Creative Finance - Creative Partnerships - with Christian Osgood

And there we are. Hello and welcome to another episode of Multifamily Strategy. With my camera working, we are ready to go. Live today talking about creative finance, specifically how are we using creative equity structures, how we're actually structuring some partnerships and changing some partnerships, and how you can do this in creative finance. Now, for those new to the channel, welcome. My name is Christian Osgood. I bought hundreds of rental properties starting with no money because we got really creative. Actually, going back to the beginning, I bought a couple of duplexes, uh, just 2 duplexes, 8-year career, saved and saved and saved, bought a couple deals. Each one cashflowed $1,000 a month. It felt good until I realized that was 8 years of work. And while getting a couple thousand dollars of cashflow a month is pretty cool, you can go a lot faster. Bought a 38-plex, 7-plex, 6-plex, and then scaled to over 200 units doing the same thing when I got a little bit creative. Now on this channel, we talk a lot about seller financing, creative finance, land contracts, different structures. We talk about having partnerships, but how do you actually structure the equity piece, the partnership piece creatively? Well, there's a couple of deals that I've been a part of that I'm going to talk about very specifically on today's call. So for those listening in, thank you everyone. Give it a like, a share, get some people in here because this is actually going to be, I think, a really fun video. Um, I will do a follow-up YouTube video to this, but this is the real nuts and bolts. You guys have questions, let me know in the chat, and as always, I'll answer all of your real estate questions today, ending a little bit early because I have a special invitation for everyone. I'm going to be talking about a deal that I actually want to partner— a partner reached out and said that they are interested in being bought out. They need cash more than they want their equity in the deal. I have a very specific deal and I'm going to be running an event on that. So, uh, you guys can check that out. That is on the Multifamily Strategy Facebook page. If you're not a member, let me know, hop in there. Uh, but you can actually join that event that is within our group and you can actually look at a real deal that anyone could buy into. Uh, but we're just going to be talking about on that example call how you can actually move someone's equity what it looks like in the paperwork, what it looks like technically, how it works for the seller, how it works for the investor. We're going to talk about all that is something that is happening in real time. Why does this come up, by the way? We did this actually fairly recently. We did this in Texas. I am part of two deals where I got brought in to help fix some of the capital structure. They had an equity partner who they had originally done their partnership with, and the two of them did an amazing job finding fantastic deals. However, They didn't raise enough money to get through their project. They raised only enough money to close the deal. So when the project ran out of money, they ended up with a bunch of capital partners who did not want to or did not expect to inject more capital to finish the projects. While the deals are fantastic by themselves and worth the investment, they were stuck with the wrong team for the wrong deal. Now, these deals were purchased $0 down. They were both seller financed. 10% down. They found partners who brought in that 10%, multiple partners on both deals who helped bring in the 10% for these deals, and they closed them. $0 out of pocket, not a dollar spent out of their pocket to close the deals. However, what happens when you have a problem? I wanted to address this first. Sometimes, especially when you're new, this is why you should like watch the channel, subscribe, research, be a part of communities. When you're new, you may make some mistakes. This was what we call a stupid tax. They closed the deal zero down. They did the hard part. They forgot to do the part where they just calculated what is our actual renovation cost. What does it cost to get from A to B? So once you know that you're in this situation, and this does happen, like, congratulations, you closed the deal zero down. You did it incorrectly. So we have to go back and essentially we're repurchasing the deal. This is one of my favorite things about contracts. Everything that is written with the right legal guidance can be rewritten. Anything that's negotiated can be renegotiated. Uh, this is a prime example of someone who did this, I think, very, very well. So what did we do in Texas? And I think this is helpful for anyone who is trying to wrap your head around how do I partnerships, when I get pinched on a deal, how do we restructure? All we had to do is say, what if we could go back in time and just purchase the deals with the right amount down, with the right partners? There are two documents that you could actually utilize to do exactly that. I'll share them with you here. We did this, we just executed the second one today. So we have a new set of partners in Houston, Texas. I have a new set of partners in Laredo, Texas. We are extremely, extremely excited for both groups. I think they