cody Things shirt for Christmas. So that is the offer. Let's roll. Cody, what is our first question from the YouTube chat today?

So how do you negotiate exit strategies with investors? Are they just along for the ride for long-term cash flow, or are you planning to cash them out?

That's the fun thing about creative finance. It's up to the investor. 100%. Some people want to just multiply money, which means they might not need monthly cash flow. That makes them a great fit for a deal that may have a lot of upside, but a lower cash flow number day one. Some people really just want to get that monthly check. And I feel like that's a lot of our investors, and that's really well structured as Debt.

Yep.

Though you can do it with equity too. You can always figure out the cash flow and what that looks like, but it completely depends on what your deal can sustain and what that investor's looking for.

From Better Business JB, how can I make sure it's cash flowing? I'm trying to get the math down.

Aha, income minus expenses is your cash flow. You're gonna take the total cash flow. So income in real estate, it's typically gonna be rent and maybe you have like laundry fees in there. I know I just picked up a laundry check for you, Cody. Yep, $278 richer.

Money.

But income's usually pretty linear on a real estate, piece of real estate. It's gonna be like mostly rent. You bring that in, then the expenses are gonna be taxes, utilities, maintenance, your mortgage, everything that takes away. And what is left over is your cash flow number. You need to have enough cash flow to sustain the property with a little bit of margin.

All right, our next question. What's the biggest myth right now about real estate investing?

Biggest myth right now has been the same biggest myth it's been through the entire investing career that I've had. I think it's— it's not the right time to buy. We need to sit on the sidelines. There's always a reason not to invest. Not enough people just go ahead and invest. As we always say, the only way to become an investor is to become an investor.

Yep. Yeah. You got to invest in real estate.

It's as simple as that. I think that's the biggest myth, though, is, oh, with interest rates up, The market's going to crash, it's going to be terrible. We're going to go into summer 2023, and I think it is going to have a real effect on Class A real estate. Oh yeah, a significant effect.

Yep. A whole bunch of white-collar workers losing their jobs, and that's going to bring a lot of inventory back to the single-family market, which is likely going to push a lot of people into rentals. But you can always go down, you can't always go up. So the people at the top will start downgrading, and then people at the bottom will either stay where they're at or they'll go down.

Yep, those are the options. I think that's the biggest myth. Cody, do you have any other big myths in real estate that come to mind?

Not really that we haven't talked about on the channel. I mean, you don't need money, and you definitely don't need to get a bank loan to buy real estate. A lot of people think you need that. People think you need to find a unicorn deal. That's definitely not the case. To this day, I've still never bought a unicorn deal. Yeah, everything, just about, I've overpaid for. And I've gotten the loan-to-values way back down because how do you pay down your, your debts with money? You got to find the money, but I've never gotten this just steal of a deal. And some people think they have to find the perfect opportunity to get started. That's just not true.

Yeah. I don't see that being ever the case.

All right. Let's see if we had any other questions in the last couple of days. We had a lot of comments from the fact that we started recording with Chase, which gave us a little upgrade on our content.

Oh yeah. If you guys had a chance to appreciate any of the, the new edits to our videos, we still don't do any editing in the videos, all shot in one shot, but we had a couple of little theme song add-in things. We'll zoom around so we don't cut anything. It's still all just live one shot. However, the videos are getting a little higher quality if you guys have noticed that. That is a huge thanks and shout out to Chase, who is our new editor. He's awesome.

Alrighty, we got one more question that we'll go over here. My very first deal, I borrowed at 12% interest. What was the loan amount and what was the term? It was $125,000 12% interest, 1-year balloon.

Okay.

And that's it. Yeah.

Simple.

Let's dive into these.

Yeah. Well, and this is a good time right about here to talk about our topic from the day. And then let's dive into all the questions because they are starting to come in. I'm going to adjust one more time on the camera and we are ready to rock 2023. Cody, what do we see happening? Interest rates going up and down. There's all sorts of stuff online with people putting the clickbait like, oh, the world's on fire. Cardone's saying it's going to be the roughest time in history since the '70s.

70s.

What are we seeing? What are our advisors saying? And how are we going to navigate?

Well, everybody that we're working with, the, the top players in our space, are super stoked about what's going on right now because they built a business off of cash flow. Now you've got cash flow on one end and you got equity growth on the other. People that are playing the equity growth game right now aren't having as much fun as we are. We built our business off of cash flow and equity growth, but we buy based on cash flow for equity growth. Some people are just doing the flip game, trying to make a ton of money right now, and it's great, but a lot of them aren't making a ton of money right now. With interest rates going up, that hurts the qualifying buying power of a lot of people. Tough place to be. Yeah, people losing their jobs, there's less buyers. And while they can keep paying their mortgage out of savings if they've got a great income right now, if they lose their job, they can only do that for so long. So there will be a point in time I see a lot of houses flooding back to the market out of necessity, and people start losing all the down payments that they put down. If they're putting 15-20% down, I think that equity is going to go away really quick. I've seen that with some close friends who are even just local to here, where their values went down, and it's not a great place to be. They're going to be in a position where they have to sell because they can't cash flow it if they don't have a job and the equity to sell.

Yeah, I think if you are a flipper, a wholesaler, anyone who's dependent on values increasing, you've had a huge handicap where the market keeps going up and up. I think that for the next— honestly, I think 2 years, but we'll see. I think for the next couple of years, that model is— you're going to have to just do stellar deals. You can still make money, you can still do a great deal. The market's not going to save you for the next 2 years. It's going to be the people who really know how to play the game, which I appreciate. What do we think about rents, by the way?

