25 unit deal in Stephenville TX | Deal Deep Dive

We still had a hefty down payment and we're talking $300,000 down payment. We had a partner. That partner had all the money. It was an easy pitch. Turns out a lot of his business was a fraud and he was actually embezzling from his clients to invest in real estate. Welcome to Multifamily Strategy. I'm Christian Osgood. I have bought hundreds of rental properties starting with no money. Anyone could do the same. Speaking of one of my favorite deals of all time, a 25-unit deal in Stephenville, Texas. How we found it was unique. How we structured it was a different method of creative finance. I've never used this specific method in a negotiation. I'm gonna share it here on this video. And we raised the money, the money fell apart the day of close, and we raised it again 9 hours before close. How we did this on a 25-unit, how anyone can do this, and really how we bought it with no money. We share it all on this episode. By the way, if you're new to the channel and this is your first time watching, we buy properties like this all the time. The mission is to share as many opportunities, different deal structures, and ways that you can buy real estate with or without money with as many people as possible. It is massively helpful to the channel if you like, subscribe, share, do all the things. If you have a question, drop in the comments. We're super responsive there. But ask questions, engage with this video because I want to get this out to as many people as humanly possible, and I depend on you to make that happen. So the 25-unit deal, if you've never heard of Stephenville, Texas, I had not either. However, I'm moving to Dallas to increase my investment portfolio down there, to start a family, and to move into my dream home, by the way, which purchased with all the rentals that I purchased. When we are looking at a market, Stephenville is really interesting. There's a college that recently went D1. It's called Tarleton. Fantastic school, rapidly growing population growth. If you look at Stephenville, Texas, population growth year over year chart looks like that. Skyrocketing population. Not enough developments to keep up with all of the new students and just workers moving into the area. Tons and tons of growth, development everywhere. Small town America. This is my favorite type of real estate. If you want to try to dominate a market, choose a smaller tertiary market like this. It's an easy drive from Dallas. It's about an hour and a half out. Adorable little town. Every metric though, the main thing I want to see in any piece of real estate that's in an area population is consistently going up. It is a place that people want to live. If you visit this town, you'll see what I'm talking about. Awesome, awesome place, amazing real estate opportunities, and not a ton of people pouring money into it right now. All the things that I like about an interesting market. Now, the deal actually came up very interestingly. I've never actually had a deal come to me from social media at all. Not on Instagram, not on YouTube. I've never had a deal come up. Kind of the Robinhood Villagers, but that was from an existing relationship who became a YouTube buddy. Really, this is the only deal. Someone had messaged me about it months and months before. I'd taken a look at it. I loved the deal. They decided not to do it. It was an off-market opportunity relatively close to where I was trying to move. Months went by. No one really brought up the deal again. I just reached out to the owner and said, hey, I'm going to be flying down. So as a buddy, we would love to take a look. At that property, and we'd really love to meet you. And so I let him know a little bit about me, what my goals were, starting a family in Texas, that I was already moving down and trying to transition some of my portfolio from Washington State to Texas. So shared a goal, relatable point. He agreed to meet up. We went down there and we ended up putting this 25-unit property under contract. However, he wanted 5% interest. This property was so ridiculously under market rent, beautiful property, Maintenance was done quite well. There were some units that needed a little bit of love, but maintenance was done really well. The property was really well kept. I loved everything about this deal, except that it didn't cash flow day one. Now, if you're new to the channel, the rules for real estate is you find a deal first, which we did. Love the market, love the property, love the opportunity, found a price that works for everyone. Then you negotiate the debt, then you figure out the equity piece. If you don't have any money, this is how you play the game. So the debt, we were stuck because That debt has to cash flow. We did not cash flow at 5% because there was so much increase that had to happen to rents. Everything else is in great condition. Rents aren't there yet. So what do we do? We did a reverse AMM. Now these used to be really popular with banks. They now no longer allowed to do these because if you do this wrong, it can be super, super dangerous for you as the buyer. A reverse AMM means my payments are less than the interest I owe, which means every month a little bit is added. To the principal value of the property. Crazy, right? So I'm actually— instead of like a normal amortization where you pay down your loan amount, the loan amount actually racks up a little bit every month. How do you do this mathematically correctly? Well, we were buying it under market price, actually pretty significantly under market price. It was a $2 million purchase for 25 units in a market where a lot of properties were selling at $100,000 a door, which means we're getting a $20,000 discount because of the low rents. Now that's pretty good. That's a per-unit basis. So 25 units getting $20,000 off per unit, we're starting out in a great position. I would have been fine paying an extra $50,000 for the deal. And the way that we structured the interest, our payments were a little bit lower than the 5%. It would add about an additional $50,000 to the loan over the life of the loan, which means really mathematically I'm buying it for $2,050,000 at 5% interest. That is the mathematical way to think about it. The difference is the way the payments work is the first