are the right people. I think we have the right amount of capital, but we have energy, we have the team, we have the project. We basically came in and purchased our project exactly the way that we wanted to purchase it. So what does this look like? First is the MIPA, M-I-P-A, Membership Interest Purchase Agreement. When you buy in a partnership for the— I'm going to make this 101 level for people. When you buy in a partnership, what you do is you form an LLC which has its own operating agreement, which goes over all the terms and conditions and roles of all the members. Your membership Information lives in the operating agreement. You also have a purchase and sale agreement, which you already executed. Instead of having to rebuy the property or get new financing, because they're both seller-financed deals, the LLC remains in place exactly as it is. So the owning entity does not change at all. It's owned, we'll call it ABC LLC. ABC LLC owns the building. We are swapping the members. In all of my operating agreements, it says all members have to approve the buyout. So we all get together in a meeting and we vote and say, hey, are you guys willing to be bought out? Their answer was yes. We're like, okay, this deal didn't go the way that you expected with the amount of capital that we have. So what are we going to do? We're going to go ahead and return your original capital if you prefer to do that. We can either put in more money or return your original capital and we can all part ways. No one's damaged. They all agreed to that. We would like to be bought out. We'll just take our original capital and we'll do something else. It's not the project. The project's not going the way that we anticipated. We're more comfortable leaving. That's fine. That's what I was brought in to fix. So now we've established, okay, so we've had the vote. We're able to change equity. We now have someone else purchase in. So the terms out, it's about 2 pages. Just says who are the parties, who is selling what, for what price, how are taxes being handled. It's a basic, basic document, but again, MIPA, membership purchase Membership interest purchase agreement. So we execute that piece. Now everyone's signed. Now you've purchased their equity. Once the wire goes through, you've purchased it. At the same time though, you can't use the old operating agreement for a new partnership. There has to be at the same time executed a revised operating agreement. So you're just going to amend your operating agreement and you're going to sign and date when it was revised. So there will be a new operating agreement. That supersedes the old one, that lays out new parties with new roles. And in every operating agreement, you lay out the capital accounts. How much money does everyone have in the deal? On both of these deals, we're doing the same thing. Excellent price, significant upside on the deal once the project is complete. So all you have to do on these deals, and we try to keep this ridiculously simple— thank you, Troy— the MIPA. All you have to do on these deals to keep it absolutely ridiculously simple is you just put in what money did they put in and how is their money being returned. In this case, on both deals, it's first in, first out. They came in and bought out partnership, 25% owner of the LLC. So me, my partner, and the two other people who bought in, everyone is a 25% owner. However, since they have all the money in the deal, for both the renovations and they just bought out these other partners. When we refinance and/or sell the property, their money is paid back first. The remainder is split in proportion to our equity. There's a lot of upside on these deals. There's a good amount of money to be made. This works just fine. So how is their money protected? By the existing equity in the deal. How is their return being recognized? And the fact that there's an unbalanced capital account, they have more money in than I do. At whatever liquidity event, sale or refinance of either of these properties, we'll go ahead and pull the money. They will get paid all their money back first. When no one has a single dollar in the deal, we will split the remaining profit equally among us as partners, and we will move on to the next deal. Or if we're doing a refinance, we'll go ahead and hold the asset and divvy up cash flow in proportion equity. This is a clean, easy, and simple way to do it. But if you're buying a deal without money You need to understand partners are another piece you can get creative with. On one of my original deals, we bought out two partners. The last one, we didn't have enough cash to buy out, but we needed to buy him out to refinance. What did we do? He seller financed his position to us. So in exchange for monthly payments, we got an extra 3 years to pay out his portion. He got checks every month. We bought time. You can creative finance anything among your partnership. You can get as creative as you want. Your partners can buy in creatively. They can seller finance their equity to you. You can replace partners with new partners without disrupting your existing debt. When you are getting creative, it is very— I mean, if you think about it, it's two things, right? It's really simple. A membership purchase agreement, two-page, and then amend the existing operating agreement with new names, new