Yeah, so there's a lot of rents going down all over the place in super high-cost living areas. However, on the stuff we're buying, rents are just going up because people can move down, but all the builders who are trying to fill the demand for apartments— because we're super far behind on the supply for actual housing— a bunch of people went out and built a bunch of stuff, and, and now they're going to suffer the penalties of building a whole bunch with interest rates going up. They have to charge a higher rent, but people aren't willing to pay it, especially with all the layoffs. I think that's going to be really difficult for Class A, all the new developers who— oh my goodness. Well, they were placing bets on the 10% and 20% rent growth, which just isn't sustainable because people can't afford it. And even if people had their jobs, it'd be difficult to afford it. So I think a lot of Class A is going to go down. And that will start flooding to Class B and then eventually to C, and people just stay between B and C apartments or single-family houses. And that is going to push the rent up even more on that asset class.

Yeah, what we saw during the whole shutdown for a couple years is it was really hard to build and very expensive to build, so we got way behind on building. There was then a big rush recently to start building Class A, and that started popping up all over the country. Those Class A buildings are the ones who are going to suffer, which is just a bummer if they're trying to do any continued development projects. Interest rates are still pretty high. Material costs have come down, but it's still high. If money is expensive comparatively to what it was and material costs are up, I don't think you're going to see a lot of building. There's not less people who need housing, though. So I think just like you said, it's Class B, Class C, is gonna get flooded with all these things they try to build that are Class A. If you've seen the cuts in the tech sector, in Facebook, in Google, there's a whole bunch of those big high-paying tech jobs, just massive layoffs. When the high-paying jobs go, they migrate down to Class B. Class C might move up to B, B might move down to C, but you're not gonna see a lot of shifts outside of Class A is gonna get hammered.

Yeah. And I've had some folks in the space that are, worried, and they've been players, they're like, well, single-family houses are going down. Well, good thing I don't buy those.

It's—

there's different asset classes that are going to do better or worse in different economic cycles. And I'm stoked for the apartment side. I mean, you can get great debt on apartments right now, even though it's really expensive for houses. If you play big enough, long enough, you can get better debt options on your apartments. And people are still paying rent. Yeah, we don't have a lot of the white-collar workers. I mean, I've got some Amazon and Microsoft people in my Quincy Place, but there's a lot of entry-level housing— school teachers, people that work at the grocery store, gas station, retirees.

I'm going to say school teachers are still going to exist through—

I think so. And so that's one of the reasons we built the bulk of our housing off of entry-level housing. It's just something that will always be needed.

Yep, stability is important. I see Dividend Dave looks like he's our first one in the Super Chat, which means right now it's 100% chance of getting a Cody Things shirt. Yeah, I'm gonna say Dave is looking pretty good for getting the Cody shirt. If anyone wants to, any dollar amount, we don't care, but anyone in the Super Chat who wants to contribute, turns out the algorithm really likes it when, uh, when people chat there, so we will reward you with the drawing for the, uh, the Cody Things t-shirt.

Alrighty, so from Dividend Dave: I'll be presenting seller financing to a seller who's being represented by an agent. Any thoughts or advice? Keep it simple. Don't overscript it. Everybody wants to overscript this game. Keep it super simple. Would you guys be open to holding the contract? It's either a yes or no, and that's how I get a lot of my deals when I'm going through an agent. 'Cause I've done a lot of deals through an agent, just like it's about half and half. Even some of them are agents that are just off-market opportunities, but would you hold the contract? And if it's yes, great, this is what I was thinking. And I just pushed the ball into their court and let them know that this is what I'm looking at to make the deal work. And then I let them make the pitch. And more often than not, that broker won't make the pitch as good as I could or you could, but they're the person that was hired. So you just have to keep it super simple for that broker. Mm-hmm.

That's my biggest piece of advice. Keep it simple. Don't tell them the benefits of them doing it. Just, hey, I'm going to close this deal. This is where it works for me and make it work.

From Ryan Mitchell, have you guys ever done an equity partner deal where you owed less than or you owned less than 51% of the LLC before the partnership? Yeah, we have done that. We did that on the 38-plex originally. We gave way too much. It cost us way too much. But it was a learning lesson. We gave up 60% of the LLC. The problem of that in Washington State is if we want to buy out our partners and they have more than 50% equity, we have to pay excise tax.

Oops.

Yeah. So it's just an extra couple percentages, not on their equity, but on the asset value. So that gets really expensive really quickly. So that was a learning lesson. We won't do that again. All right. Dividend Dave. Jingle bells, jingle bells, cash flow all the way. Love that. Looking at a fourplex on market, but it's zoned as a commercial asset. The broker and owner of it says that it was grandfathered in and I shouldn't have any issues with getting a residential mortgage. Thoughts? I would chat with your lender number one, because they're going to be the one qualifying you for this mortgage. And I would chat with the county or the city, whatever the local zoning is, but whoever controls that, I would see what's up because you might be able to get it changed prior to getting the mortgage.

But that's considered nonconforming. A lot of those do get grandfathered in and it's great as long as nothing terrible happens. If the thing burns down, you may not be allowed to build back the same thing. So Uh, be careful on it if the zoning's changed. I would definitely do my homework there with the, uh, with both the bank and the city.

Yep. Do you keep following up with property owners that say they're too busy or to call later just to learn their story? I would. If you want to learn it, the only way you're going to do that is by meeting with them. So I would, but it's up to you.

Yeah, that's really the A lot of people, when you call, they actually are busy. Most owners I know have a lot going on. Matt Hawkins, Lumberjack Landlords, one of the most successful investors that I know in the space of— in the small multifamily space. He has 135 units. Most of them are houses, duplex, all the way to fourplex. He has some bigger buildings, but that's a bulk of his portfolio. He's bought a lot of properties. He also works 50 hours a week on a 9-to-5, and he self-manages the entire portfolio.

