Closing Day for the 200 unit - and already under contract for the next deal!!!

Oh, sorry, I was still rocking out to the theme music. Hello everyone and welcome back to Multifamily Strategy. Uh, exciting news for today. I know the last few weeks I've been talking about deals and putting together things and different ways to get creative with the financing. Uh, today we're getting some awesome updates for the field, but as always, I want to share how these opportunities are coming up. So I'm going to dive back into that again today, um, and get a little bit deeper on some of the technical structures that you can use to buy deals like this. So, uh, last week covered a lot of the how we're finding the deals. How do we actually put it together? What are the equity structures that works? Like, if you get creative on the finance, that's cool, but that's usually not all the money. So how does this actually go? I'm going to share how that works on today's episode. But first, updates. Uh, so first and foremost, exciting, exciting, exciting news. We close on the 200-unit tomorrow. Uh, we just reviewed the closing docs. The money is in the account. We're actually overfunded for this deal, so we are ready. To close and we are ready to rock. I am super excited, uh, super excited for this. For this is 200 units and there are 4 other deals that are being evaluated in Longview as we speak. I was gonna have Caleb join today's live and however, uh, he's not going to be joining today's live because he's on the phone with brokers negotiating more deals for us out in Longview, Texas. We are under contract for not one but 2 deals in Abilene now. You guys saw the, uh, I have a YouTube video coming out on Friday actually. I don't think it's out yet. Uh, the next YouTube video, I believe, or Monday's, one of the two. Uh, we have a video coming out soon for the next deal that we're under contract for in Abilene. But we have an 80-unit that we're buying over there, 105-unit over in Abilene that we're buying. We're closing out the 200-unit. We have 172 in the pipeline. Uh, this is getting insane. Also on today's topic, while we're talking about raising capital, this is the first time that we've ever raised capital in less than a month for a deal. And the capital raise happened to be a multimillion-dollar raise. So how do we make a few million dollars appear when there was no time to really do much of anything? We went under contract and their big thing was like, hey, we just want you guys to be able to close in 3 weeks. There was some figuring out to do there, and I believe we got it done. And by I believe, I mean it's in the bank account and I can see the money physically there, ready to rock. So how do you actually put these together? I wanna talk about some basic structures. First of all, let's start with the most boring. What is the most basic way you could buy real estate and the safest way you can ever buy real estate? Yourself. You can do it in your own name or an LLC. I know some of the largest owners on planet Earth who still buy real estate in their own name. There's multiple ways to do this. However, and I apologize, my camera might have overheated a little bit earlier today. If I look slightly, slightly laggy, I apologize. Also could just be my computer. The number one safest way to do it, buy it yourself, own name, no partners. Or LLC, no partners. LLC gives you a little less protection if it's a solo LLC than you might think it does. That being said, you put together your own acquisition plan, you buy your own deal. Kind of boring, nothing that sexy. You can do with your own cash or you can do it with borrowed money. So you can have people loan to you to buy it, but the equity, the ownership of your group is only you. Best way to buy real estate. The next one, I'm still gonna give you a path to get there on this. Joint ventures. Of the 33 deals that I've done, 34 tomorrow, about 30 of them, exactly 30 of them have been in partnerships. Actually, no, that's wrong, 28, because I did 2 myself. Most of what I've done have been in small partnerships. If you are raising capital from 5 or less people, so you have a group of 5 or less total people, including yourself in your deal, you're clear to go. Everyone needs to be an active member of an LLC, so they all must have actual roles. You guys all must have some decision-making power. But in an LLC where you're all actual partners, the IRS requires that, not me. If you're all actual partners, that's the simplest way to do it. The magic formula is every deal, close it with as few people as humanly possible. People are variables. People have different needs. People have different life crises. The more people you glue to your deal, the more crisis that could come up, the more problems that you have to solve. Fixed rate debt, one term completely solves a majority of your variables on the debt side. On the investor side, however, there's a lot of personal problems that come up. People get divorced, people lose their jobs, people have expensive things come up, people have kids, people— the list goes on and on and on of life events that happen where people have deployed their capital and suddenly may want it back. It has nothing to do with your deal many of the times. If you have a really small group of people who you know and you put together a team that solves the problem, which is either you're lacking money, you're lacking experience, you're lacking the credit, or a blend of all of those. You can build the team that closes your deal, and that's the point of the equity. If you need to go beyond that— so let's say we have more than 5 people, but we want to raise from people who we know or have a pre-existing relationship with— now we look into syndication. It's going to cost you roughly $20,000 to file