28 units at 19 - Caleb Hommel and Chuck Sotelo - Creative Finance Live

I mean, we also could connect the mic.

And we are live. Hello YouTube, this is Christian Osgood. I'm here with Caleb and Chuck. My thumbnail didn't work, so I got the wrong thumbnail until I update this. So if you're watching this after it's live, thumbnail's correct. If you're watching it right now, it is not. But wanted to share with all of you, both Caleb and Chuck. They're back because Cody's gone and we wanted some, uh, some fun new insights. So while we're waiting for everyone to hop into the chat, I'm going to ask a couple questions from our YouTube. So I'll pick up my phone and go through some of the questions we had this week. We had a ton. In the meantime, go ahead and post your questions in the chat. We're going to get through them and we will go till those questions stop. Quick update for everyone: Cody and I did close on the triplex on 2.5 acres next to the Robin Hood. And the Robin Hood campus has now expanded. That was a seller-financed transaction, relatively low down. We're going to slow down our buying for just a second because we want to stabilize, start paying off some of our debt and move our capital stack around. So we included the two on our channel. Who are the most active buyers in our entire mentorship group. Caleb and Chuck, welcome back.

What's up?

Well, a new triplex. What's up with you guys?

Uh, we close on our— for our second 10-plex, our third deal here in a few weeks. 31st closing day.

Yeah, very exciting. Okay, so you guys are almost at 28 units. I may have put in the description you already have it, but it is about to close. So you guys are currently at how many units?

We're at 18 right now.

There we go. That would make sense for buying 10 more to get to 28. That would be the math. Um, talk to us about the deal that you guys have coming up. What's the, what's the details on your next 10-plex?

Go to me. Yeah, yeah. So purchase price on that one, it's 10 units in Houston, Texas. $725,000 purchase, $10,000 down, 5.25% IO, and shorter balloon on that one, 3 years.

That's not half bad. What is that— what is cash flow going to look like day one on that?

Uh, at least 10% day one.

That's not terrible.

With it— with the reno, uh, included, it's about 12%. But if you just did the down payment, like, the first day, it'd probably be like upwards of 20. Yeah.

Wow. Okay, so fantastic deal. And you guys are raising both the down payment and the renovation budget as your, uh, initial capital raise?

Yep.

Phenomenal. Congratulations, guys. It's a big deal.

Appreciate it.

Well, I'm going to jump into our first question. This is from Jayden. This is from one of Cody's recent videos. It's, where do you find people that want to move into your properties? Now, this might be, this might be new for you guys because you guys haven't actually done a lot of lease-up yet, have you?

No, we're doing, um, we're building up one of our vacant units right now for our management company on our first 10-plex.

Okay, well, and that's a good, uh, that's a good way to do it. So, uh, you found a property manager. What do you guys have to do in getting that unit filled? Like, what do you have to work with your property management on? What questions do they have for you? Just talk a little bit about that process when you have a professional manager.

Yeah, for us, um, the first thing is we had to go in and turn the unit. So it's what did we want to do, how much do we want to, how much money we want to put into it. Got through that, and then, then the discussion was, what do you want to try to rent it out for? And for us, we, um, they recommended going $50 over what we originally thought we could do. So we're renting that one out for $750 is what we're looking to do.

Dude, phenomenal. And, uh, for me to answer that question, for Cody and I, since we own our own property management company, we use just about every online resource available. Facebook Marketplace, Apartments.com, Zillow, we— Rent.com. There's a whole slew of websites that we use. We also work very closely with the local housing authorities. So we will actually do some Section 8 and some other low-income rental assistance programs. But when we have a vacancy, one of the most important things, especially in a down economy like we're looking at right now, one of the main things we have to do is make sure that our units are staying full. Vacancy is one of your biggest expenses. I think a lot of people forget that. It's not about maximizing rent, it's about eliminating vacant space. You can work on the rent maximization once you're leased up at least above 95%. So that's how we're finding them is everywhere online, every program we can get, we want to fill vacancies very, very, very quickly with quality tenants. Screening is also extremely important there. Um, oh, I like this question. Uh, this was directed towards Cody, but I'm going to direct it towards Caleb and Chuck. Um, do you typically come across deals where the owner is opposed to seller financing? You guys pitch a lot of deals, and you usually work through the broker as opposed direct to the owner. You guys have a little different strategy than Cody and I. When you are bringing this up to brokers, are they typically opposed to seller financing, or do you get a yes on that pretty often?

Um, it depends on the deal itself. If it's a deal that usually just jumps on market, even if the brokers immediately just know they want to do that because they think they're going to go get a higher price, and they probably are depending on the numbers. But as the deal's been sitting for a while, the seller usually warms up to the idea when we're like, hey, I could come in at full asking here. Then it usually— the ball starts rolling a little bit more. But those deals that are just on market, that just go on the market, we usually see a lot of resistance with those. And especially how the market's looking now, there are a lot, a lot more people are open to it. Yeah, we're finding a lot of those a couple months. Yeah, a lot more deals to negotiate right now.

Perfect. Uh, we're starting to see the same things. Um, we have a lot of sellers because interest rates went up. A lot of sellers are shocked they can't get their price anymore. People who just qualified, um, back when interest rates were 3%, they qualified for $800,000 purchases. I am hearing today that the same income, same individual on today's rates is qualifying closer to $545,000. That's a huge drop in buying power in the market. Some of these properties are sitting around and people can't get their price, especially on the smaller units, 1 to 4 units, or, you know, smaller unit mixes on a smaller building where you're using conventional financing. It is actually pretty darn hard to qualify with the higher rates. So When you can come in and you can get them their price and they've been stuck on their price, you have a unique opportunity to negotiate. And the creative space is how you do that. You work with a bank, you need an appraisal. Doesn't appraise, you can't do it. You can't overpay for a property with the bank. However, if it cash flows in long-term fixed rate debt and you can put it together creatively, negotiate any term but price, and you guys have seen a lot of that start to work. We're in a fantastic market position to get more yeses with that strategy.

100% agree.

Um, this is from Logan Pritchett. Where do you find hard money lenders? Where do you guys find hard money lenders?

Uh, we haven't used any hard money yet, but we've actually gone to a couple meetups, so we've networked with a good amount of hard money lenders at those. And then also, anybody could be a hard money lender if they have enough capital. Yep.

Well, hard money is private capital, and private capital extends to a whole lot of stuff. Seller financing is private capital. The seller is your lender. So you're using the money that essentially they're using the equity in the property financing you. They're using their money. Private capital. You bring in a private individual or a friend. Private capital. You go to an actual hard money lender. You're typically going to get more aggressive terms because they're a professional lender. They have to make a spread from someone else's money is typically what happens with hard money lenders. Some of them use their own money, but a lot of them are raising capital from others, taking a few points and lining them up with the debt. Lots of different ways to do it, but private capital is done through relationships. And even with the hard money lenders, that's their business and they're online. Even with them, your relationship with them is everything. I get lower interest rates, better terms, longer balloons. Cody and I worked with a— what I call them, a middle money lender, but we worked with them directly on a deal where we actually have zero interest. We got a 5-year note, we're going to cash them out of principal., and they get to participate on the deal for tax benefits. That takes a high level of trust to bring on an equity partner from your lender who doesn't actually partner with anyone. They have one other set of partners. Um, so your relationships will carry you through all of that is the short answer to how you find those. And last one, I'm going to read from our YouTube comments before I start getting into the chat, because that's starting to grow. Do you guys buy all your deals under an LLC? And what were the terms on the 10% down? I'll answer the 10% down because we do a lot 10% down. That's kind of our most common one. If there's anything for seller financing.

Yep. All three of ours.