And he got the bank to create their own bank products, so he has all of his small residential properties and 30-year fixed-rate mortgages.

Incredible operator. Someone like that might actually want to help you and might actually just be too busy when you call. 100%, make that follow-up call, get on their schedule. It's the people who've reached out to me 2 or 3 times and say, hey, I really do want to meet That, like, I feel that there's probably more value there if you're really pushing for it.

Yeah. Edmund asked, where did you guys come up with the capital for $1 million down on the resort? So this is a good— this is actually a good question. I love that. Yeah, because there was a lot of buildup to actually getting that money. We got it from a— the owner of a local hard money firm. It wasn't a loan through their firm. This was just direct with the owner. I had built a relationship with them for years. And some of their clients had placed money with an ex-business partner of mine, and the ex-business partner ended up stealing their client's money. I went negative personally to pay him back, and that helped strengthen the relationship with the owner of that private money firm. And so they were comfortable giving us the million dollars because of my track record and then our track record of doing some apartments together. They, they believed in the, the story, they believed in the journey, and they wanted to help us out. So talk about people doing it to help you out, not just for themselves. We made one phone call, had one coffee meeting, and $1 million appeared, which was great because we wanted to bring—

we were trying to limit that to like 3 people. And when the first person just says, hey, I want to do this, I want to be the one partner, I don't want more people, that really does simplify the universe. As you start to do these, you build a lot of confidence in others if you can tell your story effectively.

Does the LLC name go on the purchase contract or your personal name? So what we do, we put our personal names on it and then and/or signs to an LLC to be created, whereas we're the owners.

So, so on the final, on the final contract, that's what happens is we get the LLC shows up on the final closing. Yeah, the LLC owns it and we own the LLC, but we usually write it up in our own names. Which gives you time and flexibility for who's going to be my partner, what am I going to name the LLC, I need to create an operating agreement. It buys you time to set up all your legal, so you don't have to do that in advance.

Ryan asked, "Cody, in your first deal at 12% interest, what did you do with that property that let you cash out your investor after 1 year?" Well, I didn't cash out my investor after 1 year. They lent me money in second lien position. I actually cashed them out in, if I It was like 23 months. So I had to ask for a 1-year extension. If you can't do it, you can't do it, but you can't just not pay. You have to renegotiate. So I, I paid an extra point and then kept paying the, the 12% a year and they extended for 1 year. You do actually at some point have to earn the money or you get into a debt spiral where you borrow more and more money just to pay off other obligations. I opted to earn that. So that came from selling out equity to Christian on a couple of deals because I had my 30 units with no partners at that point. I let Christian buy in as a 10% owner on one of my 6-plexes, 33% on one of my 12s, and then I kept the other 12 without him. So I used some of that cash to pay off debts. It's like a BRRRR except for without the refinance.

Just pay it off.

Yeah. Write a check.

All Nighter Hider is here. We can now officially start. That is true. It doesn't really start without All Nighter.

All-nighter hider.

We appreciate seeing you, man.

Would y'all ever consider a deal where there's no upside in unit upgrades and rents are already close to market but it cash flows?

Uh, yes. Turns out I like buying income.

Income is great because what you'll realize is you start buying apartments and just real estate in general is there's a lot of costs associated with it. We don't just sit back and drink Mai Tais on a beach. Nope. So if we can increase our income, it actually does go a long ways. Okay. Dividend Dave, please don't make it 50/50. I need a present this year. Well, Dave, Daniel has entered the chat with a dollar, so it's 50/50.

It's got at least 6 people in this, so I can just take a 6-sided dice and roll it. That would be, that would be the ideal for me.

That'd be fun. Yeah. All right. Do you typically carry any additional umbrella liability policy in addition to a standard insurance policy to further protect yourselves? I have a personal umbrella policy just for myself that goes up with my net worth. So I just have a policy that as my net worth goes up, I increase the protections just in case and if and when something happens.

And that's the recommended way to do it. They don't cost that much. It's not super—

not what we recommend, but that's what was recommended to us. Yeah, to clarify. All right, All Nighter Hider said Matt is a mogul.

That was a fact. Matt is a baller. Matt's been playing this game for a long time. We have not had the operational experience that he has. If you guys want to see a great YouTube channel, uh, and it's a little smaller channel than ours, but on how to really run your portfolio and optimize it, he's a baller. He is just amazing. That is, uh, Lumberjack Matt, the Lumberjack Landlord. I think the YouTube channel is called Lumberjack Landlord.

Yep. From Kevin: Do you have any details for the Robin Hood meetup in January? I have my room booked. Yes, excited to see you, Kevin.

Um, for those who don't know, uh, January 20th, 21st, and 22nd, you are all invited to the Robin Hood Village Resort. Tickets are going to be available. Actually, Cody, if you want to pull the number for that, we can remind everyone what the phone number is to book. But we're going to have a real estate event. I have a few surprise guest speakers there, but you do have Cody and myself. I have a few people who are going to show up and bring a ton of value. The last one we did was in December, so recently, and it was phenomenal. Our neighbors next door just opened the wine bar and I think they're going to have the pizza oven.

Yeah, they should have the pizza oven. There's a Mexican restaurant just down the street. It's, it's pretty fun. But come check it out. The phone number is 360-490-8168. 360-490-8168.

We should probably throw that in the chat for everyone.

I'll throw it in the chat. You move on to the next question.