it, so you want to look at little bigger deals where the $20,000 is more of a rounding error than a major expense, and you can bring in other investors to the deal. It's the same rules. You're still, who do I need on my team to qualify for the loan, the debt, the net worth requirements, the experience requirements, whatever it is that you're missing. Often it's just the capital, but whatever you're missing on the team, you add onto that team. There's 2 sides to a syndication. There's the general partners, the operating partners. Think of that as the joint venture. That's the LLC and the people that you need to qualify to close the deal. For the capital, the money goes into a separate bucket, which is for limited partners. If you have a pre-existing relationship with all these people, which generally speaking most of my legal counsel has said if you have 3 points of contact with them outside of business. So if I've talked to you via email, I've documented talking to you in person, and we've talked via text, we have 3 different mediums outside of work. We've connected, we can prove we connected, we have a pre-existing non-business relationship. Now we can enter into business. That's, that's the safest metric that I've seen. Most lawyers agree on it. IRS is a little bit ambiguous on specifically what it means for preexisting relationship, but most legal counsel has agreed with that for what they've given me. Disclosure, I'm not a lawyer. Ask your own lawyer, but that's what my lawyers consistently tell me. That's about right. Now the next one, if you need to market for capital, so I'm actually going to host big events where I'm actually asking people to partner with me. You can always talk about your deal online there. You can still bring attention to your deal and find people to partner with. But you have to be careful with how you market. If you don't want to be as careful with how you market and you just want to do it accurately, you file a 506. You still need to be accurate, but you don't need to be as ambiguous. It's not just like, hey, I'm talking about an opportunity, want feedback on the deal, whatever else you do to get eyes on it. This is a very specific— we are targeting returns of this much. This deal is now available and we are seeking partners. If you are legitimately marketing for dollars, 506. What I tend to do, I meet a lot of people through the YouTube channel, through speaking, through events. I even play competitive board games, so I meet people at the board game shop. As I start to meet people, anyone could fit into the 506 category. So if I'm raising for more than 5 people, we'll structure it that way. Even when I do these big raises, I talk to a lot of people, and there's 2 options. If you talk to me about this deal and you're not a fit, and then I do a 506 later, we still don't have a preexisting relationship. You've talked to me about another deal one time. That does not count. However, if you reach out about a deal and I'm like, hey, you don't qualify because you're not an accredited investor at this point, and we stay in touch and we actually get to know each other, maybe you enter the mentorship and we start talking together and you see me weekly and we— it goes outside of just the deal. We have an actual established relationship. Well, now suddenly you can start investing in the 506s. When we get into the s, it's accredited investors only. But when you're marketing actively and people see you doing deals all the time, I tend to alternate between a and a , and a , and a . More people hear about me, I make new friends, our network grows. There's now people within my immediate network who are a good fit for the deal. We'll do a 506. Unaccredited investors are allowed to Join. For those who don't know, accredited or unaccredited simply means you have a net worth of $1 million or more outside of the value of your house, or you've made $200,000 or more year over year over year of recurring income. Those are the basic buckets. There's other structures that you can do. There's Delaware statutory trusts, there's blended BNCs, but in general, it's going to be very, very simple. Keep it as basic as you can. Raise money from the fewest possible people for every single deal. If you can buy it yourself and it's a great deal, you should buy it yourself. Put your own money in your own deal. It's a great idea. If you are, uh, if you lack the total amount of capital to close, which is very, very common even for experienced real estate investors, if I buy every single deal, I do eventually run out of money before I can pull all that money back. As few investors as possible. Joint venture is awesome. Absolutely awesome, as long as it's 5 or less total partners. If it's more than that, the next step, 506. You can raise money from friends and family. You can't openly market, uh, but anyone up to 35 unaccredited investors and any accredited investor can invest in your deal. And if you need to market for capital beyond that, if you're raising millions and millions of dollars, the 506. The 200-unit that we're doing is a 506. We should have about a total of 12 investors by the end of This. That's the process. Now there is the first question in the chat, and I was very late on marketing this episode today, so we will probably have a few less people live than usual. So I will answer this question, but we probably won't get too many. Are you starting to meet more people? Or as you start to meet more people, the possibilities get exciting. Yes, they do. If people— some people have asked like, okay, so why, why have you posted 2,000 videos on YouTube? One, I actually do sincerely enjoy talking about real estate. It's really fun to have these conversations. I got to meet a lot of really cool But when you keep talking about the things that