month my cash flow was really low, was equivalent to 3%— I'm sorry, the first year. The second year, it's equivalent to 4%. Year 3, it's 5%, and then it stays at 5% interest only for the remainder of the note. So we have a couple years where we add a little bit to the principal, but we keep our payments low. So we cash flow the deal every single month and we get rent rents up and we get through the light renovations that you have to do here or there when you take over a property. And we kept getting that property better and better and better. Now it's cash flowing astronomically well. We're 6 months into the project, a little bit more. The deal is absolutely cranking money. The rent increases went really well. Turns out housing authority had leases in 10 units where we were able to effectively double the rent and the government paid for it. So it didn't even affect our tenants.. But we got this property performing way better in its first year, and year 2 will do even better. But we maintained cash flow the whole time. Now, the part everyone's waiting for. We still had a hefty down payment. We're talking, you know, $300,000 down payment. We had a partner. That partner had all the money. It was an easy pitch. It was a very respected individual with a large company. Turns out, A lot of his business was a fraud and he was actually embezzling from his clients to invest in real estate. This came out mid-transaction. We would have never known this. This was someone we hadn't partnered with before. In starting the new partnership, all of a sudden, this guy is getting indicted. It looks like he's going to prison. We have no funding for the deal. This was a slam dunk with this guy, so there's no one in backup. I'm on a plane flying down to close the deal. When we get the news. I land, this is a little bit after midnight Texas time. We're going to sign at 9:00 AM in the morning. So I'm less than 9 hours to close. I don't have the money lined up. So I call a hard money lender, Flynn Family Lending, who I'm really good friends with. But I call a hard money lender and ask, hey, do you have any clients who are looking for tax benefits? I'm going to be running a cost seg on this. I'm looking for a capital partner. They're like, yeah, we have a few people who would line up. Turns out I need the money in like, can they wire tomorrow? To which the answer was no. I talked to those partners and they made the agreement, hey, actually, we have some active income that we would write off. We love working with you. This is absolutely crazy and we would never do this in a million years. But on this deal, we like what you're talking about so much that we're going to go ahead and wire the money and we're going to figure out all the paperwork after. It was not structured as a loan. They came in as partners. They took a hefty 49% of the deal to fund it. They want to be long-term partners, which is not usually something that I allow. However, if you're going to help me close the deal in less than 9 hours and I get to own 51% of my— I own this with Caleb Hommel. So our LLC owns 51% of a cash-flowing deal that gets me a foothold in Texas. Absolutely. We figured out the equity. Now, the equity cost me a lot on this one. 49% of your deal is a lot of your deal. And they get to ride that deal until we get to refinance, in which case all of their capital will be returned at the refinance. We'll all be in this deal $0. I'll own our LLC that Caleb and I own 50/50. We'll own 51% of the deal. So effectively, I got 25% of the deal. We did a lot of work. We continue to do a lot of work managing this thing. This isn't free. It just didn't cost me any money. But for $0 out of pocket, we did close the deal. It was a bit of a miracle. We had to negotiate a reverse amortization schedule to get to the seller the interest and the price he wanted. We had to do a capital raise once. It fell apart because of just absolutely insane circumstances. We had to do a capital raise after midnight for the day of close. That is a chaotic deal. It ended up being the single best property in my portfolio for quality, for the tenant mix, the place that it is, the cash flow that it has. It is the best deal that I have personally ever done to date, except for maybe a 5-unit in Ephrata, Washington. But that's not as interesting as having a 25-unit campus. So I'm still going to say 25-unit, favorite deal. Was there chaos there? Yes. Was there stress? Amazingly, not that much. When you do this enough times, you know that you have a deal. There's always a way to to make the money align. We have never seen a deal fall apart due to a lack of ability to raise capital for a great opportunity. So if you're starting, I think the message of this one is it's a little bit of adversity to push through. No deal will ever look exactly like you think it will when you start. But when you have a deal, do not worry about the money yet because you don't know what's going to happen with the money. I did not know what was going to happen with the debt or how we're going to get there exactly, but we figured it out with the seller and we wrote something that made sense for everyone. I didn't know exactly how the capital is going to come together, especially when I'm on a plane. There's not too much you can do. We— could we have delayed the close? Yes. Did we? No. We figured it out. We pivoted, and in 9 hours, less than 9 hours, got the deal funded, closed it. That's deal, that's debt, that's equity. We did them in the right order. We closed the deal, and we do this again and again. If you want to start learning how to build your own portfolio, give this channel a follow. I share all of the stuff. If anyone says, hey, I'm showing you the secrets to real estate, there are no secrets. There are no secrets on this channel. You want to take a deeper dive, go to multifamilystrategy.com. We have a course and a mentorship group there. I would love for you to join, but you don't have to. I will share everything I can here on YouTube for free. If you want to take a deeper dive or get some hands-on coaching, we have that. Like, follow, subscribe, save this video if you just love the structure of this deal. You can always come back to it. We'll be sharing many more deals on this channel, and I look forward to seeing you on the next episode.