Christian Osgood and Cody explain four ways to boost real estate cash flow: raise rent, cut operating expenses, borrow less money, or borrow at a lower rate. They show how a $2 million 38-plex at 6% seller financing and a Moses Lake duplex deal improved returns by changing debt terms instead of chasing lower prices.
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Cash flow is the number one component to any business. And in today's video, we're talking about the real estate business.
Now, our biggest question is, how do you buy it? How do you never lose that? There's 4 important steps that you need to increase cash flow, because cash flow is how you don't lose every single property. Hello and welcome to the channel. I'm Christian. This is Cody. If you haven't yet, hit the subscribe button because we're going to be telling you all about creative finance How to buy real estate and how to never lose it, because that is what we do. We buy and we hold. I'm going to start with the first 2 things you do in your 4 keys for increasing your cash flow. 1, you increase the rent, and 2, you decrease expenses. Problem is you can't always do this day 1. Cody, how do we increase rent?
Well, you can increase rent with just a simple notice. You post a notice to a tenant, as long as they're not in a term lease, typically you're going to have a 45 to 75 day window. Sometimes in super restricted areas it's gonna be up to 6 months. So you have to figure out what the local rules are and laws, and then you can post a notice about increasing your rent. That's great. However, that doesn't solve for day one cash flow. Mm-hmm. You can also decrease expenses. You can do upgrades that are more efficient, or utilities. You can do bill backs. However, that also doesn't happen day one.
Mm-mm, those take time.
Yeah, so when it comes to actually getting upfront cash flow, there are only two ways to do it. You can borrow less money or you can borrow cheaper money. Now what does that mean?
Well, borrowing less money, pretty self-explanatory, you just take on less debt. If you have less debt payments, turns out that increases the amount of cash flow you get to keep.
That's awesome.
Yeah, it's a form of decreasing expenses except that you do that upfront. By borrowing less, we just do exactly what it sounds like. We borrow less, there's less to pay back. Payback, we make more money, more money, more cash flow.
So you're either putting more money down— not— that doesn't work for everybody. If you're doing the zero down thing, that's not really an option. So you can also just lower the price, because now if you're doing 100% leverage, you are borrowing in fact less money. Now that's pretty self-explanatory, pretty simple. The real way to do this is to borrow cheaper money, borrow cheaper debt. Now this is why we love— Cody and Christian love— seller financing. Because we can write whatever interest rate we want. If it doesn't work at 7, we can write it at 6, at 5, at 4, at 3, at 2. Any interest rate that we can choose to make that deal cash flow, we can write it at because there's no bank telling us what to do. That's the simplicity of this game. You can increase income, decrease expenses, borrow cheaper money, or borrow less money. Those are the options.
Yep, those are exactly what you can do. As we get to decrease our expenses or choose custom debt to to bring that down, we end up in a really great place where, I mean, this is really touchy right now because interest rates just basically doubled, right? Yeah.
Not a great place to be.
There was a time when you can borrow at 3%, and around that time, Cody and I were borrowing at 6% fairly frequently. Seller financed, excellent terms. We get to circumvent the bank because we didn't qualify for a lot of these things when we got started. I'll tell you right now, buying a 38-plex for $2 million, I did not qualify for a $2 million bank loan.
No, it wasn't going to happen.
No, absolutely not. So we're able to buy these at 6%. Now rates have gone up to above 6%. So now we look really smart. And I think that particular deal, we borrowed closer to 4, 4.5.
That one was at 4% interest, which is just excellent.
The fun thing with this is if the deal doesn't work with the bank, which a lot of deals don't today because interest rates have gone up, prices didn't really move very much. Like on the residential stuff, they're starting to drop a little bit. Commercial, they're about the same that they have been.
Going to go up because rents are about to skyrocket.
Absolutely.
Talk about raising rent.
It turns out we're still printing money. However, when you get to choose your interest rate while everyone else is trying to beat them up on price, you're playing in what we call a blue ocean. You can be in blue ocean or red ocean. Red ocean's where everyone else is already feeding.
All the sharks are at, you know, there's blood in the water. We're in a blue ocean right now because we're not negotiating on price. Price is one function of borrowing less money, because if you pay a lower price, you do in fact get to borrow less money in the Delta. However, we opt to borrow cheaper money, and more often than not, that's going to increase our cash flow more so than anybody who's just trying to beat them up over $100,000 on the price.
Now, at a later date, we'll talk factor rates versus cap rates in a much more complicated video. That is not the point of today's video. But what we really do is we're just making a spread on— because our debt is cheaper than the income, the more we borrow at the higher leverage point we borrow, the the more money we make, which is why the third way that you buy, or sorry, that you increase cash flow, is not our favorite, 'cause you can put more down. That was one of the first things that we were actually suggested.
Over in Moses Lake, we were looking at a couple duplexes, and we told him, hey look, it doesn't cash flow with these terms, and he made a joke, he's like, okay, we'll just put more money down. But it's real. If you wanna cash flow more, put more money down, borrow less money. That's a very real way to play the game, and if you're not in a position to do that today, figure out how to play the creative game. There's only 2 questions that really matter. How do you buy it? How do you never lose it? Because if you can solve for those things, how do you buy it? You get your deal, then you line up your debt, then you line up your equity. And the how do you never lose it? Long-term fixed rate debt and cash flow. If you do that enough times, you'll get in a position where you can actually put more money down. It doesn't have to be a zero-down game forever. You can use the creative piece in the beginning, increase your cash flow through these metrics, and then start putting massive amounts of money down on projects. So you can in fact borrow less money. Mm-hmm.
Well, those are our big 4 and the only 4 ways that you can really increase your cash flow. Increase your income, lower your expenses, put more money down, or borrow at a lower interest rate.
All right, that's it for today's video. Appreciate you sticking through the video. If you haven't already, like, comment, and subscribe, and we'll see you on our next channel video.
