21 Year old House Hacking a 25 unit appartment - Caleb Hommel Live

All right. And like that, we are live. Not— hello, we aren't— not on Instagram or not. That's okay, we're live on YouTube. I know that for a fact. So welcome back to the channel, Caleb.

Good to see you, man. Long time no see.

For those who are brand new, we're going live here on a Monday testing some new software, but most importantly, we have Caleb back on the channel. We're talking about a house hack that is one of the coolest deals that have ever happened from anyone in the mentorship program. This is Multifamily Strategy Live. Welcome back to the channel. Now, if you guys have any comments, I'm testing to see how things go through. We're on a brand new platform, so you're going to see multiple people, uh, multiple platforms streaming to one spot if we did everything right, which we may not have. We'll find out as we go.

It looks like you messed up already, but that is all right.

Well, you know what, there's no way to check it other than doing the thing, man. Um, I see a few people are viewing from somewhere, so That is a positive. Basically, it looks like it's all from YouTube.

So yeah, Daniel Flores.

Yep, good to see you, my friend. Good to see you. So Caleb, give us a little bit of background. For those who don't know Caleb, by the way, young kid, went through our mentorship program, has bought a crazy amount of real estate, and really, really excited to have you on, man. So, uh, talk to me a little bit about where you're casting from right now and what happened, what, 5 months ago when you purchased this property?

Gosh, yeah, whenever September was. I can't do great math off the top of my head. When you, when you were introing, you're like, one of the coolest deals I thought you would say ever. And you just go to the mentorship program like, dang, way to not hype me up right there.

You know what? There are other deals that have happened in the world that have been pretty good out of our network. Your deal that you're sitting right now is my favorite deal. Let's talk about it. Let's talk about it.

Yeah, so September closed on this. This is a 25-unit apartment complex in Stephenville, Texas, seller financed. I am actually in my manager's unit right now where I currently reside. So yeah, 25-unit house hack. Don't know anybody else that's done more than like a 4-unit, or gosh, maybe even— yeah, probably 4 units, probably the highest I've ever heard of.

Uh, that sounds about right. I think a lot of people do on house hacking. I think this is a major misconception that we have in the market is— and I love BiggerPockets, but I think they may have blasted this too hard— it's use the residential lending, 30-year fixed rate debt to buy a duplex, triplex, or fourplex. Uh, my first deal was actually that. I bought a single unit and house hacked it with a roommate, and it ended up not getting me rich. I did make money there. It helped me move into my house. It's not that it's not a good strategy, it's not a strategy that gets you in any reasonable time to financial freedom. It's a tool for the tool belt, not the tool. What made you start buying larger apartments? Because this isn't your first deal.

Let's rewind a couple years.

When you got started, what was the first property you ever bought?

Yeah, first deal for me was a 10-unit complex in McAllen, Texas. And as far as going bigger at the start, it was kind of— I saw you and Cody were buying big stuff and I'm like, "How the heck did these guys do it?" I don't know if it's a little bit of cockiness or arrogance at the time, but I was like, "If these idiots can do it, I can do the same thing." So kind of just jumped right into a 10-unit, an 8-unit, then bought my third deal was another 10-unit. And then this is my fourth deal, a 25-unit. And I am currently under contract on a 26-unit, 1.5 miles away from my current residence.

Dude, that is absolutely insane. How many units does that put you at total?

What, that would be 79 units total.

79 units. And how long did that take you?

Well, I think I bought my first one I was 19. I'm 21 now, so about a year and a half been acquiring. So not too long.

Wow, dude, absolutely phenomenal. Now let's talk a little bit about this deal. So you're in Stephenville, Texas. This is a 25-unit apartment building. How much did you pay for it?

I paid $2 million for this one.

$2 million for 25 units. That's not bad. So you're sitting somewhere around $80K per door.

Yeah, I won on price on this one and terms.

And what are we looking at here? These studios, 1 beds, 2 beds, 3 beds?

So we've got 12 1 beds, and then depending however you count my unit, which has the manager's office added on to it, if you count that as a bedroom, it's a 2 unit. If you don't, it's a 1 unit. So about 13 2s, 12 1s, depending how you slice it.

Awesome, dude. Okay, so you have a pretty sweet setup there then.

Not too bad. Yeah, it's bigger units too, a little dated, but nothing too crazy.

That is— okay, so that's fantastic. You're down here, you move into a 22-unit, and I think this is the big difference between buying the small stuff and buying something larger. What does cash flow look like today? And I know you're still doing stabilization, What's it going to look like the same time next year?

Yeah, cash flow today, we're sitting about $5,000 in cash flow and we still have another $8,000 of upside in rents. So it definitely doesn't suck. I bought it in September, was bringing in $14,500 in collections. Um, today we're bringing in about $18,000 in collections. So not a bad boost to get started, dude.

Yeah, I'm gonna say that's, that's gonna work pretty well. So $18,000 collections, what does that mean, uh, net cash flow looks like for you on this particular deal?

Yeah, right now it's about $5,000, and then we're gonna have another $8,000 of income starting next year, or well, upside from now, so could be there by next year.

Okay, so for those who are trying to build an income stream, one of the most common questions that I get through either Instagram or YouTube, or even when we're talking to people that were, uh, just starting the mentorship group, what's your ultimate goal? A lot of people say $10,000 a month solves a lot of problems. Either replaces a current income, allows them to go on more vacations. You're able to do that in one deal. You've taken care of your housing, you've stabilized the whole campus, you've got your, you know, by this time next year you're at your $10,000 a month income. This is in one deal. How did you find this deal?

This was an owner call. Um, I started off going complete broker route, um, like an idiot. The market was red hot. I was competing with everybody, calling everywhere around Texas. Started in Nevada, looked all over the state, settled on Texas. And then after a bunch of broker calls, I realized, uh, you were right, owner calls, hyperlocality was the way to go. Finally realized that. So picked a little market called Stephenville, Texas, started calling owners. The whole reason I picked it was next to DFW. I'm like, this is cool, I want to live in Dallas eventually, so I'm gonna start calling areas around here. Called basically the first owner I called, um, called him this 25-unit, and he was, um, Older gentleman basically was like, hey, how'd you get started? And kind of started going to the talk track, learning more about him, what he's done. Been local to town, born and raised here. And he was actually looking to get out of the game. This is the first one he was looking to offload. And basically I was like, okay, would you hold a contract? He's like, I might be open to that. Okay, what terms? And then pretty much went down the script. And it doesn't happen like that for anybody. I've met with every owner here so far. Since then, nobody else besides the one I'm under contract on right now has agreed to sell on the first call. That wasn't even the first call. Um, but yeah, just an owner call was pretty much the basis of it.

And for those who don't know or haven't heard the backstory, since you've moved to town, which is in November, so you moved a couple months into this deal, you have met with virtually every significant owner in this little town, right?

Yep. There's one guy I have not been able to get a hold of, and that is it. Everybody else I've met with.

