In this conversational episode, Cody and Christian Osgood discuss a core real‑estate principle: investors should seek properties that deliver both positive cash flow and equity appreciation, rather than choosing one or the other. They explain why focusing on “and” (cash flow + appreciation) mitigates risk and accelerates net‑worth growth. The dialogue covers how appreciation is determined for residential (rental comps) versus commercial assets, and how operators can influence value by raising rents, optimizing systems, and managing properties hands‑on. They stress the importance of being an operator rather than a passive investor to gain lender confidence and secure better financing terms. Practical financing tactics are outlined, including negotiating lower interest rates, using equity partners for short‑term cash flow, and structuring buyouts to avoid permanent partnerships. Real‑world examples from Seattle, Moses Lake, and a new Union property illustrate how these concepts play out in both major and tertiary markets. The episode concludes with a reminder to only acquire deals that generate monthly cash flow and to continuously look for ways to increase both cash flow and property value.
Chapters
Hey YouTube, it's Cody and Christian. We're here in the resort that you just heard about for the very second time ever on Friday. And today we're talking about real estate principles, the things that we tend to follow 100% of the time. And today is number 19, buying based on cash flow, but buying for equity growth. Now, why does this matter?
Well, Cody, it's because and is better than or. A lot of people will look at things and go, okay, I either want to invest in a market that's all cash flow that never appreciates, or I'm going in a market where it loses money for the first 3, 4, 5 years but has really high appreciation potential. You don't need to do that. You can find many, many places and many, many deals where it is completely possible to get both cash flow and equity growth. The practical application of this is every single deal we've ever done. We've done it in major cities like Seattle, and we've done it in tertiary markets 300 miles away in the middle of a wheat field. Where we invest in Moses Lake.
And now we're buying in Union and it's still cash flows and there's opportunity for equity growth because we're going to be hammering the debt and we're going to optimize the system so we can get the value up. But if we just focused on one, for example, let's say we just focused on appreciation where, uh, let's imagine that we were high-paid Microsoft employees in Bellevue.
That'd be cool.
But we're— no, it wouldn't. I don't want to be there.
It'd be nice to be high-paid.
Well, yeah, it'd be nice to be paid. We never pay ourselves. But you're the high-paid Microsoft employee and you love what you're doing, which is phenomenal. You're making great money and you're like, well, $1,000 a month negative. I make $20,000 a month. I just put 5% of my income and I'll get a property that goes up in value 10% a year in Seattle. Well, okay, that's cool. But what if you could get the same appreciation and the same cash flow but in the positive direction? All of a sudden that's a little bit more enticing. And yes, you can float it. But great words of Gary, one of my first mentors over in Moses Lake: if a rental loses a dollar every month, you can only buy so many, but if it makes a dollar, you can buy an infinite amount. And so we want to buy stuff that goes up in value so we can multiply our net worth. That's how we went so quickly. We would not be able to buy this resort had we not multiplied our net worth. Just, it would not have happened. We wouldn't have had the portfolio. We wouldn't have been able to grow big enough get enough cash flow to buy it. However, if we just focused on the appreciation, well, if something goes wrong— and if means when—
we'd lose it.
And turns out losing real estate isn't fun, and that violates one of our rules. How do you buy? How do you never lose it? It's like one of the big ones. It's one of two. So you have to buy for both. Otherwise, you put yourself at risk of never blowing up your net worth in the positive direction or you lose everything you built. And those are not really great options.
Now, how do you actually control things like appreciation and cash flow? I'm gonna start with appreciation, 'cause there's two different ways that properties are appraised. If you are 1 to 4 units in residential, I'm assuming that you're buying a rental property, you're valued based on what everything around you is selling for. They have to find what are called rental comps. You have a little bit less control here. Now, you can have a nicer rental than your neighbor, and it can go for a little bit more, But in a down market, very hard to control appreciation. Now in commercial assets, while you can't control everything, it's going to be valued a little differently.
Yeah, so let's say I own a 10-plex in Quincy, and then Christian owns a 10-plex in Quincy, and we're not partners at this time. Let's say I own a 10, he owns a 10. I guarantee you mine will be worth more because I've got more market control in that area. I can get higher rents than he can in that location. If we weren't partnered, if he was just some random person, I'm going to get higher rents because I know how to get a higher rent. Than most people in that market. And just because of that alone, it could be identical buildings, same year, same fixtures, everything. If mine makes more money, it is worth more money because it's just an investment. If someone puts $100,000 down, are they going to get a 6% return, an 8% return? Someone is going to be more inclined to buy the deal with the higher income at a higher price. So that's just something to keep in mind as you're building out your portfolio. It's hard to control your value on a small residential property unless you're shoving a bunch of money into it. But if you can optimize systems on the bigger buildings, you can make a lot of money relative to the amount of work you're putting in.