equities, and everyone has to sign. It's not actually that hard to fix it, but if you don't know what you don't know, this might never occur to you. I have seen people— I have actually seen deals fall apart where people have either declared bankruptcy or just let go of a property, just signed it back to the seller because like, we're stuck, we can't figure out the path forward. If you look at some of these deals, and sometimes people get stuck on a deal, you do enough— it hasn't happened to me yet, but if you get stuck on a deal where it's not working, it's not going to plan, there are so many different ways you can fix it. And if it's a partnership structure thing, if it's a lack of capital, and you still believe in the deal— don't do anything unethical and just sell new people into a deal— if you still believe in the deal and the deal works, but there was something wrong with the way you structured it, figure out what structure would have worked and then go make that structure. A building that I'm actually really open to restructuring in the future, Robin Hood Village Resort. We had the right structure for our original business plan. When we changed the business plan, we now have the wrong structure. I would seriously consider doing a new debt structure with a different set of partners to add more capital to the resort to make it even better than it is, to hit its maximum upside and get a premium exit from our resort. I would look at doing something like that and create a finance because you can reroll the equity without touching the existing debt stack. That's something you can get creative with. I'm gonna, I'm gonna give one more piece and I am going to answer questions in the chat, so continue to ask away. Um, when you put this together, if we have any questions today— we have a— I'm noticing a little lower attendance than usual. Sorry, I, I advertised this about 3 minutes before it started, so that is on me. When you put these things together, if you have a deal that goes sideways— and I, I have a buddy who this is happening to— he expected that the market was gonna do something else.— which is okay, it happens on occasion. The deal will not support new partners. They overpaid for a deal and they're not cash flowing. If you lost on terms and price, unless you can massively overperform the market, which is very rare, it's possible, but it's very hard to do. If you cannot overperform and your deal's underperforming, You have an option. You can continue to bleed money on it, which is really not a good option in real estate. You can give it back to the original owner, or you can renegotiate. I prefer a collaborative approach. What he's ended up doing, and actually it looks like it's going to work out just fine, he reached out to the broker and the old owner and said, hey, this is the situation I'm in, and I'm calling because I'm stuck. I don't want to have a battle with you. I don't want to sign the property back if you don't want it. I cannot meet the payments. Like, we're out of money to bleed on this property. This is— this is not me. This is, again, this is a buddy who I've been walking through with, uh, with how to navigate this bleeding on the property. We overpaid for it and payments are too high. Do you have a suggested solution for us? And turns out they actually did. And instead of taking the property back, they'd rather rework the price and terms. On a note, it could still be renegotiated. Now, do not just do this as a renegotiation tactic on things. Integrity really matters here. But if you are sincerely stuck and someone sold a building and they don't want to take it back, they prefer to keep it sold, but the deal did not work, there is a time where you can go back to them and say, is there something that you want to— you'd be open to reworking here? I would always let the seller give you the guidelines here, but in this case They're willing to reduce the note by a little bit, and they're willing to reduce the monthly payments by a little bit, allowing them to at least break even on the deal. They're no longer bleeding, so there's no emergency, so impending we need to lose the property or not pay the mortgage, that gets alleviated. The price piece allows them to now get flexible. Now they could bring in new partners to finish their project. Now they can go out and hit a refinance and get the seller paid off. You're effectively lowering the sales price when you do that, or you're devaluing their note when they do that. This is not something that people are really excited to get that call for, but I do want to illustrate when you get stuck in real estate, and I've seen it happen before. While I haven't personally been through it, I have navigated this with other people who have gone through this exact thing. Anything that has been written and negotiated under the right set of circumstances with proper legal counsel can always be rewritten. There is always a way to amend any document that is made as long as all parties agree on it. And I hope this gives you some peace of mind. If you're getting into real estate, you're doing this creative finance thing, like, I've negotiated my own deal, what if I did something wrong? Do your best not to do that. Join a mentorship group, join Multifamily Strategy, join the free Facebook group, watch YouTube videos. Learn everything