Yeah. Oh yeah. There you go. So you guys are qualified for this too. Completely different. The terms are completely different for every deal we've ever done because the terms are what we negotiate typically, not the price. I can't say there's a standard thing for any of them. We borrow somewhere between 0% and 18% interest, and that is the actual spread of things that we have. And they can be done in monthly payments or deferred till maturity. So my most expensive note does not have any monthly payments. It's an 18%, essentially equity bump where they are owed when their note matures, they're they're owed all the interest in one lump sum. It doesn't affect my cash flow now. It gives me time to go ahead and earn that money from the property. It doesn't yield enough day one. So to protect cash flow, we kicked it into the future. So it can look like anything you make up. Caleb and Chuck have some crazy cool structures too. Do you guys have anything that you found on your 3 deals that has been standard or are they all just completely different?

Pretty much all completely different. Like one, we have 6 months, no payments. The other one, we have 2 months, no payments. Another one, It's 5, it's 5.25 interest. We have 4, it's all over the place. The one, the one common thing is we'd rather get terms and price.

Yes, 100%. And most people are after price because they want to work with banks, and that is what people are used to. So if you're on this channel and you're watching us, this is how we play creatively. We can negotiate price and you can make a deal work. There's nothing wrong with that. However, that is what literally everyone is doing. If you get this far outside the box, just one step over and negotiate a term instead of price, you're going to find that there's a ton of on-market opportunities that everyone has looked at on LoopNet that are completely doable and will cash flow for you. Yep. Zane, Caleb, and Chuck can tell you as a fact. I've watched them knock these out. They're talking to me about a few deals in Dallas. I've never invested out of state. Dallas is the one place I would like to live. So they're, they're tempting me with some opportunities they found there, and Dallas is a smoking hot market. So I just want to share, you can, you can knock out a lot of stuff with, uh, negotiating terms. Uh, the last part, first part of that question is to say, do you do all your deals under an LLC?

Yep, yep, all different. Not the same LLC though.

If you have partners you're going to need to be in a partnership or an LLC or some other corporate structure. You're not going to all individually own one commercial property. If you're buying a 5-unit up, realistically, you're going to put it into a partnership because you can have a partnership agreement and that can be an LLC, that can be an actual partnership, that can be a corporation. There's all sorts of different structures you can use. However, the most common one will be an LLC. You can have an operating agreement that lines out everyone's contributions, terms, ownership. That is more or less the correct way to do it. We don't give legal advice here, but that is what Caleb and Chuck do. That's what Cody and I do. Every transaction is its own LLC except for a couple where we had the exact same owners who wanted the exact same ownership structure. So I've had a couple LLCs buy a second property because that partner wanted to buy a second property. Outside of that, every transaction, own LLC. That's what I have for our YouTube chat. Those are the questions I highlighted. And we have some stuff going on. Dory, our dear friend, gives us a congrats on closing the, uh, triplex. That was on— oh my gosh, that was yesterday. Time moves fast. Um, thank you, Dory. Excited to add that to what we do at the Robinhood. By the way, I'm down there all weekend, so I'm excited to see you. Um, from Kevin Oh, this is perfect. Kevin just says, I made it. For now, they're the fastest growing. Challenge accepted. This is in reference to my comment earlier about you guys are the fastest growing group I've seen. I don't believe— and anyone can correct me on this if I'm wrong— without doing syndication where people just own a little teeny piece of a big property, I don't know anyone in the US who is in their teens buying at the rate you are. I believe you two are the single fastest-growing real estate investors in their teens in this country. I'm interested in the comment if anyone has anything to the contrary, but I've never seen anyone do this. I was 10 years older than Caleb and Chuck are when I started investing in multifamily. I was just about to turn 29, so I mean, I guess I was 9 years older, but still, um, that's a lot more life when you're talking teenager to 28, 29 years old. What they're doing is incredible. I don't think anyone's done that. Uh, Caleb and Chuck, you guys are more in tune with people your age. Have you guys seen anyone in the US who's publicly buying as much as you are?

I have not. No, I haven't, but there might be somebody out there. I don't know. Well, we're definitely near the top, at least.

Kevin Gormish is coming for you. It is, uh, it is in the chat and it is now in our, uh, in our live content.

So sounds good.

His shot has been called and he now must make it. Uh, from Chris, how to join the Facebook group? Ah, the Facebook group is an internal group. Um, everyone who has access to our course, themultifamilystrategy.com, you can do that either on the month-to-month, or if you want to join our mentorship group, uh, you can grab the lifetime access and also get 3 months free mentorship plus lifetime access. We add stuff to that course all the time. Top panel, right as you get into that course, scroll to the right, Facebook group's right there. You're part of the team. We actually have had deals funded from that Facebook group. Michaela, Chuck, you guys had, um, you guys had 1 or 2 people on, uh, on one of your deals, didn't you?

Yeah, um, the first one was, um, the third capital partner was from the Facebook group.

Yep, that's awesome. And we had other people from our mentorship group, um, all jump on and, and help close the second transaction, the, uh, the 8-unit. You had your capital partner, potential capital partner— that's a good story, we should share that really quick. No name dropping, that's against the rules, um, but, uh, we're gonna call him um, Michael. That's not really his name, I'm just choosing one, but they had a capital partner that we're gonna call Michael.

Yeah, what happened with him? Yeah, well, there were actually two Michaels. The first guy we raised it all from, he just ghosted us randomly because his girlfriend broke up with him or something. Oh no, he just didn't want to deal with it, I guess, and he just decided not to respond to us ever. And then what exactly? Yeah, then the other guy, um, Just kind of kept kicking the stone down the road like, oh, I'll get to it, I'll get to it. And then I'm like, hey, we need to move on this. They need to get the attorney— needs to get the LLC done. I need to know like just your address, like what— it all looks good. I sent more of the information. He's like, oh, actually, um, I'm not gonna be doing this one. Kind of last second. And we closed in 2 weeks from that day. So had to scramble and raise $60,000 in about 3 days.

Wow. That's not easy to do. Yeah, it was not fun to do either. My camera's falling, so keep talking so the screen looks at you and not me.

Yeah, it was not fun. Um, definitely a little bit of pressure to raise the $60,000 in 3 days, but got it done and closed the deal.

Well, that's the main thing, you got it done. And that was also pretty heavily through people in our mentorship group, right? Yeah, it was.

And then that's something you and Cody have preached, and that the mentorship has just been preaching to us since we joined. It's figure it out when you get there. You can't plan ahead for every single obstacle down the line. And there's things that are going to come up with anything, so you just figure it out when that time arises. But also you got to make sure you choose the right partners. Uh, we obviously didn't realize that initially. 100%. And we just partnered with whoever was going to give us the money, and, uh, obviously he wasn't that committed. So yeah, picking partners on the deal afterwards and then into the future, it's definitely a lot stricter on who we let partner with us. So it's almost better that it didn't work out so we didn't don't have to partner with that guy because it wouldn't have worked out eventually.

100% agree. Yep. And we say that all the time on this channel. We say it all the time on our course. And I promise you, if you're new, you're going to partner with someone that you shouldn't partner with. Everyone does it because you find your deal and it's just like, oh my gosh, I need to find the money. When you get started, it's just tempting. And I would say out of 100 people, more than 90 of them are going to make a partnership mistake early on in this game. So I'm happy that, the falling apart of the partnership happened prior to close, because you guys are partnered with— I know most of the people you're partnered with, um, you know, fantastic people who understand how the game is played, and that is absolutely everything. All right, we got a few questions piling up here, which is very exciting. Um, let's see here. So what classifies sitting on market a long time? This is from Chris A. I paraphrased the, uh, question, but If you guys are looking for an off-market opportunity and you see like, hey, it's been on market for a while, I start thinking, hmm, they've already probably been beat up on price. So price probably isn't our negotiation thing. This is where creative financing becomes easier to do, especially in this market. So talk to me about that, guys. What, what date range do you see where you go, huh, this is promising?

I think For me, probably the baseline is even a couple months, but about 6 months after something's been on the market for about 6 months, you're kind of like, okay, this is weird, this thing's been sitting too long. It's a nice property in a good location. And then you figure they probably— people beat them up on price, interest rates change, they get beat up on price even more. And then you come in terms, and that's— or even stuff is like falling out of escrow because they can't qualify anymore. Yeah, we've seen a lot of deals come back on market, fall out, just Brokers reaching out, hey, this fell out of escrow, do you like to take a look? Stuff like that. As interest rates change even more, people can't qualify for as much.