you're doing and other people know what you're doing, people can start participating with you in business. And so it does 2 things for me. One, this is a really fun outlet to get to connect with a bunch of people in the real estate community and talk about my favorite thing on planet Earth, which is providing housing for humans. I have a lot of fun doing this. I love running the property management company, and I have found that there's immense benefit of people having some idea of who you are and what you're doing. So there is some benefit to this for me. However, hopefully you enjoy the channel for just the information that we give, which I also absolutely love doing. doing, and it's a privilege to get to share with you all. Uh, but yeah, as you start to expand this, your opportunities get more exciting. If there was one piece of advice that I was to give anyone who is starting in real estate, start documenting the journey now. Talk about what you're doing with your friends and family, sure. But as things come up, make the stupid 1-minute-long Instagram post. Hey, I'm in the field, I'm doing this, I'm really excited. Have some documentation. If you go back to the beginning of this channel, The first videos are my original business partner Cody and I sitting in a basement of a building talking about how we're going to close a 38-plex. And for those who have followed the story, we did close that 38-plex and then a 12, and then we've got over 100 units together. And now here I am closing my 850th unit, uh, under contract. We should end the year over 1,000 doors. And while unit count does not actually matter, Cash flow matters. Income matters. The money piece matters in the business. Acquiring over 1,000 doors is a pretty awesome achievement. I'm very proud of it. It's very exciting. That only happens by continuing to tell a story from the beginning. So you can go all the way back to I had 2 units and then I closed my second duplex on the channel. We closed at 38. You can actually follow the entire journey doing that. Has actually increased my ability to do larger deals because people actually know I've done what I said that I did. I've documented it. You can see the videos, you can see us online, you see us posting the final settlement statement. It's all here. And I found that that was a very, very helpful thing to do. So there's one thing I can recommend for raising capital, ultimate transparency, share it online and document the journey with others. Uh, from Jordan here, trying to, uh, bring under contract a 61-unit for $3.4 million. Where would you recommend, uh, financing the 75%? Local bank? Uh, local bank will be great if your debt service coverage ratio is over, uh, 1.25 in general. So you're looking for DSCR is really what banks care about. I would go local credit unions first. They typically have the best options, followed by local or regional banks. Many of them have in their charter that they must deploy capital in the markets that they serve. So you likely are going to get more flexibility and more availability at that price point. But a lot of it depends on cash flow. If it's really high cash flow and it's stabilized, so occupancy is above 90%, if you have the experience on your team, you absolutely could look at doing agency debt. If you don't, then I would probably go back to the bank or credit union. Uh, there are some DSCR products that used to really only be for single-family that are branching into multifamily. So I would say the biggest indicator of what the correct debt product would be is actually going to be net cash flow more than unit type. I will say above $3 million, a lot of the debt products do open up. So you should have, as far as your deal size, you should have a lot of lenders who are generally open to the deal size. $3 million is easier to get lenders excited about than a $1 million deal. Uh, less than $1 million is by far the hardest to get banks on board with just because it's relatively small. They don't make a lot of money on it. Deal itself is a 9 cap, $318K near college. If it's at a cap rate of 9, and again, it depends on the state as well, um, like the actual location, but Uh, and if you let me know in the chat where it's located, I can give you even more feedback. Uh, but at a 9-cap, that's probably gonna work pretty much everywhere. Uh, that, that this is a great candidate for conventional financing. It probably is gonna be fantastic if it is actually a 9-cap, not just marketed as a 9-cap. If it is legitimately, when underwritten, a 9-cap deal, uh, that's pretty high income in today's market in most real estate markets. Uh, upstate New York Uh, 9-cap's great. Upstate New York, fantastic. Uh, it's a higher cash flow market, but it's not the cheapest market in the United States by a long shot. So if you're in upstate New York, you have a 9-cap, 61 units, above $3 million, you should have a ton of conventional debt products available for that. I would start with the local credit unions, then go to the local banks. Super boring, super run-of-the-mill, but this sounds like a great candidate from the inputs that we have here. That would definitely be my starting point, local credit union. And if we have no more questions, this was a quick episode today, uh, but great seeing everyone. And I noticed we just got a few more people in, so if you do have any questions, feel free to ask them here in the chat. But I will do a quick recap. When you are raising capital, choosing the structure that has the least amount of people will reduce your risk. So if you can buy it yourself, buy it yourself. If you can do it in a JV, 5 or less people, do it in a joint venture. Just remember, everyone has to have an active role. If you are raising capital from people that you know and you want to raise from