Okay, so how many meetings is that? Like, oh, ultimately you've moved into town, you're in town for— you've been there for 3 months. Within your first month, how many owners do you think you met with, and how many opportunities have you looked at since that time?

Gosh, that's a good question. Owners I met with, probably at least double digits that first month. I was doing like— when I first got down here, my first week, I think I had 3 or 4 booked. So kind of got right into it. As far as opportunities since then, Um, not all of them have been multifamily either. Some storage and office opportunities as well. I passed on those at the time being. Um, I probably looked at 5 opportunities since I've been down here, um, and then including the one I'm under contract on. So pretty much snowballed pretty quick.

That's not half bad. Okay, so you've seen a majority of the major players, and when I'm looking at small markets, that's about what I'm seeing. I'm seeing there are 5, 10, 15 players who pretty much control any market. Now Stephenville is a pretty small town. I believe your population, you sit somewhere around 30,000-ish people, right?

So without the college kids, we're counting about 20. The college has about 17,000 kids, so we're sitting closer to 37. College is going to 30,000 by 2030, so we'll be closer to 50,000 here at the end of the decade.

Okay, well, that's pretty darn good then.

Not bad at all.

So for people who are struggling to find owners, to connect, to really get that first owner meeting booked. This is something— you called an owner, you got really lucky on the first call, right? They immediately were, hey, I'm interested, let's connect, would you like to buy this deal? How did you book all those other meetings so quickly? I hear a lot of people who are struggling to get that first owner meeting, struggling to get anything booked or moving. What have you found has worked for you?

I mean, gosh, it's pretty much not taking no for an answer. I remember when you, uh, when you actually moved me cross-country, we were down here and I was trying to book a call and you were in the car She probably dodged the meeting, what do you think, maybe 5 times. And I was like, oh, that's fine, we can— when do you want to meet? When do you want to meet? I just didn't hang up the phone and just kept asking. I think you remember that call, don't you?

I do, I certainly do remember that call.

I just wouldn't take no for an answer. And then the same thing, if you get hung up on, you just call them back. It's not that complicated.

I absolutely agree, it is not that complicated. This is simple, this is easy to do, anyone can do it. All right, I'm gonna go to a couple of the questions in the chat.

I'm already here, I'm already here sitting in the comments, dude. I'm ready to start answering some of these, dude.

Yeah, this is fun, and we have some new software, so we're gonna see what we can, uh, we can do. I believe I can actually bring the questions on the screen now, so that's crazy. Yeah, let's give this an experiment. Everyone, uh, bear with me, we're doing a new format here, and, uh, away we go. By the way, someone on YouTube, do me a favor. I'm supposedly live on my Facebook. I don't know if this is true. Someone check my Facebook for me and post the comment. We'll see if it appears. You're gonna help me build this channel. So one of you—

you're sure not live on your Instagram, let's just say that.

I, I am aware. We will get this figured out as we go. No worries, man. No worries. Okay, so I'm gonna go— how did you float your expenses? Look at that right on the screen.

That's sweet.

Better, dude. Welcome to the new channel, everyone. Multifamily Strategy Live. This will be Wednesdays, but we're testing on a Monday so we don't screw it up for Wednesday.

Uh, Mondays and Wednesdays now.

Yeah, there we go. When you put all the expenses, down payment, closing costs, or how did you, uh, reserves with no cash at all? So basically you start with zero money, properties cost more than zero money to run. How did you address each of these items here? Expenses, down payment, closing costs. What did it look like?

How'd you put this together? Yes. Expenses. So when you're getting started, I mean, you talk a lot about the stupid tax. Um, part of mine, I underwrite expenses a little low at the start, which just happens. Um, renovations, reserves, you're gonna underwrite that low at the start anyways when you start with no money. It's kind of like, oh, I, I was afraid to ask for more than what I wanted and what I needed. So to combat that, I did this thing, um, that you and Cody have called the HOMO hack, which— oh my gosh, Christian, there's somebody on LinkedIn. I'm sorry for in the middle of answering that question, I had to say that.

Multi-streaming, we've done it. Success.

Yeah, the biggest thing then, uh, was what I now call the Homel hack, which is basically just a set period of no payments. You have to negotiate this beforehand. You cannot just not pay your mortgage whatsoever. I negotiated 6 months of no payments, so I was just saving up an extra 3 to 3.5 grand every single month, and that helps float some of the renovations of getting started.

Makes sense to me. Now, your deal— for those who hadn't heard the drama here— this, this deal was funded, and then about 3, 4 days before you drove down there— or flew down there, excuse me— to close the deal, sign—

are we talking about Stephenville deal?

The deal became unfunded. Uh, when they're talking about how did you raise the down payment portion of this, how did that down payment come in? Because that You had the money lined up.

The person—

we won't name them, but the person—

yeah, we cannot name them—

the partner who was going to do this spontaneously and, uh, to everyone's surprise, ended up being a criminal and went to jail instead of closing our deal.

So, uh, yeah, well, first of all, I want to thank God that I didn't— that partnership did not happen. As far as Good.

You want that to happen before, not after. So I remember the drama and I remember you being on the phone. So I was in town for this. I was building my house. Caleb's down there going like, well, the money's not lined up, but I do sign in about 9 hours. How did the down payments— how did the down payment come in for this deal?

Yeah, I mean, we were— I was like, I'd reach out to people. This was— this happened Tuesday. I actually remember the text. I was coming. I was in Ohio seeing family for flying back to San Diego, then getting ready to come back on a plane to Texas like the next day after. And the hecticness of it all, I boarded the plane in Ohio and I get the text, hey, basically what happened, the guy ended up being a criminal. At the time this wasn't known. I was like, okay, I guess I can't ask questions, whatever. So then start reaching out to anybody and everyone I knew. And then from there I ended up landing the Capital pitch at 1:00 AM in the Dallas-Fort Worth International Airport with you your wife and your father-in-law waiting on me to get the rental car. So that is how this money came together. And yeah, it was a heck of a story, heck of an experience. Um, would I want it to happen again? Absolutely not. But that's kind of how it went, dude.

There we go. Um, let's go, let's pick another, uh, let's pick another comment here.

Put this thing on the screen. Yeah, let's go. I like this one. Um, Luke Devine— oh, wrong one.

Oh, sorry, I just, just threw it up. We'll do Luke's next. Uh, from Daniel though. How do you manage your portfolio, self or PM?

Great question. So my first 3 deals are in other parts of Texas. I use property managers on those. For this one, I self-manage, live on site, all this stuff. It's actually not as crazy as I thought when I was getting started in real estate. I was deathly afraid of the idea of self-managing. Oh, you kicked me off the screen, jerk. I was definitely, definitely afraid of the idea of self-managing. It's not that bad at all. I mean, I live here, like, take a few maintenance orders. I am not a handyman by any sort of the imagination. I can maybe throw in an air filter or tell you if a fire alarm isn't working. That's about it. So you pretty, pretty much, um, a benefit of being with every single owner in town is you can reach out to them whenever you need. Um, last week I submitted my electrical panels for insurance, texted one of the bigger developers in town, hey, I need an electrician ASAP, who's your guy? Uh, then 3 minutes, sent me his guy, he was out here within the hour. It's like that kind of thing. So self-managing, when you meet all the players in town, becomes a heck of a lot easier.