Yes, sir. This is from Armin. How do you know what type of owners to reach out to? To hear their thoughts. Parentheses: targeting owners who own multifamily in your areas. What are the most important questions you ask them in these coffee chats? So the good news is the people that you reach out to is very, very simple. The people who own multifamily in your market know more about buying multifamily in your market than anyone. That includes Cody or I. Yep. The ones you want to learn from are the ones who've done exactly what you're trying to do. If they own a duplex, I want to meet with them. If they own a 100-unit apartment, I want to meet with them. We do not discriminate. There's something to learn from everyone. A good example would actually be Lumberjack Landlord, going back to him. If I looked at one of his properties and see he owns a duplex and I just assume like, oh, it's a small owner, we don't need to know him, I would have missed one of the whales in the space.

Oh yeah.

So I never judge by the property. I never judge by where they live. It's they own multifamily, they're in my market. Let's meet. As far as topics, the most important questions we ask The number one question is, how did you get started? I want to start to learn their journey. Uh, the second, if you know where I'm going with this, second most important question is—

don't just cue me up.

I figured, I figured he might, but, uh, second one is you get through the conversation. It's how do you recommend I move forward? He wants to know how their story is going to apply to you. Yeah.

I wasn't gonna get that off no hints.

When you actually go and apply what you're told from any owner. So they give you some advice, you learn how they built their portfolio, and you go, okay, well, given what you built, what do you recommend I do next? When you go and apply that and you come back to them with a, hey, this was my takeaway, this is where I'm at now, thank you for the advice, that's where you have a solid relationship. They're gonna help you move forward like no other.

Yeah, someone in the Instagram chat asked how they'd recommend— how we'd recommend they go find seller finance deals in their market. I think they're in Virginia. Ooh. Well, you got to figure out who owns the real estate because you can't buy anything if you don't know the owners or the brokers. You get to choose which route you want to do. If you want to do the owner route or the broker route, they both work. We proved it for the owner side. Caleb and Chuck proved it for the broker side. Both seller finance, zero money out of pocket. You can do it in any market, any cycle, anytime, but you have to meet with the players. And so you got your brokers and you got your owners. You get to pick. Who you want to chat with. After that, just go meet with those people, let them know what you want to do, and make it happen.

I was here from Edmund. Are you guys against owning condominiums or mobile homes? Uh, yes, and then no.

Yeah, I, I don't want to own condos, and if I was buying mobile homes, I'd probably want to buy more than one at once. I don't think I'd want to just buy a single-wide or a double-wide in the middle of nowhere, but If you could buy a park of like 50 of them, then you'd have my interest.

Yeah, we have some mobiles. We have mobiles at our, uh, resort. A couple of them are on mobile spots, uh, some of the back units that are adorable, really well decked out, but they were originally some mobiles. We have some mobiles on the hill behind the resort where some of our staff live.

There's a mobile home park right behind, like up the hill. Yeah, we looked at buying that one and then They were like twice as overpriced as they should have been, and they wanted to be cashed out.

Yep, that doesn't work.

No, you don't get priced in terms like that.

Yeah, as far as condos, I actually started with a condo, um, and I did a house hack in it, so it made some sense because I needed somewhere to live and I had a room for a roommate. It was 2-bed, 2-bath, so my wife and I lived there. We had a roommate for a while. It worked, it did what it was supposed to, but then when I moved out, I converted it into a rental. Uh, they did a special assessment, so the HOA almost completely killed my cash flow on it and the HOA was an absolute pain to work with consistently. It's too small to make any significant money for you if you're buying a condo and your headaches and variable costs on those can get really, really high. So I am against condos and for large mobile homes.

Yeah, someone just asked about that on there. Why do you hate condos? Well, special assessments. Other people suck at managing money. And if you have to write a check because other people mismanage money, it's not as fun. So we prefer not to have HOAs.

Yeah, HOAs are no bueno.

All right. Do you have typical secondary options in case a cash-out refi falls through and you have a balloon payment due? Say rates aren't in your favor at that time. Well, you could take it private, meaning that you can go back to the seller if they financed it and say you need money. You can go to your investors. You can go to a hard money lender, see if you can borrow a second lien. You could sell a portion of your LLC out for cash and use that to pay down the note. I've done that before. But if you don't earn it, you got to get the money from somewhere, and you're going to have to back it with something. So it's either going to be debt or equity.

Let's see here. We have, uh, thoughts on self-belief when first starting out. I know we both have thoughts on this. I always love starting with yours though, Cody, because you were 19 no experience, no friends or family in the space. Um, how did you get the confidence to start buying? And you started with commercial assets.

Well, I started with the 12-plex. If you're worried about the self-belief thing, I mean, I would just not worry about your feelings. Like, I don't want to hurt your feelings, but you should be okay hurting your own feelings for the, the pursuit of something worth more than what you have. So if you want to go buy apartments and it's scary, it's like, okay, get over it. I mean, it While that's kind of harsh, that's just the reality. Like, if, if you're afraid, that's not a reason not to do it. And if it's what you really want to do, then you need to forget about your feelings for a minute and just make it happen.

Yeah, that's the best answer I can think for that. Um, for myself, it took me a while to get the confidence up. I worked a 9-to-5 for years saving up to buy, and I wasn't comfortable raising money from other people. That was the huge hurdle for me, was How do you actually go and raise private capital? Even if I have a great deal, what if the capital doesn't come together? Do I put earnest money down and then just lose it? Like, what happens? That was really scary for me. We got to a point where I met Cody, who'd done it a couple times before, and he is like, well, I got over that fear because I had one partner. And so I was like, okay, if we're confident we can raise the money— for me, the confidence came from having someone in the space who's done what I'm trying to do. And in that case, it was Cody.

Yep. Someone asked if we screened all of our tenants for the 38-unit. We did not. We screened tenants that we placed. We didn't screen the tenants that we inherited.