Which there's something to be said too, once you start calling on these, sometimes they don't want to do seller financing. It takes a while. They go under contract. If you're just continually communicating with that broker or that owner and suddenly the property pops back up, they're often much more receptive to your terms because they're like, oh my goodness, we went for the price. And someone backed out and you're like, look, it works for me at these terms. We get these terms, we're done. Great way to negotiate. This is from a question from Lucas Selga. What does the pitch look like when talking to agents and brokers? Oh, this is definitely for you guys. Are you guys sending offers before coming up with a solid— for coming to a solid agreement? So what does that conversation look like with, uh, with owners, especially for you two? You guys are young, young, young. Um, you haven't had any work history, you don't have any money, you have no sales experience. So you're landing these. What does your pitch look like when you call these brokers?

Yeah, with the brokers, the biggest thing is, so scripting from the mentorship, and you find out it's available and you go through it and you get the financials on it. One of the things I like to find out from the broker is like, if it's been set on market for a reason, usually find out the reason why it's set on market. Almost always it's going to be price. That nobody could hit their purchase price.

And then you come in, you're like, okay.

And then typically the first offer, I don't throw out the best one every time just because if I give them my best and they say no, I'm kind of like, oh well, where do I really go from here? So yeah, the first offer I— every offer I get is competitive and it would work. Everything's at least 10% cash on cash in my underwriting. And just be receptive to their counter offers as well. That's one thing that's been really important to us. On our first deal, the guy's like, hey, I really don't want to do Changing interest rates and all this, what can you do? And that's when we came up with the no payment structure, and that's how we got that one accepted. But we heard what they wanted, and that's a big thing. But I also think a big part of it is moving quickly, because a lot of times people, they'll get, they'll get numbers and they'll just wait, and you just don't seem like an actual buyer if you're not moving quickly. So usually we'll have an offer in over like 30 minutes, getting the financials.

That is the best advice I think I've heard on one of our lives, um, make a decision quickly. Understand the numbers well enough where you can decide. Cody and I, for the 10-plex we bought earlier this year, I was on a trip in Dallas. I got a phone call in a coffee shop parking lot. They gave me the terms of the deal. I already knew the property because I know my market. We said yes and had it written up same day. I said yes on the phone in a 5-minute phone call. They had an agreement over to us that matched the terms we discussed in about— I think it was about 3 hours., and we had that signed within about 30 seconds of finishing our review. Takes me about 10 minutes to go through a contract in Washington because I've done so many. Um, however, I mean, that was the easiest transaction we've ever done. Stellar deal, loved the price, loved the terms, closed. You want— and now they send us deals all the time because they know that we can make a decision quickly and we can close. That's speed. Is absolutely everything. Okay, we got a new question. That's What She Said asks, can you please go into depth regarding financing on seller financing? If the seller wants 20% down, how do you find the 20% down besides OPM or using your own cash? I'm going to jump in really quick and just say that's all money. All money is either other people's money or your money. Even if you're going through a bank, a bank is lending other people's money. There's no money that's not owned by someone that you can use for a transaction.

Unless I'm missing something.

I don't think you are. Yeah, the other person can be anyone. So if they want 20% down, the seller is not going to be your other person's money, but it can be another owner that you know really well. It could be an equity partner. They can come in and say, hey, I'll provide the money and I want some of the ownership. And now their money comes in, they ride the deal with you. It could be additional debt. If you can service more debt, if it's a high cash flow deal, you can just get a loan from a private individual or a bank or a hard money lender. I don't use friends and family money, but you certainly can do that if that's something you're comfortable with. But that will— that encompasses all money. It's either your money or someone else's money. There's, there's no other money to use for 20% down that I can think of. From Chris A, where is you all located? Well, I is located in Renton, Washington, just south of Seattle. I invest in Central Washington and I don't even know what you call it on the Central Coast. We have a property right, right almost on the coast on the Hood Canal, Washington. So Mason County, Washington, Grant County, Washington are my primary markets. I also own a little bit in Kitsap, Washington and King County, Washington. How about you guys? Uh, where, where do you live? Where, where is you located?

And, uh, where are your properties located? Uh, we're in San Diego. Yeah, we're in East County San Diego, and then we own in Hidalgo County, McAllen. We own in Webb County at Laredo, and then we are buying in Harris County, which is Houston.

By the way, I learned this yesterday— McAllen, Texas, most obese city in the U.S.

I can vouch for this.

I've been there. Now apparently a contributing factor is they have the best Tex-Mex in all of Texas. This is like a known thing. If you look up McAllen, the Tex-Mex is just ridiculous. They also are known for putting ice cream in their coffee instead of cream. These are just, these are just facts.

Wow.

I've learned this all yesterday. Fantastic market. If you look at the growth rate, um, they might not have the healthiest tenants. However, um, fantastic food, really stable jobs. Um, both that and Laredo are right on the border, right? Yeah. And then you guys are looking in Houston, which is, um, you know, it's not right on the border, but man That is a hot part of Texas. Yes, it is. Well, very, very fun. Okay. Now that's where we're located. So you can do this in your own state. You can do this. I invest— our resort that Cody and I talk about all the time is an hour and a half south, and I'm driving to our Grant County properties, which are about a 3-hour drive away from where we're at. These guys invest, they live in California, invest in Texas like the rest of California does. And that's a huge commute. You guys can't just be there all the time. So you guys can do this anywhere, properties any distance from you, just choose your market and stick with it. 100%. Kevin says, congrats Chuck and Caleb, huge milestone for you guys. He's middle-aged, called a shot. He's gonna message you. And he said, thank you for helping me with my mentorship. Oh yes, Kevin. So Kevin, you guys helped get him involved.

So thank you guys for—

let's go, Kevin. Yeah, thanks for the referral, guys. Um, yeah, last week, great guy. Yeah, I'm really happy to have people on the— in the group. I don't do a whole lot of selling our course. The course is just— it exists for people to come out. Same with the mentorship, it exists for you if you want to do this. Um, I'm not— this is— this platform is not for sales. YouTube is for information, and this is free. If you guys are interested, talk to Caleb or Chuck. Um, let's, let's plug your guys' socials right now so people can connect with you. If someone has a question for how you did this or how to get involved in our community, how do they connect with you guys specifically?

Yeah, so on Instagram, I'm caleb.hommel, and I'm chuckie_sotelo. And then we also have a YouTube channel, Caleb and Chuck, and the same thing on TikTok.

Perfect. Now I, I'll attach the rest of your guys' socials. I did include your YouTube channel in the description, so if anyone looks at the description for this video, you guys connect with their YouTube channel. They just launched it and their video editing is superb. Cody and I don't edit, that's part of our brand, but, uh, Chucky's really good at making quality videos. That he is. Um, all right, let's see here. Chris A. "The raising the money part concerns me the most. It's not a question, but it is a comment worth discussing." The capital raise, as far as all the pieces of finding the deal, negotiating the deal, title and escrow, all the things that come into managing a property, how hard do you think the capital raise portion is? You guys are newer to this.

I would say at first it's the scariest, but as you do a couple deals, it's probably actually the easiest part of the process in my personal opinion. I 100% agree with that. I heard Robert Kiyosaki say that the longest, like a long time ago, and I was like, there's no way, that's terrifying. But it actually is. Yeah. At first though, it's extremely daunting. You're like, I have to go raise how much money? And for us, it's like, we have $100,000 on the account, we have to go raise $90,000. That was a big mental hurdle to get over. And then once you do it and have done a couple deals and raised the capital, it's so most sailing from there.