Dude, that's how I play the game. And I'm going to piggyback with my own question off of this, by the way, because this is my interview. Everyone else is just hijacking it. No, when you are managing multi-state, you talked about hyperlocality. Are you making any shifts to your portfolio? Because right now you own in Houston, McAllen, Laredo, Stephenville, Texas. Are you planning over the next 12 to 24 months to make any significant shifts in your holdings?

I actually am. I am listing my deal in Houston currently. Um, I am going full local, everything in Stephenville and surrounding cities. So I have taken up what you and Cody did, realized it was the heck of the way to go. Um, actually knowing everybody in town— like, there's one lady, um, I haven't used her for a deal yet, but she's been the most helpful out of anybody here. She's an agent in town, owns a handful of rentals herself. Every time I need something, I text her. I'm like, hey, who's your guy? Like I had a pipe burst. Um, I think I posted about it like probably about a month ago, not when the freezes happened, before. Pipe was 12 feet deep, ended up being. And I'm like, I don't know how to do this. Like, I didn't know how deep it was. I'm like, hey, I need somebody out here to fix this. Who's your guy? Within a minute, she sent me her guy, and bang, bang, bang, and then that project got resolved overnight. So, but yeah, um, I am selling out of Houston, and I am repositioning my other two LLCs in preparation to only expand in Steamboat and surrounding areas. Like, I love Weatherford too. Um, I think Weatherford's an awesome area, but about 40 minutes away, just a little pricier. So eventually I'm definitely open to buying some stuff up there too.

I love it. All right, let's get Luke's question up there. Caleb, when creative, uh, when creatively being able to house hack something that's 5+ units, is it technically a lease option? If not, is there a clause that you use in the seller finance contract?

Yeah, so, um, not a lease option whatsoever. I mean, I think with commercial— I've never done a commercial deal or commercial refi. I know you have, um, commercial stuff with banks. You can't actually live in the building, right?

Uh, generally speaking, no. Generally speaking, you're going to sign something that says that you are not using as a primary residence in a commercial building, which means when you're using seller financing or any sort of creative finance— same with hard money. Yeah, I've never seen a hard money loan where they, they care if you're in the project or not.

Uh, they probably like that better.

Yeah, the owner here— I, I know most of mine would— the owner in this building was actually thrilled that you wanted to live on site, right?

Oh, he's super happy. I mean, I'm not gonna name his name clearly, um, he's become a dear friend. Um, actually have gotten really close to one of his sons who he introduced me to. I met like the whole family. He's in his 80s. I met his kids. Actually going over to have dinner with one of his sons tonight. It's like So he was thrilled I moved out here. It's awesome. I get lunch with him every other week, take him out to eat, all that kind of thing. But yeah, it's not technically a lease option. I mean, a lease option is a completely different type of financing structure, uh, that doesn't have to do with just living in the deal or not.

Now on this version of the house hack, something you do have to be aware of is, say you have 5, 6, 7 years of seller finance debt, if you're going to bring it to a bank loan, there may be a time where you cannot be living in the building because they won't allow it for their commercial finance financing. And that's something that, that may come up at some point. So kind of like the, the traditional house hack, where you usually live in them a few years, then you need to use it, you know, you want to use your loan to buy a new house, so you're going to move anyway. It's very similar in strategy. You have a little bit longer window, you have as long as the terms that you have. But if you want to bring it to commercial refi, part of what you're going to do is you're going to buy your next deal, or a house, or whatever you want to do. You're going to move out, you're going to bring it together.

I'm Yeah, definitely just get another apartment after this.

But I was gonna say, yeah, you're— are you gonna live in this for— your note is 4 or 5?

4 years. 4 years. And I tried, tried for 7, and, uh, the guy who sold me the building is like, I'm a little older, uh, can we try to get the term down so I get this money before I die? I was like, absolutely. It's like, that is something I cannot negotiate with. I can't argue with that.

Especially for a 21-year-old, this works for anyone at any age. I know our friend Dion, who's also often on the channel, he has his own YouTube channel, Dion Talks Financial Freedom. Dion did this when he was a little bit older. It was after he had retired from the military. He was working at a trucking school. So he was a little bit further in life and he started house hacking and he's worked his way to financial freedom. So this strategy works anywhere, any age, but especially when you're 21. And you're the age where everyone's going to rent an apartment anyway, when you own the apartment building, it's super cool.

It definitely doesn't suck not paying rent.

Yeah. So for those younger people watching the channel, if, if you think that it is cool to have like 2 or 3 tenants in your triplex or fourplex renting out your space, helping you pay rent, imagine having 24 other tenants and being paid to live in the building that you own. Too bad.

Laundry. There we go. And free laundry.

There we go. Wait, you have coin-op laundry? Are you just taking the coins and then just recycling them through the machine?

I can't say.

That's awesome. This is a fun— this is a really fun entrepreneurial fix to, I think, a problem with house hacking, which is hard to find a deal that works if you have 24 people paying your rent. I like this a lot better. Um, another question. So when you're meeting with these owners, how long did it take you to track them down? Because you were on this, you moved into town, and within a month everyone knew who you were. How'd you do it?

Yeah, uh, tracking down the owners, it was pretty easy. Um, basically just look at the big roofs. That's one way I do it. I actually ended up investing in the software called Reonomy down the line, and it basically just tells you— look up an area, it tells you all the players. So it saves time. But that was after— when I was getting started, when I tracked on the first owner, I was a— that was a roof. Eventually it was through Reonomy. But as I built up more cash flow and I built up my active income on the side of this, I, I took the liberty to invest in a software.

Perfect. And what Cody and I have done, we have a YouTube video online for this too. I still just Google Maps, look them up. It doesn't take that long to find most of the people.

No, no, not at all. Absolutely not.

I mean, uh, but yeah, it gets easier if you want to spend some money. Reonomy is the best platform I've seen for the owner contacts. Well, CoastArts definitely has the best data. Like, it is the biggest behemoth. I worked from for a long time. Their owner contacts are kind of lame. Reonomy, I've been really impressed with having Caleb let me tour the program. I really like it.

I am a big fan.

Landlord Odyssey says, what's going on guys? Starting to like these lives. Well, I'm sorry, that means they've sucked because I'm glad that you like him now.

Christian sucks.

You're starting to like him now. We just had to bring you on the channel more, apparently. No, Larry, thank you. I would much rather just buy your channel. Thank you for the comment. I want to go live more often. I think live is a better way for us all to interact. And I have fun not having to plan out the whole video because there's no way I can plan out the whole video.

I'm having a blast.

Yeah.

This is awesome.

Better. We'll go live more often. Post in the chat here if you guys think that Caleb should join the channel more often. Caleb, maybe we do this regularly. Maybe we have a—

when you move down to Texas, dude, I'll be there. I'll be in studio.