And there wouldn't have been much of a point when we bought that building. So we bought it so far under—

it was a turd. Yeah, still is.

Bought it for a fantastic price because there was a lot wrong. We already knew there was a lot of non-paying tenants.

Didn't make sense to screen them.

Yeah, you already know there's a problem there.

Okay. What's your experience? This from Sean. What's your experience investing in Washington? I assume laws are more tenant-friendly. Yes. So there's two different types of states. I'm not talking about the color of the state, but there's two types. There are states that are easier to manage in, and then there are states that appreciate more. And that's really it. Like, it's either really easy to manage and you're typically going to have higher cash flow Or it's difficult to manage, but they appreciate like crazy based upon the laws that are in that area that make it difficult to manage. They just tend to bring about more rent bumps, tend to bring about more appreciation. Mm-hmm. We bought based on cash flow, and the rents go up a lot more in Washington than they do in some of the states in the Midwest. So yeah, it's difficult to manage here. But somebody is going to own the real estate. Somebody has to own it or it goes to the government if you don't pay your taxes. So somebody or some entity is going to have it. Question is, why not you? And so that's what we do as far as our outlook on the business.

And funny enough, the more regulation you put on these to the, the color of your state question, the more regulation they put on housing typically the more they do the opposite of what they're trying to do. They typically jack up rates because they make it so hard. People don't build. You have very few landlords. Yeah, the competition, it creates a weird market that typically skyrockets price.

Talk about rent. Like, if you do rent control, guarantee you rent's going up by the max every single year because you have to. Yeah, you have to. Otherwise you get way far behind. Just as a percentage base. So it's just guaranteed bumps. Now, that's great for tenants that have a really low locked-in rental bump. But if you're going in and you had a vacant building and you're filling it up, they're just going to keep bumping it every single year because they can. And so it usually does the opposite of what people think it's going to do. And the states that don't have all those regulations don't appreciate as much. So, alrighty. What up, guys? I just turned 18 and I'm trying to get into a property as soon as possible, but I don't really know how. What do you suggest I do? I'd go meet with people in your market that have done what you want to do. You want to meet— if you want to go buy a bunch of real estate, go meet with people that own the real estate. You meet with the players, learn from them, and then you become a player. How that cycle works.

And find the person who's going to help bring you to the next step. Like for me, I needed a partner who had the creative finance and capital raise experience. Cody needed someone who had a little bit of capital and had a little bit of business experience. So the two of us partnered together well, but that really, really helped. Uh, Caleb and Chuck actually joined our mentorship group when they were 18 and we played that role for them. They're one of the first mentees we ever had. They stuck through the pain of us figuring out how to coach someone. Uh, but they, tried all of 18 to buy something, didn't quite find the deal. Now that they're both 19, they've done 3 deals, have 28 units. So find the right people or the right group of people to move you forward. And that is the absolute number one piece of advice I have.

Are there any memorable initial calls you made to owners that didn't go as planned and made you laugh afterwards? Maybe you bombed it or they were just confused why you were calling. Yeah, that happened on a sixplex that I did end up buying in Moses Lake. I got to get back to him. He offered to sell us another property.

Oh yeah, I forgot about that.

Yeah, we got to reach out. But I called him a couple years back and I butchered the call. And later I called him back and I said, hey, I was the 19-year-old that butchered the phone call. Well, what's up? Well, I still want to buy it. Not interested. And then he hung up. And later I called and asked him just to meet for coffee. We met for coffee, and then he offered to sell me the sixplex, and I bought it. Crazy how that was, but I completely butchered it. So that's— it happens. Christian did that too on his very first call. Oh yeah, I, I gave him the phone number for, uh, what was the name of those apartments? I don't even remember.

That was Maryland, was it?

No, but it's a, it's a brick, brick apartment complex beautiful building over in Moses Lake. I was like, here, call this person. It's like, well, what are my options? Like, will you try and buy it, or you can ask him for a meeting? And he did both.

Yep. When you have an either-or, don't choose, uh, choose one. That's— that was the lesson there. However, I'll give myself a little bit of credit. I made the call.

You did.

And that's—

people won't—

yep. And that is the piece you have to do. You can't get better if you don't do it. That was the hardest part. And if you get that part out of the way— I've learned that in every sales job Just make the first pitch. Probably going to go poorly. I made the pitch, it went poorly, and my pitches are a lot better now because we've done that a lot of times. Yeah. From Malik on Instagram, do you guys hire a property manager for all your properties or manage yourself? Well, we started a property management company, which means it's kind of a hybrid. We have employees who do a lot of the roles for us. We have a fantastic team in our state and every other state that I've looked at. It is not hard to be better than the previous property management company. They are bad. I have seen very, very, very few good property managers, especially on smaller assets. Yeah, there's some great ones when you get into the big name, 100+ units, you actually find some very competent managers. But the best managers want to manage those buildings because they're easier. They have on-site onsite leasing offices to manage the smaller rentals, duplex up to probably 50 units. Yeah, you have a lot of garbage property managers. And that was something that we committed to doing.

So it's probably up to like 70, 80.

Yeah. Now if you're in Washington State, we manage most of the state. We're actually expanding property management.

Yeah, we manage in Mason County, Grant County, Pierce, Kitsap, Grant, King. Yeah, I mean, we have, we have some counties.

So Spokane now.

Spokane. Spokane. Thanks, Beth. Yep.

But we can, uh, we can manage pretty much if it's on I-90 in Washington, we can do it. If it's as far down as Olympia, we can do it. So if anyone here or on our channel has rentals they want a good property manager for, uh, our claim to fame is we have the best bookkeeping in the business. I can guarantee that because I've looked at pretty pretty much everyone's books and they are garbage.