In the last 2 weeks, Cody and I have had to do $1,220,000 of capital raise. Um, when we started— which still sounds crazy, that's a lot— when we got started, I was blown away that the first deal that we did We had to raise $300,000 for the first deal we did together. Cody and I never raised that much. I mean, Cody had had help doing that on a property before, but that was his partner brought in the money. That was the first time Cody and I ever raised money. We did it in 4 phone calls with 3 people. One person ended up saying no who could have funded the whole thing. We brought in 3 people at $100,000. That was about as hard as every capital raise has been for us. There is— and this is a Kiyosaki thing, it's true— there's more money out there than there are opportunities. There's so much money and the Fed's just printing it like crazy. So the money supply is going up, especially right now. If you guys noticed during COVID we shut down a lot of our production, which means a lot of building slowed down or halted. So inventory has not gone up, money supply has gone up. There's not a lot of new property to invest in or new builds. So you find a deal like real estate's always worth more over time, but like right now in our current market, fantastic place to be the deal holder because it is extremely easy to line up capital, super scary. You have a lot of responsibility if you take on other people's money, so you need to know what you're doing. But if you have the right opportunity and you have the right mentor, right team, right people around you so that you know that you can handle that, money is the easiest part. Just period. It's the easiest. And it is the scariest for actually everyone. I've never seen anyone who's like, oh, I'm least scared about the money. OPM, other people's money, is the number one question or concern that we get on any of our channels. From Andrew Milton, what are your shared thoughts on B versus C class neighborhoods when starting out? What asset type would you focus on acquiring as a new advanced investor? I have my thought, but I'm going to start with Caleb and Chuck. Chuck, I'm going to ask you first.

Wait, can I clarify the question? What was Beaver? Is that what you said? No, B versus C. Oh, B versus—

sorry, I mumble. Um, B versus C class properties when starting, what do you guys prefer and why?

I don't, I don't think it actually really matters. I think there's a good deal in any asset class. Um, I 100% agree with that. I think A class, the price is usually pretty jacked up, so getting started, I doubt you're gonna see any good, like, just starting out it's probably not going to make sense. But ours are all B and C class deals, and then those are the ones that typically have the value out there. And especially if you're going for relationships, I feel like you can get good terms on a better property. I mean, that's fantastic. Yeah, any, any asset class. And then is he talking about— as far as asset class, is he talking about multifamily, or is he talking about, um, storage, or any asset class, or what is he typically talking about there?

Do you know? Um, well, we're gonna assume we're talking about multifamily as we are on the Multifamily Strategy channel. However, I totally agree, class doesn't matter. Class A is going to be harder to find because Class A properties are typically trophy properties. Hey, I want to show off to my friends that I own this epic building. People can spend more money, like a rich person can spend more money and get a lower return because pride of ownership is actually a monetizable thing. That carries dollar value just to say, I own this. It also doesn't come up with a lot of headache. Now, as real estate investors, we make a lot of our money in solving problems. Class A doesn't have as many problems, which means while it's very stable, it doesn't have as much upside. Typically, when you get into the Class B, Class C, you're going to find people who operate those properties very poorly. You're going to find problems that you can solve. And that is where you make a majority of your money. The most money Cody and I have made on any one deal has been our 38-plex, both in cash flow and in value-add. Class F property, just absolute failed property. We picked it up in a 9-month stint. We made $1.41 million of upside, cashed out all our investors. And the property cash flows like crazy. So a lot of different ways to knock these out. However, the more problems, typically the more opportunity. You just have to be able to address those problems. So only tackle problems that you feel that you are comfortable solving. But that is Class B versus Class C. There's opportunities in both of them. And Cody and I have a Class A resort and a lot of Class B and Class C. Multifamily and one Class A multifamily. Sorry, reading. There we go. How do you usually first introduce yourself to other investors in your market? So if you guys are going to meet other owners, meet other investors, how do you introduce yourself?

Caleb and Chuck, I mean, we're not trying like tell them, tell them our story and everything, but we're not dressing up in suits or anything. It's just this is who we are. We just, yeah, act like us pretty much. I don't know, just be nice. Yeah, be respectful to them. There's always something you can learn from somebody else.

Yeah, that is fantastic. Very, very glad. Um, that is what you should say and how you do it. You're just forming a relationship. The people who everyone is driven away from is a person who just wants to talk all about themselves and tell their story immediately. Say, look what I've done, I own this many units. You don't open a conversation with your unit count, with your net worth, with what you've done. You go into these meetings to learn from other people how to play the game. Whoever learns the most about the other person wins. That is how that relationship game is played. If you're talking about yourself, you're not learning. So If it's me, I introduce myself as, hey, I'm Christian Osgood. That simple. Yeah. Talk to me about what you're doing. What are you guys up to? What are you interested in? If we're on a meet in a real estate meetup, how's it going?

What are your targets?

Yeah, it's about as complicated as it gets. Yeah, it's very simple, but You can literally play it like a game, like go through and go, who learned more about the other person? Did they learn more about me or did I learn more about them? Whoever learned more wins. And if you play that little mental game when you meet owners and you're at events, you will move forward faster than everyone else. And when you get to capital raise time, you know what everyone else is trying to achieve. It's very easy to raise money when you know everyone else's goals. They don't need to know yours because you can call them and tell them anytime, hey, I remember our conversation. I had this opportunity. I wanted to bring it to you because of our conversation we had 3 weeks ago. I thought of you and you're my first call. You have all the power there. Now they can ask, okay, well, what is it that you do? Well, I have a resort, a couple hundred units. I'm not new to this game. This opportunity aligns to the objectives that you said you had, whatever those are. And that's how you play the game for finding opportunities, raising capital. That's everything. Oh, I love this question. This is a good one for you guys because you invest out of state. How do I find the right market? I'm in Hawaii. I can see this is not the market for the cash flow. Hawaii is not the market for the cash flow. It is one of the only markets in the country that is worse than the state of Washington as far as cash flow. Accessible properties. California is probably worse. New York's worse. Um, I would— I— Hawaii might be worse than both of those. I mean, Hawaii is very, very hard if you're in the short-term rental game, which Cody and I now are with our resort. But outside of that, um, Hawaii cracks down on short-term rentals like crazy, so that's very hard to play over there. Because they don't want to compete with the resorts and they're very limited on what you can build. So it's a hard market now for appreciation. There's almost nowhere better. I mean, prices just go up in Hawaii. But if you're going for cash flow, I mean, how did you guys choose your market? Texas wasn't even the first market you looked at.

No. So for us, I started off— I have some connections up in northern Nevada. So we were looking around there a little bit. It's awesome. Love the area. Tesla's moving up there by University of Reno. Yeah, and it was just— there wasn't enough inventory on market. That's what we saw being out of state. We couldn't go out there all the time for owner meetings, so we needed inventory on market as well. And we were looking the town we wanted to be in, there was like 2 properties on market. Yeah, and like the whole county, not even just the city. Yeah, the whole county. It was really tough. So we're just like, this doesn't make sense. And so we started thinking, where's someone that's landlord friendly that has a lot of inventory? And that's how we settled upon Texas, and that's when we started looking there. And it's decently close. Like, we can fly there in 3 hours. Yeah, it's more feasible for us to fly to Texas than it is to fly to Florida or get to Florida.

That, uh, yeah, that makes a lot of sense. And personally, I like, uh, there's a lot in Texas that I like real estate-wise a little bit better than I even like Florida. Granted, Florida has probably the best politics in the country for, uh, landlords. However, Florida has more hurricanes than Texas does. That's another big expense. There's a lot to work with over there, and you guys said it perfectly. If you live in California, given the options, I'd rather choose the market that's a lot easier and a lot cheaper flight to get to.

Yeah, it's exactly our thought on that, and that's why we went Texas.

Chris A gives a shout out to Caleb, so shout out to Caleb. Shout out Caleb. Chuck. No one cares. By the way, that's not a bad thing. If you've noticed, Cody carries more of the brand for our company. I know for a fact Chuck does a lot of the system stuff in the background. The integrator always gets a little bit less glory, and that is totally okay. I want to make money, I don't care. You have equal value. You guys know your roles. Don't get jealous. That would destroy Cody and I if I was a jealous person. That would be, that would be terrible. How often do you guys come across large down payment requirements on, with on-market deals, and how do you deal with that? Oh my gosh, we come up with that all the time.