So you know what's kind of fun though about, about going live? It's mobile. We could do this anywhere, anytime, any not Monday day. Mondays are busy. We're testing stuff today, but this is fun. I'm enjoying this. Thank you. Uh, thank you very much.

You and Vic's Life next. Oh, we're going Rob.

Oh no, I accidentally clicked the wrong one. Here we go. Vic's Life. Um, in these smaller markets, are you sacrificing appreciation for cash flow? Do you get wiped out by large CapEx? Imagine key is needed to win on price and terms.

I feel like we both should answer this because we both invest in like smallish markets.

I, uh, I am qualified to answer this as well. You go first. What do you think? Smaller market, how important is price versus terms?

At the same time, you guys, depends what you're doing. If you're doing a bank deal like I am on my 26, I absolutely slaughtered on price. Like, like I bought this 25 units for $2 million. I'm buying a 26-unit building, 30 years newer, for $1.6. I slaughtered on price. Like, that's without a question. Um, I always give terms over everything. I did that on my first few deals. It was 10% down, 4% interest, long-term fixed rate debt. That didn't change. Um, and then the big thing here, are you sacrificing appreciation with cash flow? That's very interesting. Um, one thing I actually like about the smaller markets— we've talked about this quite a bit, Christian— is you're not hit by the major financial stuff going on in the big cities. Like Dallas this year, probably see a little bit of rent regression up in the Metroplex. Like Stephenville, you're not seeing a rent regression, you're seeing everybody's going up because you have the most stable agriculture in the country alongside a college that's growing faster than anything else in Texas. Like, I choose to play by those factors instead of factors in the huge metropolitan areas.

Yep. And it all comes down to what's happening with the population. Like, that, that it always comes down to that for me. Is what is going on in general with the local population. If it's going up and you can look at the market and say, hey, this is somewhere people want to live and will continue to want to live, it's probably a really good market. You're talking about a town with a lot of history, with a growing young population. I, I see all the advantages to a Stephenville. You go to Moses Lake, Washington, where Cody and I invest, it's not the funnest place on earth. It has a—

I can second this. I can second this.

There's a, there's a, there's a lake, and in the summer it's quite pretty, and in the winter it's quite ugly and snowy. And I said we go, uh, we would kind of in like the, the transition season. I think we, we went in fall. It was not like a gorgeous time of year. Yeah, I was gonna hate on it a little bit, but summers are cool in Moses Lake and the rest of the year is kind of garbage. However, they have fantastic agriculture and a lot of industrial R&D, and they have the cheapest power in the US. So you have manufacturing, you have a backbone. People will continue to want to move there for jobs and affordability.

Yep.

And those are the things— Stephenville, I would say, has the advantage. If I was to invest in one over the other, Stephenville has the advantage of it's also a, like, super fun place to live in addition to job stability and has a fun local culture. That's something that should be considered.

The college here is incredible. I mean, you went— I think it was 3 years ago they went D1, now, uh, well before I was here. But now they're forced to grow at a certain rate to keep their D1 status. They're actually having to add a major hotel in town because the previous one didn't hit the NCAA standards. They have to add more dorms on site. And like, they're like— very interesting— they're, um, not renewing some of their leases at these apartment complexes around town, I've learned. Which is very interesting because, I mean, you're adding 13,000 more students in a span of 6 more years to a town of 20,000 with 17,000 college kids. You're basically doubling your college population, and you're taking— and you're not renewing housing, and you're not building enough. So it's super interesting. But yeah, I love me some Stephenville.

Yeah, very, very, very good town. Let's hop up, uh, throw up our, our multi-streamed, our one question from—

let's get some more. Let's get some more LinkedIn if he's still here, some Facebook. Let's get some support. That nobody on Instagram because you didn't set it up right, but putting you on blast again.

Yeah, we'll see. We'll see if we get the, the YouTube going or the, the Facebook. I see Facebook is live and there's exactly no one there. So we'll learn as we go. YouTube is where it's at though, guys. YouTube is the main channel. That's the main feed. We appreciate you all.

Caleb, how did you get started? I got started learning from this buffoon on the other side of the split screen. Um, I was— my first taste of real estate, I was 16 years old, read a little-known book called Rich Dad Poor Dad when COVID took over the world. Um, read that whole thing. Yeah, he's getting it right now. Um, and then was it junior college playing baseball?

Because he left it in my car.

Uh, was playing junior college baseball back home in San Diego, realized this probably isn't going to take me I want to be with my life. Um, start kind of putting out feelers, kind of trying to figure out some other stuff, and ended up going to a meetup where, um, somebody knew who Cody was. Um, and then connecting with Cody and Christian and joined their mentorship, and kind of the rest is history.

Rob brought up a really good question that I think needs to be answered.

Where's Rob's question? You start with that.

All night or hider is in every single Live stream. I believe this is the first that we missed, so this test run today may not count. This, this, this, this may not just be official. We have to rerun this whole thing.

Praying he's still alive.

Valid question, Rob. Valid question from Zach. How long did it take you to assemble your team? Lawyer, PM, accountant, contractors. Did you have everyone ready to go?

That's a great question.

I love that.

Absolutely not. Um, I think I'm on my third lawyer now, moving to my second accountant. Um, I've gone through numerous contractors on every single property. You are not going to have that team figured out before closing. Well, you might have a team figured out, you're not going to have the team needed to finish projects figured out before closing unless you've already bought in the area. You are like— if you're like, oh, I've already got all my contractors, yada yada yada, what if they suck? What if your lawyer sucks? What if your accountant sucks? Like, you're gonna need to pivot and make changes. The team is the most single most overrated part of real estate. You need to have your team. No, you don't. When you're getting started, you will not have your team ready, I promise you that, unless you've already bought in the market before. Now, when I'm buying this 26-unit a mile and a half away from me, I've got a pretty decent team set up. When I bought here, I didn't know crap about who to go to when there was water all over my courtyard, and I was like, oh crap, there's water coming out of this, how do I fix this, where is this leak? I didn't know who to go to. Sent a text, figured it out, met with owners. That's why you meet with the owners.

I think the biggest thing people get stuck on most commonly is they get stuck on information gathering. And this was me for a long time. There's a lot of books behind me that I read before I got investing that I've never touched again. A lot of these, a lot of these books talk about here's how you build your team, find your legal counsel, find your brokers, find your whatever. You don't do these things before you get rolling. You start your business out of profitability, and you do that by buying a deal that cash flows.. And the math for that is very simple. And if you want to learn more about it, you can watch any of the YouTube videos we have on analytics. You can join any mentorship paid.

If you actually, if you actually want to learn how to do it, go learn from this idiot on the other side of the screen. This guy, this guy taught me everything I know. Multifamily Strategy is where it's at.

I appreciate the endorsement. Caleb is not paid other than by all the buildings that he bought since taking Multifamily Strategy.

I am paid by my $4 million in debt. That is what I'm paid from.