Garbo. Okie dokie. Is there a time of day you like to call or avoid calling owners? No, I call them when I find their number. It usually takes a couple minutes. I will dial it. I don't even think about what I'm going to say before I dial it. I just go.

I would do it, um, after 9 AM and before 9 PM. Anywhere in those 12 hours, it's the same. I have seen tons of books because I used to be a phone sales guy. I'd sell advertising over the phone. Tons of books. I'm like, call from here to here, these are your best hours. Well, it turns out they're all hours. They're all hours, and someone's going to answer it anywhere. I mean, if you're going to call, just call every hour, right? Yep. Um, absolutely go for it.

Who do— what do I say to someone who would want to invest with me? Do I just be completely honest with them? Well, I'd hope so. I don't hope you'd lie. That'd be a poor decision. Honesty and transparency, it's, it's not good enough to just have one of those. So you need to be honest, you need to be upfront, as well as just being honest and telling them the truth. That said, you should have a plan. When people pitch me, I'm like, okay, what's the plan with the property? Well, I want to buy it and rent it out. Okay, well, then what? Are we holding it? Are we flipping it? Because I don't like to sell. I would sell if there's a big enough value add, but I wouldn't go in with that mindset. So I'd have a plan of what you want to do, and then yes, you should be honest.

Yeah, I think that's about as simple as you can possibly put it. You don't want to tell any story or fabricate something. Actually, there's a, there's a bunch of people, and I've seen this online, I know you have who recommend, hey, for your first deal, pitch your investors on a deal that's already sold, and then once you raise the capital, go find another deal that's just like that one. That's dishonest. Don't do that. And you will see that in multiple courses. You'll see that on multiple YouTube channels. Oh, just do the fake pitch and figure out the capital, and once you have the capital, you can do whatever. That's a great way to get people into bad deals or to just straight lose money. Be honest what you're doing and find the deal first because the order is deal, debt, equity. You should have an actual deal under contract negotiated where you figured out what you're doing. Present that opportunity exactly as it stands.

All right, from Edmund, at what age do you both think you'll be at 1,000 units by?

Ah, no, what do we both think?

I mean, We're in stabilization mode. We've got another 2 months of that, and then we go into build year part 2 once we have our systems down. I mean, we could probably get to 1,000 units in 18 months if we tried, but we don't— like, that, that just doesn't make sense. Like, we could, but it doesn't really make sense for the business model. I'd rather do slow and steady and not take on as much debt. Just because you can doesn't mean you should. Just because it makes money doesn't mean it makes sense. The 1,000 units— the people that flex the unit count are typically syndicators, and they own very little percent of it, and it's very leveraged. That's not for us. I mean, we'll get to 1,000 units by the time I'm 30, without a doubt.

Oh, easily.

But we're not going to have super high leverage, and we're not going to have a ton of partners. And by a ton, I mean we probably won't have many. Like, we'll we work with Adam on one LLC and that LLC will probably get to 200 or 300 units by the time I'm 30. We'll probably have 600 or 700 between the two of us.

I would assume so.

It's 8 years.

It's a long time because what we're going to start doing is we'll start buying bigger buildings because you have all those advantages we mentioned earlier— onsite leasing. We're probably looking at stuff. Once you get over 100 units, you have a different pool of competition. But we're probably going to be looking at a lot of stuff that's in that 80 to 99 unit range is kind of the sweet spot where I'm not fighting all the institutions, but we still have big buildings that have some efficiencies and we could buy them seller financed, 10-15% down, and we can start knocking those out. When you're just passively through the year buying 100 units here, 100 units there, it doesn't take that long to end up with 1,000.

If we bought a 120 unit complex every year for the next 8 years and that we'd be at 1,000. We'd be at it in like, yeah, 7 years.

Yeah. We put on an offer on 97 units out of state recently and then turned out that they needed about 4 times as much down as they said.

Yeah, that wasn't my relationship. That was one of our mentees, but one to help them out. All right. What do you do to keep yourself accountable and push yourself to get over the fear? Well, Right now we've got about $12 million reasons why we can't give up. Yep, we have $12 million of debt. Gotta push through it. It sucks, it's hard, but we put ourselves in a position— I, I made a joke to Christian about this— for successful partnerships, but you build a universe which is really uncomfortable for everybody, and if it doesn't work, you lose everything. Well, we did that for each other, so our partnership has to work. And that might get a little delayed now, but that's okay. The partnership has to work. So we got a phone call on Christian's phone, so that might delay. But we built an environment where when this thing works out, we're just wealthy. We can do whatever we want when we want. We're not there yet, so we have to complete the program that we set for ourselves. It's not an option. If it went wrong, it would be total failure.

Yeah, I want to invest you of anything that you have debt on. That's why part of the deal is to eliminate the debt over time, pay down your debts, eliminate your debts. When you get far enough in this game, at some point you just get tired of having to borrow to move to the next level. And so a lot of people just end up rolling down the debt until you're just a completely debt-free company. That's going to be a huge part of it for us.

What is syndication?

Ah, what is syndication? I do like that question. So syndication, essentially you're going to form an SEC fund. So you're creating an actual security where you're marketing, you're essentially crowdsourcing your deal. So you'll see a lot of people, especially with large social media following, they'll hit their audience and go, hey, you can own a piece of this deal. You have general partners on one side, which is going to be you, the person who controls the deal. If you don't have a lot of money yourself, you need to qualify for the debt, which means you're going to need a sponsor as one of the general partners. That's someone who has high enough net worth to qualify for the debt for your purchase. Then everyone else is called an LP, a limited partner. They are part of the deal. They're part of the ownership structure, but they have limited liability and limited upside in the deal. They're buying shares, essentially like shares of stock in your real estate deal. There's a few problems with syndication, which is why we are not syndicators. One, as the general partner, you own very little of your deal. Two, the way they're structured, you actually do have to sell them within 10 years to hit the returns that most people are offering you.