you can. Try to minimize your mistakes. You're going to have a podcast where literally every episode I ask owners, what are the biggest mistakes you made so that we can learn from them how not to make that mistake? But when you're playing this game and you're building your own portfolio, keep that in mind. What you are trying to do every single time is to write a great deal that cash flows on long-term fixed rate debt. And if you find that you failed to do so, or you miscalculated, or you made a misstep somewhere, You have options. You can swap out partners, you can swap out contracts, you can swap out interest rates, you can swap out debt products. Everything works in creative finance. So hope this video was helpful. Let me ask, uh, answer a couple of these questions here, and then I got to roll and prep for, uh, the meeting where I am literally doing this in Moses Lake. Quickly, let me tell you about this deal. 12 units, fully stabilized, fully occupied, fully renovated.. It is a finished project. I would not want to sell this building personally for any reason because I love the building. It is stabilized. When you have a finished project in your portfolio and a good equity position, it feels good. It feels really good. I get paid every month from it and it is a done project. I have a partner who is doing multiple projects right now. Some of them are heavy value add. They reached out and said, I need the cash more than I need the stabilized project. We finished the projects. I would be willing to discount my ownership, take my equity, and actually take a significant loss on their equity to cash out of that project so they can go on and do other projects and meet other obligations and do the things that they want to do. This is a perfect example of you can just swap out partners. This is the same thing. Management— or sorry, Membership Interest Purchase Agreement, your MIPA. We draft one of those. I'm going to be hosting an event because I want to show people how to do this. So after this call on the Facebook group, if you're a part of that, this is an event you can, you can view it educationally. If you're looking for a deal to partner on, you can literally look at this. I will be entertaining offers. Like if someone has the right person for this, absolutely. I have a partner who would like to be bought out. They'd like to be bought out at a significant discount on a deal that is stabilized. It's a great investment opportunity. I'm gonna go through exactly what the pitch looks like. Uh, this is, again, it's an educational event. This is not specifically for a partner, though, again, open to it if the right person wanted to join. Um, there's not a whole lot to do on the project other than next year there's gonna be mild rent bumps, but it is a finished project. Um, I'm gonna show how you present for these, uh, specifically on that call that is free to register for. There is no— I'm not asking for anything. It's not a give me your email, your phone number. Like, literally, it's a Zoom link. You can just join the Zoom. Uh, that would be in 35 minutes from now. So you guys are all invited. Uh, by the way, let me, let me copy that. If you guys are not part of the Facebook group yet, you are invited. Anyone is invited to this. I do edit it pretty— or audit it pretty carefully. So we do not want people selling stuff here other than talking about their deals and finding partners. We love the community. Um, but if you are willing to be a great community member, you can absolutely join this. I'll go ahead and get this, uh, this link shared with you all, and then as I keep saying I will, I will actually answer the questions in the chat. Here we go, comment being posted. This is on the YouTube chat here if you're watching on Instagram. There you are. Okay, questions from Luke. Is there a way to do a, uh, a 1031 on a seller-financed property with a balloon? Um, yes, there is a— there is some conversation. It's a little bit more nuanced, but yes, you want to talk to a 1031 professional. But there is a way when they sell the property, I have seen people defer the 1031 based on the balloon, or at least a portion of it. Uh, there is a way to do it. I can't tell you exactly how to do it, but I can tell you for sure it is possible. Work with a 1031 professional on this. Generally speaking, you 1031 out of the proceeds of the sale. If they have not received all the proceeds from the sale, it gets a little bit, it gets a little bit creative with how they factor for the— you have 180 days to declare, but you can specifically do it at the balloon. There's a way to put that together. Yes. Say I do a cash-out refinance, could I technically 1031 the next day? So if you do a cash-out refinance, that is not the same as a sale. So you can't do a 1031 out of funds that you have just pulled from the property's additional debt because you haven't actually sold the property. The seller may be able to take those proceeds and would be able to use those in a 1031 if you cashed out their balloon. But if you're pulling money out of the property without selling the property, that is not going to be eligible for a 1031. Oh, for those who don't know, by the way, 1031 is a 1031 tax exchange. So you can trade a property to a larger property that costs more and you can roll the taxable, like your taxes for