Yes, he borrowed $4 million to be able to learn from us, and I have every intention of saving him that much in mistakes along the way.

So yeah, I, I appreciate that. I mean, the reality situation— mistakes are going to happen more so if you're going on your own. Like, if you're trying to navigate these waters on your own, you're just gonna fall. You're gonna hit every single pitfall on the way. You're gonna make every single mistake. It's going to cost you 3 times as much as it would cost you with somebody who's already gone down the road before. It's— yeah, if I wouldn't have got you guys as mentors, I'd probably be— I think I'd be in a duplex by now. I'd probably still be in college. I probably wouldn't have quit college baseball. Eternally grateful I did.

But yeah, this question just for you: how'd y'all build up your current portfolios?

Like, dude, this guy's on— this guy's on both platforms. This guy's next level. This was LinkedIn, man.

Oh, there we go. LinkedIn, man. I love that. So how did you start the current portfolios like that? So let's go back to— I mean, I'm going to rephrase the question for us. Your first two deals were in pretty rapid sequence, both on the border, McAllen and Laredo. How did you find them? How did they come together? Like, how did you get started?

On-market deals, a 10-unit, then an 8-unit. Put me at 18 units at 19. I thought I was all that. Bought another 10 units in Houston off market. Before these last 2 deals, it was the best deal I'd ever done. The only reason I'm even considering selling it is to go hyper-local in Stephenville. And after that, I took a little bit of hiatus, started working on building up some more active income, working on some other projects. And then this year, or last year, it's 2024 now. Oh my gosh. In the end of 2023, Bought my 25-unit, under contract on a 26-unit now. And yeah, that's pretty much how I built the portfolio. I'm venturing into bank financing, which is something I don't think you and Cody have ever even taken on an acquisition bank finance. I think I'm the first. I think I'm pioneering this.

I have. So I've bought bank finance personally on your duplex. Yes, on a duplex and on my, my first live and flip condo.

And, and now your house in Texas.

That you're in my house in Texas. So I've done small residential on acquisition. We've done some big commercial refis, like multi, multimillion dollar commercial refis. We have not used a bank loan to acquire a multifamily. Sucks. It is horrible.

They are horrible. It makes me hate my life.

One of my biggest recommendations. So if I had the option of buying bank financed or seller financed at the same price, the same terms, the same interest rate, the same balloon, I completely agree. I'll tell you what, I will buy seller finance every time because the bank is a pain. If I— even if it was seller financed for 3 years, and I hate short-term debt, I would close it on seller finance because I have 3 years to close the bank finance. It gives me all the time in the world to get the books where I need to, take my time to get my docs in, to do— get all my ducks in a row. It is such a hassle and so much work to get a bank loan done. I'd rather have 3 years to do it than 60 days.

I completely agree. Thank God that I only have 2 years of tax returns so far, um, DoorDash and 3 LLCs, so it's not too bad. Um, but yeah, it's a major pain in the butt with every little thing, every little like, oh, blah blah blah, what is this, this, this, this, and that. It's like, oh my goodness gracious, can I just seller finance this or use hard money?

Just wait till you get 27 LLCs. Tax time is fun. I may pay almost nothing in taxes because of write-offs, but to file all those taxes to pay nothing, it's a lot of money.

Expensive.

A lot of bookkeeping. Um, okay, so Steven has 98 units on the line.

It's on the line. Let's get Steven. Steven, if you're still here, let's see a comment.

Where is this? If this is a— if this is a truly good deal. So this is a deal worth doing.

If it's in Stephenville, I'll buy it. If it's in Stephenville, I'll help you take it down.

There we go. If it's in Stephenville, Caleb will wholesale it, or you can wholesale it to Caleb or partner with Caleb or whatever.

I'll take you out to bar— I'll take you out to Texas barbecue down here. 90 units, a little far away.

What? Well, where would we go? Where would we go? So in Iowa, what I would do is I would look at the other people who have buildings around that size, or if it's a portfolio, people who have similar size buildings is the first place I would start asking. I'd go through the people who've already done projects like this. A lot of them still want to expand. That's a big enough unit count to get a lot of those people interested. That would be the first thing that I think of is like, let's talk to the other owners of the market.

Completely agree. And then loan, where I start to get, get the loan or private financing. I mean, first it's like when he says on the line, I don't know if he means under contract or not. The first thing is putting the deal under contract. Like, if I didn't put my 26-unit contract, I probably would have been sniped by now, to be completely honest, with that price. So I mean, if you truly have a good deal like you're going through and you're working through, make sure you're under contract first. And then, I mean, seller financing is always ideal. We just talked about that. Um, if you need to go private, I mean, gosh, you're looking at bank. So that's what the partner— that's what I'm doing. I'm qualifying with a partner. And, or, I mean, hard money on that is an ungodly amount of debt. Pie is just debt. So I would not go hard money on that unless you're cash flowing like an insane amount. Like I know you on your hotel you're doing right now, Christian, you can service it. But, and even then that's only 23 units and it's like 98 units. I'm like, so I mean, first step is probably seller financing. I don't know your financial situation or anything like that, Steven. So, um, yeah, like Christian said, I talked to the other players in the market first and foremost.

Yep, that would be the first place I go for if you're looking at private money or, or Financing. A great example is that hotel I just did, $1.6 million purchase. We did that with hard money at 13.5%. Now the building— cheap. Yeah, building services, most of it. But it is cash flow negative because it's 13.5%.

What's tough? 13.5% is not easy.

No. However, we have a bank ready to refinance it, which helps, but that's going to be at 1 year and 1 day. I'm still trying to find a bank who'll refinance in 6 months. We have enough in reserves to finish our project. As we lease up, it's going to go cash flow positive just a little bit, but it's going to be ridiculously cash flow positive when we pull the interest rate from 13.5% to about 6%. We can get through our project because we raised enough money where we bought for $1.6 million, but we got a loan for $1.8 million. Which gives me enough space to service the loan out of the money that's raised, fix it up, get it leased up, ready to go.

Dude, I love that. I haven't gone live in so long. I'm having a blast. I might start hosting like week— like multi-lives a week, dude.

This is fun. Lives are— lives are fun. They're, they're, they're the best. I'm telling you, man, these are fun.

If I should host lives, let me know. I will start hosting lives. I think this was for me right after I talked about this. Um, a seller term 4-year balloon and interest only for the 4 years. So this one I'm living in right now, Town Creek, is $2 million, 15% down. Day 1, we're closer to 3.4% interest, but it's not— so nobody else does this. Um, I did a negative amortization schedule on this deal just because it wouldn't cash flow day 1. This guy was being pretty stern on interest rate, got down here. He actually retraded me a little bit Um, this is why you always put the property under contract. I got down here, got retraded, um, was basically going through it like, how do I make this work? And he said he needed X amount of payments. I'm like, I'm not giving you 7%, I can give you 5%, but I'm not doing it all at once. So I'm doing 3.4% interest only for my first year. After that, I'm going 4.6% interest only. It goes up to on a payment, and then I'm at 5% years 3 and 4. The reason I did that is for cash flow. Day 1, it would not have cash flowed at 5%. Now I can go all the way there in cash flow right now, but I didn't want to make that jump immediately and just start eating negative cash. So I think at the end of my principal balance, I accrue about $48,000. And when this deal can get to $3.6 to $3.8 million, I'm not going to be weird about $50,000 in extra principal. Instead of cashing out $175,000, I'll cash out $180,000. Cool. I could care less. So that's kind of the seller finance terms on this deal.