You got to liquidate to get the capital back. Now, if the market goes up a ton, you can just refinance and ride it forever. Great. But that doesn't usually hit most people. IRRs, that doesn't do it for them. So we're just not a fan of having to sell. It's a poor business model. Would you guys ever do an in-person meetup? If so, where would it be? It would be at the resort on January 20th, 21st, and 22nd.

Yes, a little earlier in the chat we left that phone number in there for you. But anyone who wants to join on Instagram or YouTube, I, I would love to meet more of the people who actually engage on the channel. So if you guys are available, that is the week to do that. We're gonna have the wine bars open across the street, we're gonna have dinner served, you get a hot tub cabin. Um, but yeah, we love doing events. We're events people. We're gonna have some great guest speakers for that. If you can make it down, I highly, highly recommend it. The last one was December and it was super fun. Um, Michael Fan, in the Instagram chat. Are helpers still needed at the resort? Like to fly down to Washington, get lunch together?

Well, you can grab lunch anytime.

Absolutely.

Yeah, yeah.

Uh, DM me on Instagram @ChristianOsgood. And, uh, yeah, if you guys want to get lunch, I'm always open to fitting that in the schedule. Do we need helpers at the resort? We're going to.

Yeah, yeah, yeah, we will.

Uh, one position that we'll need is a head of maintenance who's just the one who coordinates the maintenance team. And then we're going to need extra people to actually help just run the general resort. Probably need 1, maybe 2 as we get into summer, a few more hands to help us with the busy season. So if anyone's interested or knows someone who's interested, that will save me a step.

That's it. If someone said be successful or die trying, basically. Well, we create an environment where that is the reality. We will not do that forever. That is ending next year. We're paying off a ton of debt. I've paid off, I think I've paid off about 7 figures of debt this year. I think I finally passed the million-dollar mark. But when we get our debts paid off, we're chilling. We're not doing that again. We'll borrow non-recourse, but we won't risk what we built.

Yes. Now I have a few more questions here on the Instagram, so I'll answer that. YouTube, it's your turn to get your last few questions in. We're doing our last call and right now I have two people. I have Daniel and Dividend Dave in the running for a Cody Things t-shirt. If anyone's on YouTube or on Instagram, you can hop on YouTube and run in there. Anyone in the Super Chat, even if you just want to drop a dollar in there, one, 1, helps us for the algorithm, but 2, we're going to roll a dice here and see who actually gets the t-shirt. So drop those in the chat. From Malik, your opinion on— oh wow, this is timely. Your opinion on Section 8 investing. It's coming in trend these days.

Yeah. If you're going to do that, just make sure you're not slumming it just because you get guaranteed money. That's where ends up giving a lot of real estate investors a bad rap. And so if you're going to do it, make sure that even though you're taking typically a lower rent amount, that you are keeping this stuff nice. And if you do that on a percentage of your portfolio or on the property, you can get benefits. We're looking at that right now on the 38-plex because we're taking it to agency debt. And to do that, we got to have really stable books. And so they want to see 25% of the property in Section 8. And if we do that, then we get a rate reduction on a 10-year fixed rate term, which is huge for us. If we're above 25%, it can go all the way up to 50. We're not going to take it that high, but if we go above 25, we can get state credits. So there are incentives to do that. And you can typically get extra money to help do renovations, to keep things nice and get discounts on different debt products. Yeah.

Now, Section 8, if you are a beginning investor and you're buying some small real estate, so say you buy a fourplex and a duplex, you're a 6-unit portfolio, you're probably going to have a lot of difficulty scaling if you have Section 8 because it's going to be lower rent. It's going to be really hard to make those pencil. When you get a little larger in your portfolio, Cody, and have a little over 100 multifamily units, but anywhere, I'd say probably when you're getting over 30 to 30+ units, if you blend some Section 8 in there, it does a couple of things. One, stability. That is a government check that will come in every month. And if they run out of money, they'll just go print more. So that is guaranteed income. Guaranteed income is awesome. It removes some variables at the cost of some of the upside you can get in rents.

Now, if you build your business model for cash flow and you don't have to get peak rents, you're probably in a better place than people who are betting on getting peak rents. Because you can just charge less. We're down to not be at market rent. We don't like being at market rent. Like, we're, we're all for it as a management company. We'll help our clients get top dollar, but for our portfolio, we built in a way where we don't have to, so we'll always stay full once we're full. Yep. Okie dokie. Do you get— did you guys move to Moses Lake, or do you drive across the state all the time? Neither. We don't live in Moses Lake, and we don't drive there all the time.

We have a new employee actually coming in on— I think they move— gosh, they moved to Washington in about 10 days, and they are going to be starting mid-month for us in January as our boots on the ground there. And we'll continue to expand our teams, but you can't be everywhere at once. As you start to do this, I highly, highly recommend doing what we did in focusing on one market first and really getting some market dominance there. That helped us tremendously. Once you hit that point, you may go multi-market, which is what we did. We own south of ourselves about an hour and a half, and we own east of ourselves about 2.5 to 3 hours.

Yep.

Those are our two core markets right now. I can't be in all those places, and almost all of our capital comes out of the Seattle area. I want to be one near my family, which is unfortunately in or around the greater Seattle area, but that's where a lot of our capital is too. And so we park ourselves there in the middle of our portfolio. We'll actually drive out tomorrow to Moses Lake, but we go, what, once every 6 weeks now?