capital gains, or if you ran cost seg, like your depreciation. Instead of having recapture on it, you can roll into the next deal, allowing you to buy bigger and bigger real estate. This provides more housing, which the government is a huge fan of, so you have tax benefits to do so. If you sell that property, it's still attached to that property though, so it's not like you're just skipping taxes. It is a tax deferral program. You just happen to be able to defer for your entire natural life if you never sell. Uh, so, uh, when you do a 1031 on a property My camera's doing the thing where it's just following me around. I'll stop that for you guys. There you go. If you do a 1031 on a property, but you don't use all the money— it might be a typo there, but I'm assuming you don't get all the money. Could you use the rest of the money for renovations on your new— oh, you don't use all the money. That's what I'm supposed to say. So when you do a 1031, if you don't use all the money, Could you use the rest of the money for renovations? And would that be a business expense? Would it be a business expense? Yes. Your CapEx is an expense that increases your basis in the deal. That is an actual expense on your balance sheet. That is, that goes under CapEx. You would not be able to tax defer money because you're essentially taking it out, then contributing it to that new LLC, and then you are spending it, or the LLC is taking it as profit and then spending it to reinvest back in the building. So can you use it as part of your rental budget? Not as part of the 1031, but it will. However, you can take cash out of a 1031. You're just going to be taxed on that portion of the capital gains. After you pay that tax, it is now your money and you can go ahead and spend that on the building. Good question. Technical questions on the 1031 from Luke. Thank you, Luke. Uh, tell me what you think of this deal, but I put— I'm, uh, I put together on a house I'm buying. Seller bought it in 2021 for $210K and then put $100K of renovations into it. Um, first, first thing I'm hearing here is house, so I'm going to say it's probably a little bit small to move you forward significantly. That being said, let's take a look. Being for $135K, $10K down. 15 years, balloon in 8 years, zero interest. I mean, the price and terms are fantastic. It's not a lot of money down, um, but zero interest, balloon in 8 years, that, uh, theoretically, if, if you're getting rent for $1,750 I mean, that's a fantastic deal. You're putting basically nothing down. You're going to, um, 10% down on that. You're probably going to cash flow like deep into the double digits on a cash-on-cash return basis. That's a very good deal. The problem is when you make really good cash-on-cash return on very little money, it's still very little money. But if that moves you forward and that deal is significant for you, Michael, then, um, I mean, absolutely do it. And that's not talking down to you, by the way. I've bought duplexes, which is the same thing as houses. They moved me forward. They were next to larger buildings. I also got started on a couple of duplexes. I learned to buy bigger. But if this deal is something that actually does legitimately move you forward, by all means, face value on our, you know, we're talking 3 sentences here on a, on a YouTube chat, face value, that looks like that would be a good deal. You, there's more that goes into that, of course, for How many repairs are still needed? What is the overall CapEx? There's other things, but on face value, based on the limited inputs that we have here without seeing the property, that sounds like a very interesting deal. And zero interest is, uh, is very cool. So congratulations on negotiating that. Luke, have you ever heard of anyone who's done a 1031 exchange to a creative finance deal? Yes, all the time. All the time. And the fun thing about this is you want to buy a property that's more expensive, but with creative finance, you can go lower down. So you can actually take the same money. But say most places want 20 to 30% down. So say, say like a really good debt conventionally, a really aggressive leverage point is 20% down. If you can get a deal seller financed, 10% down, you can buy twice the real estate, which means you can take less money and buy a lot more. So not only can you, you can get like a phenomenal deal and astronomically grow your portfolio. By doing a 1031 low-down seller-financed into a much bigger property. Very easy to roll those over. It is— not only can you do it, it is a common way to do it. Highly recommend. I think you have 9 months to roll into a 1031. You have 180 days to execute. Is the total— is the total amount of time that you have on a 1031. Uh, you have X amount of time to, uh, declare your properties unless they've changed it in the last year. You have a limited time to declare your target properties. You can declare up to 3. Um, and then after that, you have limited time to close on said properties. I haven't done one yet, by the way, but I've worked really, really close to them. Uh, can you explain more of what's included in your $2,000 course? Yes, and all of them are listed on multifamilystrategy.com, by the way. I just updated, uh, some of the new modules that added. You have 15 mini courses, the highlight reel. You have how to set your