I see that all the time. Like, there's a seller finance opportunity I was looking at about while we were at BPCon. One guy presented me and they wanted 45% down. It just doesn't— a lot of them just don't make sense. I mean, it's like unless you're buying at a ridiculous discount, the deal typically doesn't— just won't make sense, won't pencil out.

What's harder to multiply money? Uh, if you put 40% down and the property goes up 40% in value, or you put 10% down and the property goes up 40% in value?

Exactly. It's very tough to make deals work with large down payments because then the obstacle has to become price, and that's not a fun space to operate in.

That's exactly right. It's— you just can't do— if you're trying to multiply money, leverage is how you multiply it. Now, if you want more cash flow, you put more money down. If you have no debt, it turns out the property cash flows more because you have to service the debt. When you're getting started out, you need to be able to multiply money as well as cash flow. So your leverage point, you actually do want to come into these with pretty high leverage. As you get farther through the game, you start deleveraging, which is what Cody and I are working on. We're going to pay off the debt on our existing stuff. Does that mean we're not going to use leverage? No, we're going to go buy new stuff with leverage. But we've built enough where I hit all my goals. I don't want to lose that. So I'm taking the existing portfolio, I'm going to pay it down to zero, and then we'll lever up on new stuff. From— I had an inappropriate comment. So I deleted that one. And now we're going to jump to Tom O'Donnell. Can you go through an example of an equity partner for down payment and the terms that partner was comfortable with? What was their buyout premium? I'll jump in on this one. You guys can weigh in as well. Different for every single deal. I'm sorry, that is my answer so many times, but that is just that. That's how these creatively financed deals work. You make up your terms. If I'm going to give them a lot of the cash flow, so if they're coming on as an equity partner and they get cash flow with me, their future equity buyout is smaller. If they are giving us the cash flow, which I have a few deals where that is how that works, they're promised an equity buyout and sometimes they're very high. We did a series of duplexes side by side. We bought a whole block. Very similar to Caleb and Chuck's first deal. They bought a bigger block of duplexes. When we negotiated the buyout, we keep all the cash flow. He gets a 1.5 on his money in 5 years. However, we only have to do a 1.25 on his money if we buy him out in the first 2 years, which we will do. We're actually in the process of doing that probably in the next few months, probably. On a deal like that, that was very simple. It was a very safe deal. And the collateral is if we default, the LLC goes to him, we just lose our equity. However, we still got paid the cash flow the whole time. So our worst-case scenario is we get paid for 5 years and then he gets the properties at a dollar amount from way in the past. So for him, great collateral. For us, phenomenal deal. The prior owners who seller-financed the other 90% of the property, totally on board with this plan. They get paid every month. They don't care. So overall, that's one that we've done. I've done deals where it's just 18% per year. I've done stuff where I can buy them out at principal, but they get a huge guaranteed cash flow payment. So tons of different ways to do it. It's just a blend of monthly payments or deferred payments, and you have to come up with something that reaches their goal.

Yeah, I agree. Every deal is different. So far we've done all equity, but there's deals where if it cash flows a ton, you can do it as debt as well.

Now I am entering the very end of our chat, so I'm going to do— we have a few more questions, but I'm going to do a last call. If you have a question or you have any friends who want to be on this, share them the link and get them in here because we have more time and I want to answer some questions here. So get your questions posted now and we are going to start our, uh, our final wrap up here. So from Tony, thanks for doing this, fellas. Appreciate you doing this. And you guys are awesome. That is a fact. I've met Caleb and Chuck a couple of times in person and I've known them for about a year now. Uh, they are in fact awesome. What they're doing is incredible. And I appreciate you guys. I really appreciate you guys being on the channel with us today. You guys are doing something no one's doing, and I am, I am both proud and honored to have you on the channel.

Thanks, Christian.

Appreciate it. It's always fun. Oh, I— yeah, I mean it sincerely. From— oh, it's Danny. In a seller finance deal, what, what service or how exactly do you set up payments to the seller every month?

Ah, what do you guys do? We haven't made a payment yet. Yeah, we actually have not made a payment.

We are not qualified to answer that question. They have negotiated both their deals with deferred mortgage payments, uh, one for 2 months that they just closed on and one for, uh, 6 months with no coverage. The reason they did that is because they started with no money and this builds their capital account. So they're actually building their reserve account by just not having any monthly payments, which is crazy. Crazy. I've never asked for that, which is probably why I've never gotten that term. Um, really, really smart guys. When Cody and I do this, every time, professional note servicing company. We put note in with a note servicing company, they service the note. It is automatic withdrawal. It's exactly like you would run a payment through a bank. You They process it, they invoice it, they let you know if you're late, they apply any penalties, they enforce the note. Typically, there's either going to be a note servicing company that specifically does that, um, it'll be a bank, again, a note servicing collections agency, or a law office. Those are the 3 entities that will typically service notes for you. I have 3 or 4 different note servicing companies I use depending on where the the property's located, 100% do that. If you have a seller finance note, it will protect you, it will protect the sellers. That is the right way to do that. Caleb and Chuck, when you guys start doing this and actually start making payments, find a note servicing company that's going to manage that for you.

Don't— Yeah, we're working on that right now. Yeah, that's something we're working on in real time.

Stephanie over in that tiered in the last hour. Yeah, that's, um, good. That is exactly what you need to be focused on. Uh, from Lucas: Are you guys sending offers to agents without talking to sellers? I know you guys are, and I know I do. Um, how quick from finding the deals and running numbers are you sending the first offer?

It varies. I mean, there's deals I've looked at that I call them, I get the numbers, and I've got an offer over within an hour. And then there's times though you need questions answered. Like on some deals we're looking at right now, it's questions no broker knows the answer to. Sellers out of town. So yeah, sometimes it takes a little longer, but it all varies because I mean sometimes the financials don't always add up. You'll be looking at them in their different spreadsheets and they don't actually match up to what it's supposed to be. So any clarification on it? But yeah, everything— if everything looks fine and it all makes sense, all the numbers match up, you can get an offer on her Overall, we've done it under an hour quite a few times.

Yep, that sounds about right. And yeah, um, if a property is listed, call the agent. You don't call the owner or the seller of that property. They have put an agent in place to sell the property. You don't violate that relationship. You go to the broker, and on a listed property, you're going to negotiate with the broker. If you're going to go around them, you should get written permission from the broker to contact the seller directly, especially if you are a licensed agent. You can get in a lot of trouble for circumventing them. So if you're an agent, definitely don't do it. But as an owner, you're going to piss off the broker and you're probably going to piss off the owner if you go around the broker. Now, Cody and I have talked to an owner before where we didn't even know their property was listed and we negotiated the deal with them. And as soon as we realized it was listed, We put in writing, hey guys, just so you know, we are licensed brokers. We're not going to represent ourselves on this. We sent an email to the broker and said, hey, Christian's Wi-Fi.

Is that us right here?

That's him. That's him. Actually, no, this was listed, but we would love to have you write it up for us, and we looped I hope this is okay. Okay, we, we disconnected briefly.

Are you guys back?

We're back. All right, we should be good to go. I think we're still streaming. We will see. I hope so. We disconnected for a second. If anyone— if anyone is still watching, if you can just give us a little thumbs up in the chat to know that we're back live, we'd appreciate it.

Question from Sam Kimball.

I know Sam. Hey. Okay, well, this is one of your guys.

Okay. It was Christian. It's Sam from BPCon.

Oh, no way. Okay. I know Sam. I didn't know the last name. Oh, there we go. Oh, hey Sam. Have a deal owned free and clear. Owner is willing to finance 50%. How would best pitch to change his mind to 90% seller finance? Also great to see everyone here. Okay. So if he's willing to finance 50%, How would you guys open the conversation of, uh, changing his mind to finance 90%?