And a lot of that upside, because it's income-based, is just based on your ability to better manage the property. You have more control on how you manage the property than control over what your neighbor sells the property for. Doesn't mean market conditions don't affect values. You're done. It's different metrics when an appraiser comes in and actually values, okay, what does this income actually worth in a different market? If things are selling for less, cap rates compress. But you have so much more control of all the variables that go into the pricing when you buy 5 units.
And instead of just being an investor, be an operator. If you can be an operator, you operate the deal, you're a little bit hands-on, you're not just sitting back drinking Mai Tais. If you can have control over the operations and systematize it and really scale up efficiencies, all of a sudden you're putting in a lot less work to make a lot more money and you can start doing bigger and bigger deals. That's why we're super excited about this place. We get to learn how to build out the systems, optimize the deal, and get the value to go up over time.
By the way, your lender, whether it's a bank, seller financed, or any other creative financing, your lenders will love if you are an operator. They don't want to see someone who's like, hey, I'm a passive investor, I found a great deal, I'm not really going to do anything, I'm on the sidelines. When you can show, hey, this is what we do. I take these properties, I have some market control, I have experience, and I have a game plan of how I'm actively going to improve this property. That creates buy-in.
Yeah, the, the roof that we did together— I bought a 12-plex back in June of 2020, and then Christian bought into it earlier this year because I got broke and needed money at the time, and for other projects. Well, we just did a— it was over $130,000, close to $140,000 roof. Showing an extensive project like that shows that, hey, we're not just here to slam it. We're here to put in the work. We're here to operate the deal, do what needs to be done. Because at the end of the day, the money is there to use. It's not there to hoard and just, you know, keep in your bank account. It's there to fix things up, make it nicer than when you bought it.
So that is exactly why we do everything we do. You don't have to choose between appreciation and cash flow, which is our last point for today. The cash flow is something that you can choose in any market, and we hear all the time, like all the time, all the time, I can't find a deal that cash flows in California, I can't find a deal that cash flows in New Jersey, I can't find a deal that cash flows in Seattle.
What did Gary say when we said it doesn't cash flow very much?
Well, if you want more cash flow, you can just put more money down.
Okay, but if you don't have that option, You're buying everything in cash. The trick is it's usually not your cash. So what do you have to do with the cash you're borrowing? You got to borrow more expensive or cheaper, right? You got to borrow cheaper. That's it. So if it doesn't work at 4%, negotiate 3%. And if it doesn't work at 3%, negotiate 1%. And if it doesn't work at 1%, I don't know why you're buying that deal.
Yeah. And if the cash flow is low, but say rents are really low, let's say you're 50% of market rent. And you have a game plan of, hey, I'm going to bring up rent over this period of time. Well, we don't like deals that don't cash flow day one. So your next resort is, well, maybe I bring in an equity partner and that gives me the cash today. We don't have to drain the cash flow for that debt. You don't need that 1%, 2%, 3% debt. It gives you time to raise the rents and kick in debt service. And then you have a structured buyout, unless you want to be partnered forever, which we almost never do.
Yeah, I don't recommend it. Yeah, people change.
Yeah, and objectives change, and it's just— we don't recommend doing that. Always have a strong buyout. But raise it as debt, and if you're raising as debt, you need to borrow cheaper than what the property actually makes.
And if you're gonna stay partnered forever, make sure you get big enough to where one day you can put it into management and walk away. Christian and I can do that. We got big enough to where if something blew up 30 years down the road because our kids hated each other— if you have kids, I will have it someday— then we could walk away. We will be big enough at that point. But right now our goals are aligned in a way that we're going fast enough to where if we needed to split, we could. Would it be expensive to actually sell out? Very. So we get to a point where if we're going to stay partnered forever and we're committed to partnering forever, we're one year into that, then we're going to have enough money coming in to where we could just walk away.
Practical application for cash flow: we did find a deal in Seattle. And it didn't cash flow the way it was presented. We got 3% debt.
Ta-da! Instead of 6%. 3% is better than 6%.
You just have to figure out where it works. And sometimes you have to propose something that's a little unconventional. I did not think that we'd get 3%. When I threw it out there, I was like, this is the only place the deal works for me.
And we got it.
And we got it. We got price and terms, which helps a lot when you're going for equity growth and cash flow.
Turns out if you don't ask, you can't get. Ta-da! Magic. You don't ask for it, you can't get it. But that's it. So buy based on cash flow, buy for equity growth, multiply your money, but only do it with things that pay you every single month. That's it for real estate principles.
And is better than or, so like and subscribe, and we'll see you guys next week.