targets, how to talk to brokers and owners, basically how to source your deals for free without paying for leads. We have analytics, calculators, checklist on how to build LLCs, property management, how to buy it, how to never lose it. We have deal examples, actual live deal walkthroughs that you go through. I have an entire mini course on there on Section 8 housing. Do you have to do that? No. However, I've seen people put out— I'm not kidding, I've seen an $18,000 course on Section 8. It is one of the simplest things you can do. If you've heard any advertising that say there's this little-known secret in real estate, we call it Section 8 housing, the government will pay the checks. It is such an easy thing to do. It's about 20% of my portfolio that I just added it to our course for free. It's super simple. You don't have to pay anyone $18 grand for that. Um, that is just— it just lives in the course as one of the modules. Um, but 15 modules, about 250 videos. It is the information you need to play the game. If you look at the mentorship, that's where we get into community and application, and people can get really aggressive with building your portfolio. However, to answer your question, $2,000 course, Multifamily Strategy. Look at all the modules online. If you have any questions about them, uh, go ahead and hit me up on Instagram @ChristianOsgood. I'm always happy to dive, uh, deeper. So Nevin, thank you for asking. Um, spent a lot of time on the course. It's actually me teaching, by the way. It's not some crappy thing you find online where someone outsourced it or cobbled something together. Hundreds of videos, hundreds of hours spent. I'm very, very, very proud of what we put together on Multifamily Strategy, the course, and a good first step to the mentorship. Speaking, Brad, thank you. I promise I don't plan these people. I just better include one-on-one questions, uh, guide through the first deal. Uh, Brad, yes, while it is not direct in the program. The program's group mentorship because I want everyone in community and I want everyone to learn from each other as well as learn with me. I do host each of those individually. That is me, the operator, teaching. Um, but ask anyone in the mentorship group if you need one-on-one. So you have an actual deal, you're like, hey, I have a contract that I really want to look through with you. Yes, you will get the one-on-one time you need. Um, I cannot do that with 100 people at the same time. So I try not to spend 100 hours a week on it. But every day I have some one-on-one scheduled with some mentee on a live deal. So don't abuse it. But absolutely, I think it's super important in any mentorship group that you actually have access to the darn person who you're trying to work with. I find online we don't really do that often. I do, but like out of like 500 courses, maybe like 2 people. Will actually be like, oh yeah, no, I'm accessible. And there's group mentorship and there's like everything that we've put together. We strive for excellence. We will 100% work with you guys one-on-one. Everyone in the group as needed. Just, you know, give me a 24-hour window to schedule. I've had some people call me like, why aren't you available right now? I'm like, because I'm actually out doing the thing that I'm teaching. But yeah, within a 24-hour window, I will get back to you and we can schedule one-on-ones. Troy Roberts. How would you structure a deal if the seller has 80% debt still remaining on the property and the balloon is due in 2026? Poorly managed with the property, but 90% market rent. Um, they want $590,000 for a $450,000 property. So odds are, Troy, odds are that deal is dead and they're gonna have to come down on price if they want more than it's worth. And they're ballooning really soon, so they're in financial trouble. They're not managing well. They do not get paid bonus money for failing to be a good operator. A lot of people think they do. They do not. That is a deal that they're going to have to— like, if they have a balloon coming up, you just kind of wait and let it come down in price is usually what happens. Um, they can seller finance what they own. So I mean, you can get 20% seller financed, you can blend it with a bank, and that could work. But not for an overpriced property. Do not— don't just massively lose on price just to close the deal. I see it happen all the time. Highly recommend against it. Highly recommend against it. Just because you can doesn't mean you should. It would be really hard to get me to pay an extra $140,000 for a property without some crazy terms. If $590,000 is what they want and $450,000 is what it's worth, and they're in trouble, you know, I would like to pay them $450,000 and still get a little bit of seller financing on top of it. There's one other way to take it out, by the way. I just thought of this. Rare. This is not a, like, Band-Aid, one-size-fits-all, like, oh yeah, this is just the right thing for a deal. On occasion, a management option contract where you take over the management with an option to purchase— you put down some money for your option. If you believe that when you operate it, you can bring the value of the property significantly above $590,000 What you do is you buy yourself time. You put down a little bit of money, a nominal fee for an option, for an option