I mean, the first thing is, does the deal pencil out for that current asking? Is that there's room to go above what he wants and give him more purchase price and everything with the deal still makes sense? I mean, like most people, most sellers, they do care about purchase price more than just any other term.

Yep. If, um, I think the main thing for me is building the, the relationship. If you are working directly with that owner, it's a little easier conversation to have. You just want to let them know it works for you. If it doesn't work at 50%, which most deals won't, they'll be like, look, this is, this is what I can do, or this is my plan for the property, and this is the timeline which I'm going to pay you back. It might be looking at a shorter balloon on the property of, hey, I'm going to get you the whole amount. It can also— and this is like my signature move— do additional down payments at the end of every year. So if you have a property that cash flows pretty well, you can pitch, hey, look, I can do 10% down right now, but I want to get you your 50% down at the end of every year. As I improve this property, the income is going to go up and that will allow me to pay larger lump sums at the end of every year to get you to your 50%. So if I can't get it to you today, can we create a plan where the property is going to pay you more over time. We have a 7-plex, just practical application, 7-plex where we do an extra $20,000 a year. Every December is write a $20,000 check, send it on over, and that goes directly towards principal and it's just additional down payment. So that's an option. That's my signature move because I like the idea of pitching a seller on, hey, as I improve the property and it does better, I can continue to pay you more. It makes them feel like they're part of the project and it gives you incentive to improve the property. If you fail and they have to take the property back, they know that you have an obligation to make the property better and improve the numbers on the asset. From Tony, I might hit you up, Christian or Cody, or for two prospective seller finance deals I'm working on. We always love doing those. Um, 2 commercial residential properties in downtown Tacoma, and the second, a duplex in Puyallup. Well, those are local. I will both, uh, yeah, if you want to talk about those, let's, let's, let's do that. Um, reach out to me on my Instagram @ChristianOsgood. But that's absolutely perfect. I would love to connect on that, get your opinion, and, um,—

or your—

it's not your opinion, but get the details on those. And if you do close on them, I'm happy to manage those for you. We do service Pierce County, so that'd be easy. From Mason— I know Mason, that's another person from our group— uh, how did you gain an understanding of what you'll be renovating once you found the property? This is a great question for Cato and Chuck. You guys have some renovations, um, Immediately. Yeah.

So for us, um, the biggest thing people have asked me as well, why don't you go out and see your property before closing? And it's just, I can go out and take a look at it, probably cost me or us about $1,000 round trip to go out there and back, and it just doesn't make sense. I can go out there and look at the property and I'm gonna have no idea like how much anything looks at. I'm like, oh, the window's broken. Yeah, nice. I can tell you that. But so we, um, get inspection reports done before closing on all of our deals. And then we had a contractor go out and go see about appraising.

Yep, that's, that is the right answer. Uh, get a professional inspection and then get a contractor to quote it. That's the, that's the best way to do it. Now that's not how Cody and I do it. We've done this enough times, long enough, and Cody's finished his entire inspector school. When I'm in a market that I already own in, I can walk the property and I actually do know what everything costs. I've done enough renovations where I know better than most contractors what we need to do. I get in there, I go, okay, this is going to cost between X and Y. We're going to make sure that we have enough capital and cash flow for this. We're going to roll. Is that a best practice? Probably not. Saves us a little bit of money up front. But, you know, your best practice is doing exactly what Caleb and Chuck are doing. If you don't know how to do the maintenance and you don't know construction cost, do you want to be a construction estimator or do you want to be a real estate investor? This is why I say on this channel all the time, Caleb and Chuck have a better model than us. We run, granted profitably, but we run a property management company. It's a ton of work. They just have property managers. You guys have true passive income. We don't have that. I inspect my own properties. You guys don't. If you're going to do one or the other, follow the Caleb and Chuck model. They passively invest profitably in multifamily real estate. We actively invest and we spend a whole bunch of time. Oh, it's Danny or Oi. It's Danny. I don't know why I can't say that, but we have— they have the comment. Any note servicing company you would recommend for the Dallas area? I don't know any. They're super easy to find. Literally just Google note servicing. You can call most banks. If you're already using a law firm down there for real estate, you can ask them if they do note servicing or have a reference for you. But it's a fairly basic service. You know, it's kind of like finding an electrician. It's a basic service provider. That would be an ask the Google. That's not a question for you guys because you guys have never done note servicing. From Classy Zwan, let's see here. With raising interest rates, Having a HELOC, would it be looked down upon to put your cash reserves in paying that off to save money on interest? Now I know you guys haven't pulled a HELOC, but do you guys have a thought on this?

I definitely do. I know that's fixed rate, um, rising interest rates don't really matter, but if you have a rate that's going to fluctuate, and that might not be the worst idea.

But yeah, it's not something I would do. I have a HELOC and it's variable rate and it went from 5% to 8%. That's a bummer. I have $99,000 on it. However, in a down economy, banks have a tendency to freeze HELOCs. And this happened in 2008 where even though you have a HELOC, they can just say, oh, sorry, we're not doing any distribution from it, it's frozen. My recommendation is pull the money and place it somewhere that makes more than that. I pulled money at, at the time, 5%, now 8%. That was our renovation cost for our 38-plex. Borrowing that $100,000 at 8% made me personally over $600,000. I would do that deal. That's a ridiculous return. I almost said a word that I'm not allowed to say on the channel. It's a stupid return. That is a lot of money. So my recommendation is, if you have it, I would pull all of it and see what the economy does. Because if you find yourself needing money, liquidity is great. What I would not do is just hold the HELOC and not invest it. If you're not going to play with the money, pay it off. If you want to expand, that's cheaper than hard money. Find a deal that you would like to raise, you know, that's worth raising hard money on, and buy with your HELOC. That's my opinion. I got a couple people letting us know that we're still streaming from my earlier question. Looks like I'm on my last question, so You guys have any other questions or haven't liked yet? Hit the like button. If you have any more questions, ask them now because I'm reading the last question here. Another question: is there anything in Canada that drives the same purpose as a 1031 in the USA? That is a great question. I do know seller financing, they call it vendor financing up there, and you can absolutely do that. As far as 1031, I do not know enough about the Canadian tax code because it's one of my favorite things about investing in America is the 1031. I do not know if there's a like-kind exchange available in Canada. That is a very specific question. But on the off chance Caleb and Chuckie know, do you guys— have you guys ever heard anything about that?

No, I have not.

I have not. I figured not, but I did want to— it was worth asking in case one of you just magically knew that. If anyone does know that, please answer that in the chat. Or if anyone has Google and can look at this while we're doing this, I am very curious to know the answer. In the meantime, we're gonna ask or answer another question. Oh, it's just, we're getting additional color on this. The HELOC that they were referring to is variable and currently at 6%. You can do a lot of damage with 6% money. Caleb and Chuck, how many deals do you have where it would make total sense to borrow at 6%?

Every single, every single deal. Every single deal. Yeah. Every deal I've even offered on has been over 6%.

So you guys can service that debt? I would, I would pull money at 6%. Generally speaking, that is still cheap money. It feels expensive. People got mortgages at 3% for the last little bit, but historically 6% is phenomenal. Super cheap. Yep. And if you don't know where to place it, call Caelan and Chuck. They're going to find a deal and you might be their next capital partner. I might be their next capital partner depending on what they find. They're starting to find stuff in Dallas and I want to go to Dallas. Cody Reb, good friend of ours. Hello, gentlemen. Congratulations on the new property. That is true for everyone in this call. So whoever he's referring to, that is Cody, Christian, Chuck and Caleb all pulling new properties. So thank you. From Lucas, what are your thoughts on shorter-term balloon payments? I don't like them. However, if you can acquire a property and you have a set game plan on conservative numbers to get it into long-term fixed-rate debt or pay it off, which is what Cody and I are doing on most of our stuff. I like paying off more than I like selling or refinancing. But, um, on a short balloon, don't do a lot of them. You will lose everything. Like, you will get destroyed if you do a bunch of short-term balloons and you just can't make them. However, if you have a clear set plan of this is how I'm getting these all into long-term fixed-rate debt or paying them off before the note is due, go for it. Just don't do too many of them at once. Do you guys have any other color for that?