All right, and I'm looking at our, uh, at our time here, and I know Caleb, you're gonna get pressed for time here very shortly, as well. I—

so I'm having a blast.

Let's, let's rapid fire. So we're gonna go—

just hit me, let's go.

Yep. What do you like about Realnomy versus other platforms?

Caleb, go. Owner information is correct. I have had it wrong once in hundreds of calls.

Yep, they do a great job researching that. Other platforms do not, I can attest. Reonomy has the best info if you are just trying to look for owner contacts and owner data too.

Portfolio size is super accurate.

Oh good, see that? See, that's valuable because then you get to actually pick and choose and curate who are the people that are most important for me to meet. Yep, love it. Reonomy is the platform for multifamily strategies. Strategies. Daniel, I know every deal is unique, but do you guys have a rule of thumb when it comes to terms? I do. I have two goalposts. This is for private money, so My rule of thumb for every deal is it needs cash flow on long-term fixed rate debt. I mean, that is it. How do you buy it and how do you never lose it? I need to have an answer for how I'm holding it. And at the end of my debt, how do I keep it? So whenever that expires, however, rule of thumb for raising private capital, I do have a couple of goalposts.

Oh, he's talking about private capital. Oh, this is very interesting.

Well, I figured there's two ways to do it, right? Because you have deal debt equity. You're right. It's super— like, I mentioned this in every single live, every video, those two things. How do you find it? How do you never lose it? Deal debt equity and, um, uh, long-term cash-flowing fixed-rate debt. That explains the debt piece, but it goes deal debt equity. Equity, I have some unique things to say. So, general goalpost, if you're raising equity and all the value is at the buyout, so you're not sharing any cash flow, you have a property where maybe rents are low, but you have a ton of upside, you won on price. On a deal like that, 2 to 1 in 5 years is something that most people accept that is an achievable target, especially if you're doing low down payments. If you're doing 10% down, it is realistic to do enough value add to double whatever it is they put in to close the deal. That is oftentimes very attainable and will be accepted. If someone is looking for cash flow and you have a deal that cash flows well day one but may not have the same upside to buy them out later, You need to focus on, okay, how do I get them the highest monthly payment I can? I look at 10 to 12%. Those will generally be accepted by most people. If we do that, they're going to be bought out at a 1 to 1 later. So if you put in $100,000, I'll buy you out at $100,000, but I'll pay you 12% or 10% along the way.

Back up that a little bit. Yeah. Um, one thing I learned, you guys taught, like, this is something I remember we've had conversations about this since actually on the way back from the Robinhood, go to the next Robinhood event. Shameless plug right there. Um, but when you're structuring your private capital, you need to have a ladder there. If you're going 2-to-1 buyout in 5— if you're like, right now I'm looking at buying some people out in year 1.5, you need— again, I have it. I wish I did a better job of my legal going there. So now it's like I'm bumping up. I need— I wish I would have put in there, if you get bought out at X date, this is your price. If you get bought out at year 2.5, this is your price. Year 3, whatever. I wish I would have had those in the contract to make it super clear, because I know you guys have done that on the 38-plex when you guys did a 2-to-1 in a very quick amount of time, and learned that from you guys. But yeah, make sure you have the stepping stones in your contract and don't leave anything ambiguous.

All right. Oh boy, we're getting questions.

Let's keep going.

Let's rapid-fire them. Since the time you were in Stephenville, Have you raised any money from your, uh, landlord neighbors in that town?

Not yet, but I think I could. I just haven't gone to them yet. I want to build that relationship a little bit more.

Perfect. And oftentimes outsiders control the market. Usually for me, there's exceptions to this, but most my deals have been funded by people outside of our market as well. Uh, multifamily all the way, 97 units with a 4.5% rate.

If you're still in the the live, I need to see where that is. If you're still here, Klein, give us where that is, what city, what state, your Social Security number. No, I'm kidding. Let's hear more about the deal.

But don't you need legal to draw up contracts in order to buy your first deal at cash flows? What's the bare minimum you get started? So this is about building the team. You get the deal into contract first, and then you find the legal team that's appropriate for that. Too many people call lawyers.

No one will—

no one's No one's gonna pick you up if you call and say, hey, I'm going to buy something one day. It's like, okay, well, call me when you get there.

Yep. On— oh, Oklahoma City, that's an awesome market. Um, but how I did it on this one is there's a broker up in Fort Worth I still have a great relationship with. I love him. Um, he had a lawyer he referred me to in Dallas, and I still use him on my legal today. That actually might be a lawyer I stick with for an extended period of time for everything in Texas.. And that came from a broker relationship previous. Owners, brokers, it's all about relationships regardless.

Let's go, let's go. Riley just started making calls to owners last week. Do you have any advice on getting over the nerves of calling?

Thanks. See a number, call the number. You're gonna get F-bombs at you sometimes. People are gonna tell you you suck and don't call again. You wait 3 days and you call them back.

Rob has a good suggestion here. Whiteboard deals, easier to follow. I am building out these lives like hard, so we're gonna be adding features every week. We are very, very open to suggestions.

So I'll go to Walmart once I find my wallet and buy a whiteboard.

And I think we can actually present screens and do all sorts of stuff here from within the stream. We will get better at this every single week. I am open to having a whiteboard that we roll in here though. I will work on that.

ASAP.

We're gonna invest out of state. I know Caleb is.

I know we know Matthew.

Yes, we do. Of course you know Matthew. Everyone knows Matthew. And those who don't, strategy alum. Yeah, reach out to, reach out to him on Instagram and all, all channels that he exists on.

Um, I have been trying to mix Caleb and Christian's strategy by calling owners out of state. Worth it or not? Let me know. Uh, depends. Yes and no. I think it's super worth it. Um, it's a lot easier now that I'm in state, I will say that. But if you're somewhere like New York and you don't want to buy in New York, I am definitely encouraging to go into a different state. Um, that is my take on it.

And there's areas that I've actually checked out in upstate New York that are fantastic. You're trying to go like downtown New York, not gonna happen. Um, find a market, follow the rules. Uh, but for what you're trying to do—

he's in Louisiana though, there are decent markets in Louisiana.

There's some good places to invest.

But Texas is always open, man. We're next door. So how do you write offers for— um, I don't. So how do you write your offers to get properties under contract? I do not write up my own offers. If I am negotiating a deal with brokers, I send my terms through text or email. I literally go purchase price, down payment, interest rate, balloon, creative terms. That's it. Um, nothing else on that. And then if I'm actually like with a seller, I just have an attorney draft it up. And again, that's a broker relationship. That's all from relationships. Let's keep it rolling. Dang, we've been in here for 50 minutes.