agreement, and you take the $590,000 and you go, okay, I reserve the right to buy this at $590,000, but not until I get it operating to a certain extent. You're going to give me control of the asset so I can start doing the work, and then I will close it because I have to get the value up conventionally for a bank to even look at this. That is a way that you can take it out. I'm not big on doing a lot of option contracts because a portfolio full of options means you have a ton of obligations. You've put money down, but you don't technically own it yet. But this is a path on a deal like this. If you can get to that value and you believe you can exceed it, management option contract could give you the control you need to fix the operational issues and get it closed and cashflow it. Brad's looking at a deal where there's hard money coming due. They'll take $2.5 mil if my numbers are right. Uh, value would be worth $9 mil after renovations and 100% rented out. That, uh, that's exciting. So they'll take, uh, $2.5— is that as a— is that the purchase price they're willing to take, or is that the down payment to close it? Um, because, you know, if you have a ton of upside, that's exciting. I like that. Only 75% of the renovations are done. I mean, that's still, you know, that's a mostly renovated building, right? Um, before I can weigh in on the deal, it's, you know, there's more to know. What is the renovation cost? What is the deal? Where's it located? Um, you know, there's a few pieces. Why do we think it's worth $9 million? Is that what the net operating income dictates it should be worth? Uh, but if you can hit all those things, uh, very, very, you know, that's a lot of money on upside. And I've seen deals like this done, so Yeah, um, I like it for 2.5 if it's worth 9 and you're spending, you know, less than $3 million, or, you know, say you spent $3 million, you're on 5.5 and it's worth 9. Love to do that. Love to do that deal. Um, my question for the sellers is, when's the hard money come due? And if there's that much upside, usually you want to just rifle through these renovations if you have that much upside. Can the deal support you buying this with hard money? Because you can take these deals and own them without a partner. These are the deals, like kind of like my hotel is a smaller version of this. I'm going to make $1 million on the purchase. Can you own it without any other partners so that you get all of the million dollars? If you can do that, that's the best way to do it. Their hard money is coming due. I'm curious what they failed to do on it and what your fix is to be able to do what they couldn't, because that is a lot of upside. Brother mentees on the Facebook page that you can talk to about the mentorship. Oh yeah, I always appreciate that. Troy and Luke and Dylan, who just commented below, all members of the mentorship group. You guys are crazy. I teach 3 times a week and they're sitting here in my lives learning more things. First of all, guys, thank you so much for, for being here. These are all active members of our group, every single one of these guys. Active members of Multifamily Strategy who I deeply appreciate. Some of them have become very close friends. Really fun to see you here, guys. That Facebook page, it is invite only. So if you ask to be allowed in today for that event that's upcoming, I will go ahead and open that up for you. Watching the clock here because I have to make sure I'm prepped for that. We'll go 3 more minutes. So Dylan didn't think you'd be live today with Zoom after— oh, I am always live on Wednesdays, Wednesdays at 3. Be here going live answering your questions. The Hillsboro deal, you know why I was given, uh, without tax and insurance, the deal has to be a lower price for it to work. Um, day one, oh, that's a drop, and drops 3 points on the, uh, for day one. Uh, oh no, no, I see what it is. So it'll be a 4.69 day one, but pro forma we can get it to a 7.69. Interesting. You're gonna have problems with that if you have to do anything conventional here, so you're gonna have to get creative. But if they will— if they will lend, this is where you start looking at, um, how creative they can get on the finance, because there is no way with today's debt products, uh, a 4.69% is going to cash flow day one, just generally speaking. $1.6 million purchase. I, I gotta say though, I love deals in that price range, those $1 to $5 million deals. There's so much opportunity there. Dylan, keep, keep me in the loop on this. I want to see how you're gonna— I want to see what you're gonna offer on this. This one's interesting. Lisa's here too. Okay, half of the people here are all in the mentorship group. Uh, hello everyone, hello everyone. I'm glad it's highly recommended. I appreciate y'all. Uh, Brad, uh, don't have $3 million net worth, um, so I don't know how to get out of the hard money. Oh, that's a good point. I didn't want to get stuck like the guy in the deal. Now, while you can adjust your pieces, um, on a deal like this, if you go from $2 to $9, you're the only one who owns it. The equity you have in the deal will count towards your net worth. I just wanted to point that out. So you just keep in mind If you actually build $5 million of equity in a deal, you're worth $5 million. You qualify for the loan. The deal counts towards your net