Um, nothing to add there. Definitely depends if you're buying it, um, below market value. For our third one, we're buying it on a very steep discount. There's an off-market deal from a broker, and our builder's doing 3 years, but there's no issue with that since we're buying it at such a discount. So it's about 60% LTV if you want.

So yeah, it definitely depends on the deal.

Yep.

From Kevin Gormish, by the way, no 1031 in Canada per the Google. I kind of figured it's a cool part of the American tax code. Unless Canada decided to copy us, you have less incentive to sell and roll up. The good news is I hate selling property. Am I open to 1031 for the right opportunity? We're multifamily strategy. We learn every strategy and if it makes sense, we'll do it. But generally speaking, I buy properties and I pay them off and I don't, I don't deviate from that almost ever. So good news is you have more incentive to hold and less incentive to sell, to roll up. You just get new money, get new deals and keep rolling, make money on it, not sell.

Yep.

From Andrew Milton, do you need to set up an LLC before getting a property under contract? Any recommendations on setting up business structure?

Caleb and Chuck, I know you know this.

Yeah.

Don't need to do anything. I would advise not to do that. Yeah.

Deal comes first before anything else. Reason being, if you set up an LLC, what happens if you have to add someone to it? What if you need an equity partner? If you change the LLC around, you could trigger excise tax or other issues if you mess around with more than 50% of your LLC. You also don't know what special terms and clauses you need in that operating agreement because you don't know what your debt looks like. Deal, then debt, then equity. And equity is going to be answered in the operating agreement. That's all part of the LLC. If you're purchasing an LLC, that's actually the last step. You've lined up all your capital and the opportunity, then you open the LLC because it's going to be custom for every single property you do creatively. And how long does it take you guys to set up an LLC, by the way?

Caleb and Chuck? Yeah, about 2 weeks total. Now that, um, our attorney— we're on to our third one with them. It's pretty much the same structure. The first one might take a little bit longer, especially in Texas right now. It's backed up a little with the state, so it might take a little longer. But as your attorney becomes accustomed to what you like, it rolls pretty smoothly.

It takes me about— it takes me about 10 days. Because you have to get it out and then usually your partners, usually they'll want to do some sort of legal review. And so they'll send it to their lawyer. It takes a couple more days. Yeah, I've had some where people just sign it without reading it. I do not recommend that. I recommend that you have all of your— all of your investors should have separate legal counsel. The reason being it's going to protect them, it's going to protect you. And every time you get a document, that gets better, you add that to your own legal library and now you have a better template the next time you go and do another partnership. From Lucas, has a seller ever asked for a personal guarantee on the seller finance note? I had one recently ask for that. Do you guys have any personal guarantees on your three? Hopefully so. No. I have personally guaranteed my biggest note, and I 1,000% know that I can back it because I have— I personally have more than 2 times the net worth of the note, and Cody has more than 2 times the net worth of the note. We can move pieces around if everything fell apart. I can cover $1 million. So that is the only personally guaranteed The overall strategy, you want absolutely as much non-recourse debt as you can. If you have a bunch of properties in separate LLCs with non-recourse, very hard to lose them. And if something goes wrong and you lose a property, you do not cause cascading failure to the rest of your portfolio. I would not use them if you don't have to. Now, banks don't like giving out non-recourse debt anymore. There are options. If you move a seller finance note into bank debt, which is a lot of people's strategy on the refi, find— it is more common in credit unions and small banks, but find one who's willing to do non-recourse, even if you have to pay an extra percent in interest rate. That is a huge layer of protection. Boomflix, can you guys explain how you planned the rehab for the 38-plex? Incorrectly is how I did that. But we got it quoted by a contractor who wanted to be our capital partner for that. And at the last minute, they decided, oh my gosh, we forgot that we don't have any money. Turns out if you're going to be a capital partner, you do actually have to have capital. So he quoted it. We had it all quoted at a discount because he was going to be a partner. That flew out the window. We estimated it'd be about $15K per unit, ended up being closer to $22K per unit. And we had a lot of units, so that budget got annihilated. It cost us more money. The good news is we quintupled the rents in that time, and the city bought some of the land from us, which helped recapitalize us. That was scary because we just didn't know enough and we didn't get a good quote. That's why I really push for get the inspection. I and get a qualified contractor who you are planning to use to bid it. Now, Cody and I have also been wrecked on this property, just got annihilated by bad quotes. The second person went about 40% over quote. There's a document and you should include this. I do this with every contractor now. I say, bid this. At 10% more and put a cannot exceed. They have to complete the work and they cannot exceed the bid amount. I am fine paying 10% more to know that it is not going 40% over quote, especially when you're doing hundreds of thousands of dollars of renovation. 40% of hundreds of thousands of dollars adds up real quick. So that's a lessons learned. But yeah, how we did it the first time, painfully and incorrectly, and we were way off and it hurt. Do we survive it? Yes, because we had enough cash-flowing properties before we bought that one. Don't start with a huge project as your first property unless you know exactly what you're doing. From Kevin, what is a personal guarantee? Do you have to leverage other assets in writing? So personal guarantee says they can come after you for everything you own, essentially. Like, you have to— you can get a judgment against you that says you have to pay this debt. They can come after your LLCs, after your personal house, after your car. Personal guarantee says I am backing this note with everything that I have. Granted, that runs through a court. It's like a 6-month process. You have time to figure it out. And they're not just going to come in. If, say, say you owe $200,000 and you have 6 different properties, doesn't mean they get to take all of your properties. It's kind of like Monopoly. When you run out of money, you can start mortgaging stuff. You get some autonomy on, okay, I'm going to sacrifice this property I'm going to sell one of these properties to go ahead and pay off this note. But you need to come up with a plan and you are obligated to pay them back. In non-recourse, the only collateral for that deal is the property that is the subject property. You're typically going to have to have a little bit lower loan-to-value because banks are going to want a bigger margin in there of safety. But that's exactly how those work. Non-recourse debt means the maximum loss you can have is the existing property. At least for the loan. You know, I suppose you can always still get sued, but generally speaking, um, non-recourse debt is awesome and will protect you. The only person that I have non-recourse debt with is a very close, very close personal friend, and it's money that I'm 100% sure that we can pay back before, uh, it would even go through the courts. And it's someone who I know would sit with us in mitigation and figure out a game plan without having to go legal. So it adds risks. If you don't have to use a personal guarantee, don't. Sometimes it's just appropriate and that's what you have to do for your LLC. Do you have them under a holding company or a trust? How about you guys?

Gail, Chuck, they're just isolated LLC.

Yeah, I think ours is isolated. Yep, that's how we set ours up first. Uh, my goal was to get great operating agreements, LLCs, and buy real estate. That was my build year. That is the phase that Cody— Cody, my goodness to me— sees Caleb and Chuck are in the middle of right now. They are building, they're in phase 1. Phase 2 is stabilization. When you've built what you're trying to build, you got your first block done of, hey, I hit my goal. Now you stabilize that, you add systems, employees, automation, you lock the whole thing down and you manage your debt stack and you make sure any short-term debts you have are moved into long-term debt, stabilized so that you don't lose. Cody and I are paying off all of our stuff in stabilization phase. That's how we want to get stable is no debt. Then you move through different phases. You're gonna wanna acquire more, so you do another build phase, and that's more or less how the game's played. However, we didn't start with a whole bunch of LLC structuring, not part of build year. Stabilization year, I have a legal team working in real time right now on how we should set up holding companies and additional umbrella insurance and all the fun stuff. I recommend if you want to master the law and buy real estate, and keep it forever, buy the real estate first and use the income from the real estate to pay the lawyers to make you bulletproof. You can always change an operating agreement or add an LLC. You can't always just go buy an epic deal. So I'd focus on getting the income up. Where did you get the money for the rehab on the 38? My HELOC. And Cody, has only ever done one flip of a house. We actually sold it to our head of property management, Hannah. He bought her childhood house, fixed it up, and sold it. Bought it from her grandparents, fixed it to her specifications, sold it to her. He used his proceeds from that as his contribution. So Cody put in $45,000, I put in $45,000, and that got us rolling. The rest of it was cash flow. For you guys, how are you funding all your rehabs?