Wow, we are, we are rolling.

Okay, boom. When do you guys go private funding versus hard money? Is it just see what you've got available and take it from there? Pros and cons of each. So private funding, uh, private money— well, hard money is private money. Yep. And for— if we're being honest, so you're always going to go private money Hard money is just typically higher interest with shorter balloons on it attached. Private money, it's more negotiable. Like some of my private investors, I have for 7 or 10 years. Other ones I have for 5. Other ones I have no expiration date on. It all depends. Hard money, like I think Christian said, he's looking at 13.5. Especially with rates being up recently, you're going to see higher rates on your hard money.

I have found that I like using the, like, because generally I think private money and hard money, the only difference being that like hard money would come from a designated lender, like someone who actually just lines up the hard money loans. I like to use those on projects that are really simple because it frees up my capital with private money for deals that have more nuance to them. If there's something that is a little bit more unique where a hard money lender wouldn't, I'm just trying to think of how do I manage the capital in my universe. If I have 4 private people who have like combined, say, $3 million, and I have a hard money lender who can place $3 million, I want to find $6 million to house those. The really simple ones, I'm probably going to take to the hard money lender just to get it done. The ones that might have a lot of upside, but there's going to be a unique or tricky path to get there, those are where I work with individuals. I go, hey, what is your individual goal? This is the mission. This is why it's not going to work with conventional terms. Do you want to go on this journey with me? They're a little bit more customizable, so I save them for the deals that are a little bit more custom.

That's how I've done it. Caveat in there: deal has to cash flow. No, always. Or there has to be a plan to cash flow. Yep.

Uh, can you go to a broker with a pro forma contractor plans laid out to estimate how much they'll be able to refinance for?

He's talking about a banker here.

Um, you can go with a mortgage broker for sure.

Okay, he's talking about a mortgage broker.

That would be the only thing. Like, a real estate broker would not do that.

That's why— yes, yeah, you can do that.

And I do that on a lot of deals.

We did that with our hotel project that we just bought, uh, Cody and I. I'm actually— my 26-unit, um, the books actually suck, but the rents are so low compared to where they should be. He's at the bank, is actually looking at it on a pro forma basis.

Uh, PropStream and BatchLeads, I've seen them both, I've used them both. I like Reonomy better. Personally, Bingo Bongo puts it all in one house. You don't have to do the skip tracing. You don't have— it's just simple. They have such a good platform and you can export off there too.

Is your loan interest only? Are you paying some principal on the 3.4%? So I am accruing principal on it. So actually I am not paying principal. It is interest only, but I am accruing on the note. Pretty creative structure there. Yeah, it just— I wouldn't bring it out on every deal. This deal just kind of required it.

So you can use what's called negative AM, which Caleb referenced earlier. That is basically instead of paying down the loan every month, your loan actually grows every month and you pay more interest on the growing amount. So the reason that you would do a negative AM is when you win on price. Caleb is preserving cash flow while he gets rents up, and as rents go up, his negative AM disappears each year. The actual payments go up and there's less negative AMM until he just had his full rate.

Yeah, I go from $5,000 in payments at first and I jump up to eventually to $7,500. I can already service all the way up to that after my first initial round of rent bumps, so I'm not stressed.

Yeah, now this is pretty crazy, but you're gonna accrue what, like an extra $50-ish thousand?

I think it's $48,000.

$48-ish.

Okay.

So yeah, so he'll, he'll add about through the life of his loan about $48,000 of principal. The way that you do math for a negative AMM is you go, okay, well, what am I really doing? I'm buying the building not for $2 million. I'm getting debt structure where I'm really buying it for $2,050,000. And his deal still works excellently there. So he's preserved—

the deal would work at 2 point— like, the deal would work a lot higher than that.

2.5, your deal would probably work around $2.4 million is where I would peg it as a deal where it's still like It's a pretty good deal. So, are— does the extra principal make sense? Yes, because he's adding $50,000 to his price before he starts paying down the loan. That does not materially affect his deal. It does preserve his cash flow. That's correct use for a negative AMM. That is all you need to know if you're writing a deal that has that. Can I preserve cash flow if it's needed? What is my total dollar amount I'm adding to my loan? And is it still a good buy at that price? And the answer is yes across the board for that. You had the right solution for the right question. Back to Zach. So what can you still negotiate, uh, or— so let me try again.

I know what he's asking.

What can you negotiate terms if you're— or how can you negotiate them if you're already under contract? Figured, uh, that had to be dealt with ahead of time.

Yes and no. You want everything under contract. Um, I think he's referring to when I came down here and the guy tried to, um, kind of retrade. That is the mistake I made, and I did not get it under contract. He recommended— he asked me if I would come down here first. This is when Christian was building, working on building his house up here, so we kind of planned a trip. Um, I came down here, I was walking the property with him, and he tried to retrade it. Um, I have since learned that is slightly his MO with new people. Um, so basically he tried to retrade. Um, we did completely retrade from where we were. I think eventually— I think the interest terms are completely different from how it was the start, if I remember. Um, but yeah, that's why you always get under contract. And as far as renegotiating while you're under contract, this can be done before the end of the feasibility period. I actually just did this on my 26-unit. I extended the financing contingency all the way to close instead of having to end at the feasibility period. So there are certain things you can always renegotiate during feasibility.

Yep. And that's, that's when we do a lot of our negotiations. Feasibility is to prove that what the assumptions are actually true. So if they lied to you about something or they got a number wrong they being the sellers. That's where you adjust and make your adjustments. Money hasn't usually changed hands. We like to make earnest money due after feasibility. In some states, you have to put up some money as consideration, but oftentimes— $500, $516,000.

Yep.

And then, yeah, exactly the right structure. Um, all right, did you have enough of your own capital to make your first deals, or did you always use hard money? Neither.

Yep.

Caleb, give a little bit of color to that really quick.

Um, I had $300. I raised $90,000 for my first deal. Um, $300 does not math for $90,000. Um, was private money, not hard money. Um, brought investors in instead of a loan through a hard money lender.

There we go. Uh, yeah, a lot of our stuff was equity. So for me, I brought on partners instead of bringing on additional debt. I then bought some of that with debt. I bought some of them out with cash. But even today, we have more deal velocity. We have more deals coming in than we have money, even as the money goes up. And it's not that I never have money, but when I have it, it goes into a deal.

Oh my gosh, tell me about it.

And sometimes it goes to an acquisition. Sometimes it goes to a renovation. Sometimes it goes towards fixing a problem. Cash flow. Money comes in, money comes out. During the build phase, you have 4 phases. We talk about them often on this channel. I've done some videos that almost no one watched on this channel. Uh, on the 4 phases, he's going—

he's going to relaunch those videos right now for everyone in this.