accredited and unaccredited investors, so people who are worth less than $1 million outside the value of their home, then you want to do a 506 filing. Make sure the deal is big enough, like this example here, $3.4 million, to do the right debt structure, a $20,000 filing fee, can make all the sense in the world if it allows you to move the right capital through correctly for your deal. Don't skimp on this and don't try to glue 10 investors to a non-syndicated deal. If you glue 10 investors to one deal, all as JV partners, and it gets audited, there's a reasonable chance the IRS says, no, you created a security here and you were just trying to raise capital. You don't have 8 active partners. We don't believe you. So magic rule, 5 or less. As indicated, if you are, uh, actually marketing it openly online with the returns, asking for capital, if you are actually going for like, hey, I am actively looking for partners, uh, these are the returns that— if you are presenting capital online and asking for partnership, it's a 506. You cannot have the unaccredited investors on it. A Florida deal needs to come with $850,000 down payment. Uh, you have half of it. Um, what would you do to come up with the down payment? Friends, family? I don't personally invest with friends or family. Now, I invest with business friends, uh, but like close personal friends, um, I don't invest with. There's 2 things that can happen when you introduce money into a relationship: you get closer or you get farther apart. The one thing that is always true though, money will change the relationship. Owing money to someone in the family creates A different dynamic. Again, sometimes this is good, sometimes it is bad. I don't introduce money into relationships that I don't want to change. That being said, I have a lot of business friends or work friends, or Phil had a buddy who he sails boats with who's like, hey, this person is, you know, it's a buddy, but they're, you know, his career is sailing boats. There's a guy who sails boats who has the money. Makes a ton of sense. Do that sort of deal. So I would say close friends and family, almost in every scenario, wouldn't raise from them. That being said, if the mission is to find other people who also want to make money on a deal in upstate New York, there's a lot of them out there. So I would, I would definitely go to— I think the easiest way, talk to people in your phone book, roll through your phone book, probably not your best friends. But go through your phone book and actually actively think on every name. Should I call this person? Might this person actually be a good candidate for this deal? You'll be surprised how many people close deals from their phone book, one degree of separation. If you go through that drill, what you'll find is that other people will also recommend you to other people. So 2 degrees of separation, really easy to find investors. It usually is 1 or 2 degrees of separation from you for your first roughly million dollars of capital raise for almost every person. So that's what I would look at for this. Again, my recommendation is don't invest with friends or family. I have people who've done it really successfully. I have friends and myself early on a deal. I had a very close friend invest with me. We tripled his money in 2 years, and he attempted to sue us because he thought he deserved a higher return, which is ridiculous. Obviously, we destroyed him in court, but Ruined a great friendship, and it was an unbelievably successful deal. I mean, very lucrative deal, super low down, multiplied the money. Uh, everything went right and still lost the friendship. Uh, so that's, that's my 2 cents from my personal experience. What do you think about South Florida markets? Um, where do you think is a better market? I think if you live in South Florida, South Florida is the better market. It's a really strong market. It's competitive, but it's a really strong market and you have competitive advantage. You always look at where do you have advantage because there's markets all over the country that rock. Uh, there's certain places that I would probably avoid, but you're always looking at where you have the ability to make money. If you drive any market in the country and you look at all the buildings out there, if I am looking at a building in any market Someone owns it. I don't care if it's New York, if it's California, if it's Washington, if it's, you know, I'm thinking Minnesota, any of these difficult states. If you drive that market and look at buildings, I do not believe that every single building that you see, every single owned building is losing money. People own them. People make money in this business in any market— red state, blue state, big city, small city. Uh, so I would worry less about the market. Not that you don't look at it at all, but South Florida has one thing going for it. population growth and very consistent population growth, and recently very, very, very wealthy population growth. So your, uh, your income is going up in areas, uh, your population's going up, housing is also going up but not as fast as population is. So when you're looking at all the metrics, South Florida, awesome. If you are located there, buy in South Florida. There's— Florida is also not a small state. There's a lot of South Florida available. Great question. And with that, that looks like the questions that we're going to have for today. Guys, thank you for joining another YouTube Live from Multifamily Strategy. I appreciate y'all. I'll take a boatload of footage from the field here. We're out there on Friday for Field Day Friday. So I'll be grabbing some footage. You guys will be able to see the 200-unit in detail in action. We'll get that closed out tomorrow and I I will talk to you guys on the next episode.