Yeah, it's been a while. Okay, let's see. If you see a property with multiple numbers that pop up, do you call them all? Yes, you call to make contact.

Oh, I got a trick for that though. Um, most— not everyone, but most people have an iPhone. And it's actually, if you look at the percentage on that, it's actually increasing. Like, business people have iPhones because they integrate well. Love or hate the company, it is the phone that most people, like business people, are going to use. So you can actually type in that number if you have an iPhone. If it lights up blue, you have an active, likely personal line that you can just call them on. Uh, that's how we've done the verification. When you see 8 numbers pop up for someone That's the first thing we do is I type in all of them. If any of them light up blue, I'm like, oh, that's almost definitely them.

Malik asked how we pay off debt.

With money.

You either earn it or you borrow it, meaning you refinance your obligations or you find a way to earn it. You can also get it from dividends on your investment. So if you get a huge stock win and you could sell out of that, take the money, pay off your debt. Could be from cash flow on the real estate. That's what we do because we don't own any stocks. I convinced this guy to sell his stocks.

Yeah, that wasn't a hard sell. I wanted to be in real estate, and so we were like, oh, well, what are we doing to buy the real estate? I was like, well, I can fund it if I sell my stock. Ta-da!

Yep.

And then the stock market crashed the week after I, uh, I sold. That was a total fluke. That was not timing the market, that was actual luck. Um, but yeah, uh, it says it might be a silly question. Malik, that's not a silly question.

Most people don't understand that you have to pay it off with money. The question is, where are you going to get it?

And it has to be earned income. You don't just borrow money from someone else and then pay down the debt and have new debt you can technically cycle forever, but you never really get anywhere. You just keep replacing debt. I've seen people get into that. That's the opposite of a debt snowball.

That's a—

I don't know what we name that— the inverse debt snowball, when you just get so much debt that it rolls you over.

It's like a debt snowball, but instead of pushing the snowball down the hill, you're in front of the snowball like Indiana Jones, and it's just getting bigger and bigger.

Not a good place to be. So it's not a silly question at all.

Uh, you have to figure out how are you going to add enough value or enough dividends to where you can write checks someday. And it's okay to push it down the road, to refinance it a few times, but eventually you should figure out, okay, how do I get rid of this debt?

Uh, one of our mentors, Gary, he levered up to a 100+ unit portfolio and a boatload of self-storage railroads. I mean, he's got, he's got some fun stuff, but He put it all into 30-year debt, amortized, and paid it all the way off. Now he plays with cash. He just bought a really cool asset, office space, which isn't really his niche, but he's like, I want to build a real estate center, so I'm going to put this in the middle of Moses Lake and I'm going to fill it with the tenants that I want to make my business easier. He bought it with cash. It's a cool way to go.

Yeah, he's a baller. Gary. All right. From Lorenzo, how do you refinance a property with two notes? The same way you do it with one note. However, you have to have enough loan proceeds to knock them both out. Otherwise, you have to come to the closing table with cash. It's about as simple as it gets. Mm-hmm. Did you refinance your first 12-plex to pay off the hard money? Nope. That was one where I had to figure out how to write a check. There are times where you will just be in a place where you have to write a check. I have a $150,000 prepayment penalty on my first deal. I signed whatever they told me to sign to get it done. So I have a 7— no, a 6-year prepayment penalty for $150,000, and then it drops to $100,000 for 4 more years, and then I have no prepay. So I'm not refinancing anytime soon. Mm-hmm.

Yeah, that'd be expensive.

That would be expensive.

And you have a great debt product on it.

Yeah. 30-year fixed-rate mortgage, no balloons.

Yeah, that keeps it super easy. All right. That is all the questions that I see from Instagram. How are we looking on YouTube?

We are all done.

All right. Well, this is going to be the last call then. If you want to do a Super Chat, $1 is the, the only minimum. This just helps us with the algorithm moving forward.

For Dividend Dave and Daniel S., Daniel S., you guys should just shoot Christian a message on Instagram @ChristianOsgood so we can get your address and then we'll let you know how the raffle goes.

Yeah, well, I mean, we can knock that out right now. I have a dice and turns out That's gonna be pretty easy to, uh, pretty easy to roll for. I'm just gonna pull a dice out of the board game box. All right, we'll do this live.

If Dividend Dave or Daniel, if you're here, call even or odds, and if you don't call it fast enough, then I'm picking for you. All right, Dividend Dave is going to be Odd. I'm calling it.

Okay, which works because he is slightly odd. No, I'm kidding. All right, let's grab the camera and I'll roll the dice. There we go, YouTube, you're going for a ride with us. Point that at this and we're gonna roll it. That's an odd. That is a Cody Thinks shirt for Dividend Dave, the one and only. Flip a coin would also make sense. There's a bunch of coins behind me, but I didn't think about that till now.

My goodness. There we go. Well, I think that's a little bit low. Yeah, that's fun to watch on here.

There we go. Well, welcome to the roller coaster and our first giveaway. So Dividend Dave, congratulations. I think I see one more question here and we'll go from there.

No, someone— oh yeah. How long would it take for you guys to pay off all your debt? 5 years.

5 years. Yep, we mapped it, and that is our actual plan. We want to do this in 5 years. We'll, we'll roll right through that.

All right, Dave, send us your address. We will send you a shirt.

@ChristianOsgood. If anyone else sends me their address, I'm not sending you a shirt, but you could show up to our next YouTube Live, and we'll probably do another small giveaway there again. So thank you all for attending.

Happy holidays.

Yes, a Merry Christmas to all, and we will see you all soon.

Oh, and to all a good night. Could have finished the same. We did. All right.