Um, the first, first one, we're selling off an acre to do it. Second one, there's not much to do. And then the third one, we raised the rehab cost up front.

Awesome. Yep. And that's what we're doing. Um, for that triplex we just purchased, we overfunded just a little bit because 2 units came furnished and the top's not. So I need to buy furniture. I want to repaint. We have enough in the budget to do the quick rehab in the capital raise. That's typically how you'll do it. It's part of your initial math and it's part of your presentation to investors. We're buying this property for this amount. We're doing this much in rehab. This is the buy-in. Very, very, very simple. You just basically consider it a closing cost. It's just another line item. From Lucas, you mentioned banks don't like non-recourse debt. What would be a problem for refinancing with a normal bank? Or sorry, would that be a problem for refinancing with a normal bank? Is it easy to find a bank who will refinance on a non-recourse note? Banks like it less and less, especially in a rough economy. So a lot of your bigger banks are just not going to carry a non-recourse product for commercial assets until you get really big assets, then they're all non-recourse. And when you get really far in the game, this is also why Cody and I are paying off all of our debts. It'll make us big enough and wealthy enough to start qualifying for what's called agency debt. And that is where life insurance policies and other such organizations, agencies, will give you very low interest debt because they make all their money from people paying into policies and then backing that in real estate. That's how that game's played. You don't qualify until you're a bigger player with higher net worth. But when your companies can qualify for agency debt, Everything's non-recourse and low interest. So the standard bank game for small to mid-sized properties, it's getting a little harder to find non-recourse. You get a big asset, always non-recourse. Grant Cardone's mega towers are not, are not recourse debt. I got a comment from an adult dating site that we're going to go ahead and remove. That doesn't need to be here. And we got a comment from Martin Diaz. Thanks so much for the content and following your advice and got my first duplex through what seller finance relationship. Appreciate you guys for changing lives quick. It says quick, but then doesn't say any more. I'm wondering if the rest of that comment is about to appear. Or if there's no question there. However, I do want to, I do want to just reiterate again, like Caleb and Chuck, you guys are putting out content now. Like if you guys haven't followed their YouTube channel, do that right now. Their link is in this description. They're much better at editing. So if you guys want to be entertained, they're better at that game. I still think our information might be a little better for the next year or so while they catch up on knowledge. But oh my gosh, on-point videos, on-point shorts, and very well edited. So that's good content. You guys need to follow them. So if you haven't yet, go ahead and subscribe to their channel. All 4 of us, the 4 Cs— Cody, Christian, Caleb, Chuck— we are committed to getting content out to people because you can do this at 19, you can do this at 30, you can do this at 100 years old. There's no magic to it. Find deals that cash flow and long-term fixed rate debt and get more things to negotiate than just price. And you can play this game. It's super simple and we want to help people move forward. So, Martin, I'm glad that, I'm glad that this channel has helped. And congratulations on your duplex. It's a big deal. Well, that is it for the questions. We've run out of chat. We've done our last call. So I think we wrap up here. Caleb and Chuck, anything you guys want to add before we, uh, we call it a day on today's Creative Finance Live?

I'd say just go take some action. Learning's nice, but you actually got to go do stuff.

Yeah, to get anywhere. I would 100% agree. Just go do it. I have 2 more questions that slipped in. We're going to answer them, then we're going to cut. Okay. Um, For those 5 people who just left, I'm sorry, you missed out on 2 questions, maybe 3. I got the back end of Marvin's question. Can you run through a concrete example, hard numbers of how the cash flow supports the debt and equity borrowed? Let's do that in a video. Caleb and Chuck, would you guys be willing— and you do not have to do any editing on this, you can just straight shot it— would you guys be willing to put together a video on one of your deals? I'd love to share one of your deals on This Is What We Put Together on our channel.

Can you guys do that? Yeah, we'll do that on our third deal.

Cool. Just put it together, record it on Zoom. Easiest thing in the world. Do you use the same attorney for all your business needs? How do you find that person? I started with the wrong attorney. He owned real estate. He's kind of a turd. I don't, I don't care for him. We got a new attorney actually with the Robinhood transaction who is phenomenal. We absolutely love them. They are fast, they are smart, they're decently priced, and they own way more real estate than I do. You want to work with just a few attorneys. I'm going to guess if you bought, if you guys bought in California while you're buying in Texas, you're not going to use the same attorney. You're going to have a Texas attorney and a California attorney, probably a different attorney between different areas of Texas. Texas is huge. I'm going to guess Dallas might have a different attorney than you're using in McAllen. I don't know that, but are you guys pretty much just one attorney right now?

Up to this point, yeah. As we start expanding more and more, it'll be different ones. 'Cause all he's doing is the LLC and the operating agreement.

So once we get into other stuff. Yeah. Lucas Selga asked, for the second build phase, what types of properties are you guys gonna target? I have met with my team. For my team, and this is the answer for me, this isn't the answer for everyone else. Um, we want to take on bigger properties. My property management director Hannah is used to managing 300-unit buildings. That is where she started. She is very good at it. Um, she's doing a great job of managing our smaller stuff. She wants us to go after bigger buildings after we paid off our debt and we can get agency debt. She wants the big ones in our management. I'm fine with that. We are really enjoying the resort business. I don't want to just stack a bunch of them because they are intensive to onboard. We're looking at doing one hospitality buy a year. I'm going to call our shot here. Within the next 2 years, we're going to buy a winery. That's something that I want to do. It's hospitality. We're going to knock that out. Those are all part of the second build phase, though, where we go bigger with different debt options. The first thing you do is you set your goal. And for me, it's retire my wife get $10,000 a month to live on because that exceeds my current expenses. We knocked that out in a year. It was hard. Anyone can do this. Caleb and Chuck, have you guys ever even had a W-2 job? No. No, they've never even worked. What is your— do you guys mind sharing what your gross cash flow is today? Just— or sorry, not gross, net cash flow is today.

Yeah, we're making $5,500 a month right now since we have no debt service for another month on our second deal, and then for 5, 4 and a half months on our first one.

What's it going to move to, do you know?

I don't have the exact number right now, but I can get it to you.

Okay. The, um, yeah, that's really exciting. I'm, uh, this is incredible. That's doable though. Like, you guys can do this. Both those deals still cash flow though. Once you're done, you guys get these reserves and you're set. You can do it without a job, without experience. It's ridiculous. And you guys went very fast. You guys are on what, month 11 since we met?

Month 12?

Month 11, yeah.

But it was like we got one under contract and then it's like 2 weeks later we had another one, and then another 2 weeks we had another one. So it's just like momentum. Yeah, then we stopped buying. We had to close out that pipeline and now we're looking to buy more.

Yeah, that's, uh, that is just super exciting. Well, I'm excited and grateful for you guys sharing the numbers on your next deal, um, on our channel. And, um, again, if anyone hasn't followed you guys yet, do that. We've answered all the questions. I need to start doing dishes because my wife's gonna get mad at me if I don't. And, uh, you guys need to get back to your day. Um, one more time, if you haven't subscribed, subscribe to this channel. Subscribe to Caleb and Chuck's channel, link in the description. How are people going to reach you two on social media outside of that?

If someone has a question about the mentorship or how you did this, the Instagram— Instagram, super easy. Yeah, it's the underscore Sotelo. Yeah, Caleb.Hall.

Instagram is the best way to reach us.

Perfect.

That's the best way to reach me as well, @ChristianOsgood. Till next week, we will see you guys soon. Ask your questions in the chat of our video and we'll get to them next week. Have a good one.