I did them fairly recently and no one watched them, so it's obviously not interesting to anyone. But you have your build, stabilize, optimize, and dead hammer phase. I broke it into 4 videos. People got bored after the first one, but seriously, it is a fantastic model. During the build phase and the stabilize phase, there's a lot of outflows. You're building your business. You're not going to be rich during those. You're typically not very liquid. Amen. Your net worth spikes like crazy though.

That's the—

yeah, generally speaking, you— your first $1 to $2 million of net worth, if you're playing this game with commercial multifamily, comes in the build and stabilize. The frustration is you realize, wait, I'm a multimillionaire and I can't touch a single dime of this right now. I'm starting to realize that. Yeah, welcome to the club. How are you doing on the journey to millionaire, by the way? You've got to be at least halfway there, right?

Yeah, I'm a little over halfway. After this acquisition, I'll be pretty dang close.

There we go. 21 millionaires and you will be— Yeah, that will not be liquid for a while.

Probably not for a long time. And then it comes quicker afterwards.

But yeah. What if you're interested in an area, but it seems like all the owners from are from other states. Just develop relationships over the phone. Yes, that is the best way to do it. And there's always a lot of people in most areas— there's always gonna be a lot of people who control the market who are not from—

I've actually, I've actually met, um, an owner, one of my owner connections. I have never met him. He lives in Sacramento, California, has 20 units in Stephenville. We connect on Instagram all the time. He's— he talked to him all the time. Um, that was a phone call over the phone, and we talked over the phone quite a bit. We DM back and forth on Instagram. I comment on his things, he comments on mine, all that stuff. So over the phone is the way to go.

Best tips for buying out of state. Caleb, just give us 2 because we're, we're rushing.

Go, go, go. Uh, growing area, don't be afraid to make calls. That goes with anything, same thing, same principles everywhere. Uh, pick a— I would pick a landlord-friendly state personally, um, if you want to make your life easier.

I would as well. That is absolutely my recommendation. Pick somewhere that is landlord-friendly. I own in both. I like the landlord-friendly places better. It's just been my experience. I used to love Washington until I realized how much easier it was to manage in Texas. Heck of a lot easier. Uh, retrade means to renegotiate. You come in on a deal and someone comes in and tries to change something that materially alters your deal. Often this happens to me on the capital raise where someone will commit to something. I know this happened to Caleb before.

Oh, it's so annoying.

You get a commitment and everyone agrees and they say yes, and then you get closer to closing, they go, well, actually, I would like more money, or I'd like a higher interest rate, or, oh, I'm actually illiquid. Can we bring in another partner? I've had a lot of problems. One of those problems—

I just had that last one. This is my second time. Both Stephenville deals have been raised over half a million dollars last second before I have to, and I've done it both times. But dear goodness gracious, It is not fun, but it will happen.

Yeah, I had a, uh, yeah, I, I have a, a 7-figure issue with one of my deals that someone retraded me and had to get the deal done. Very painful. Um, what is your favorite way to structure a deal when partnering with investors? I have a favorite one.

I don't believe Caleb has done this one yet, but, but it's my favorite as well.

Debt. Yep. So you structure, and this is for tax reasons, You structure, if you go in 50/50 or 51/49, you come in roughly 50/50. They bring all the money, half their money goes to their equity, half their money is a loan to you, and you put the money into the deal. So they loan to you backed by your equity in the deal, and then you put it into the deal. The reason this helps is because you cannot take— you have internal and external cost basis without getting super into accounting. You have your actual, like, and then you have the actual amount of money, of your money, that has gone into the deal. If you've borrowed it and put it in, you can now write it off. Yep. If you run a cost seg, this can go against your income. If you put zero money into a deal and you raised all of it through someone else, you still get the benefits on your tax, but you can't actually claim them off any of your income. You cannot go above your own basis in a deal. So if you structure it this way both partners can take, uh, and you want to adjust it so that the amount loaned is in proportion to your equity. So say you went 60/40, then you put 60% of the money in the deal and you would take 40% as a loan. But if your equity is done as a loan and your deal supports that, you're able to get massive cost or tax benefits, and the capital accounts never need to be balanced, which in the eyes of the IRS is the perfect seller finance deal.

Last question: we love the IRS.

False. Are you guys filing taxes as active or passive? So we have both. Caleb and I both have multiple businesses as well as real estate, so we are— I am a real estate professional, as is Caleb. He, man, I get that this year. Let's go!

Congratulations!

Let's go! Self-manages his building, buys and trades real estate as his primary form of income. Caleb qualifies. He does this, I think, 720 720 hours of real estate.

I live here.

Yeah, yeah. Um, so we are real estate professionals, if that's the, the question. Active or passive? We have active income, which I have through multiple streams, especially like property management is a great example of one where I am paid a salary to do the job. Uh, there's a lot of passive income, so all the income through the real estate is logged as passive. That shows up on what's called a K-1 or a form, 1065, which then rolls to your personal as income of various methods. So we have active and passive income, uh, both of us based on how it's coming in. Sales company, generally speaking, active means earned and passive means it comes in through an investment.

Yep. God bless Zach.

Let's go. All right. Luke says, great live, run it back soon.

Caleb, dude, I'm just gonna start running the lives, dude. I'm having a blast. I was hating on the lives for the longest time.

This was super fun. I'm telling you, these are, these are the way to go.

And I like it better. I'm buying a new camera. I'll commit to it now.

I'll buy a camera. Steve wants to know why you did a cost seg if you don't have much income. The partners required it. Also, I've seen some of Caleb's numbers for his business as I am a client. I know some of your incomes. I do have income indeed now. Caleb's income does not suck anymore. He started with no money. That does not mean he does not make any money now. Caleb is what we call a high-income earner.

I have switched. I have pivoted in 2 years with countless hours worked and countless 16-hour days.

Okay, my vote. Let's, let's talk, let's talk business in relation to not just— let's talk real estate business, but Next live, let's do a special edition. We're going to talk businesses, how they relate to real estate, how you hire and fire for both, but the differences and what we like about both. Because real estate, while it is a business, it does operate a little differently.

Running companies—

yeah, way different, astronomically different. We'll talk about that on our next live, Caleb. We'll get it on the books and I'll post it on my Instagram.

Whiteboard Wednesday. Whiteboard Wednesday.

We're not doing Whiteboard Wednesday. Has, has a couple things planned for this week. Let me just come to Whiteboard Wednesday. Let's, let's do this. Let's do this. Let's, let's get it booked. Watch my Instagram @ChristianOsgood. I'm gonna post that live, and we'll see you guys all there.

Wait, that's a great question. Hold on. What do you not like about Stephenville? There is no good pickleball here. It is miserable. There is like 3 good players. Texas. I could— I love Texas. Taxes. I hate Texas. Stephenville pickleball is miserable, and there's no good Mexican food. Tex-Mex sucks. Sorry for everybody on this call.

That's it, we're done. That's incorrect. Livestream over. We'll see you guys all in the next episode. Catch Whiteboard Wednesday live every Wednesday, 3 PM Pacific Standard Time. This was a bonus edition of Multifamily Strategy Live.