worth. Sometimes people will forget that. If net worth on a deal, if you are looking at something like Cody and I first, our first deal, we got a loan for $2.3 million. When Cody and I started, we weren't worth $2.3 million. Neither of us was worth $2.3 million. So when we went into that deal, it's like, we're going to need to do a lot of value add to this property. When we got the upside, we had the net worth by the time we got the loan where Cody and I were both worth safely over $1 million. The two of us were able to own that deal 50/50 without partners because we got the network worth up. When we closed that deal, the reason we did partners instead of hard money is because there is no way a bank would have given us that loan. The property was ludicrously hard to lend on to begin with, but we wouldn't have qualified for that much money. We had to build it in that deal. To be able to afford the bank debt on that deal. So hopefully that helps, Brad. If your numbers— if, you know, assuming you don't have to just dump, you know, millions and millions and millions and millions of dollars into this deal, if you can build $3 million of net worth here, you can, you know, reasonably— as I say, build $3.5, $4 million net worth in this, you should be comfortably able to cash out the original loan. That deal won't, won't cash flow at 3% IRR. Well, that deal has gotten pretty tight, but if you have upside on it, Dylan, follow the rules. Offer what works. If their numbers are worse day one than we thought they were, then our offer is going to have to be lower or less expensive than we originally thought it was. And if you have a lot of upside, You can offer a laddered system of like, hey, I know this, I, this is how I'd have the conversation anyway. I know this is crazy low interest. Like I recognize this offer is insane. Could we do 2% interest only for the first year? And in the first year, this is what I plan to accomplish, which will allow me to pay you 3% interest only the next year. And you can, you can ladder up to anywhere where your deal sustains. But if you have a deal with a lot of upside and you need to start lower, That pitch has actually worked really well for me. It just literally opening with like, this is going to sound wild. What if we did this? And then explain exactly how it's going to work in like very few words. I've done that before. That's how we closed the 25-unit. I know this is unusual. You want 5% interest and you're stuck on 5% interest. We both know the deal can't sustain 5% interest. What if our monthly payments were lower for the first year? We still charge 5%. But I pay you as if it was 3%. You know, like, well, what happens to the remainder? It's added to the principal. It's like I bought the property for $2,050,000 because I'm going to get $50,000 of additional interest. The price still works on that deal, but the payments are lower than the interest rate. We call this a reverse AMM. It is crazy, but it worked on this deal where I got the price that I wanted. I got terms that cash flowed. Get creative like that with the deal and, and that pitch, seriously, that, that opening to a pitch, believe it or not, it does work. Just start with, I know this is crazy. I understand this is gonna be a little wild. Hear me out. This is what I wanna try. And I've gotten really good reactions to that. I hope that helps. Steve, what time are the mentorship Zooms again? Mentorship Zooms, this is in Pacific time. Mondays at 4:00 PM, Tuesdays at 4:00 PM, Thursdays at 10 AM. All calls are recorded, so if there's one of those times or multiple of those times you're like, shoot, I'm not available, then they are recorded. Yes, if you need one-on-one support, you can absolutely get it. Yes, I run extra community events here and there that are absolutely free that you get, you know, there's a ton of bonus stuff in there. But those are the official times. When I'm in Central Time, which will be very soon, I'll be coaching at 6 PM, 6 PM, and noon. Central Standard Time, which is at the same time. Uh, I tried on that 5-unit, waiting for a response still. Keep it up, Dylan. Dylan, by the way, is getting into like real negotiations. For those who don't know Dylan, he is, uh, insanely young, playing the game, based in Houston, and, uh, he is getting into like real negotiations on a weekly basis. The stuff that he's bringing to the calls, like Very, very impressive. Very impressive. Brad, with Section 8, um, read they only pay fair market rents. Uh, yeah, they pay based on FMR. You can actually pull above that. There are a few different ways to do that with them. Um, but not only will they pay more, some markets their FMR, fair market rate, is higher than actual market. So some people can actually get paid a little premium. I can in my markets. I get paid a little premium for utilizing Section 8. I've also seen areas where FMR is calculated really silly and it's lower than actual market rate. So it will vary a little bit on your market. Most markets that I have seen, their fair market rate is actually pretty fair. Their analytics are pretty good and they err on the higher side because they do want owners to be in their program. It, it does actually work pretty well. Uh, so you called a nearby housing authority and lady was very friendly but stated it's based off of amenities. Yep. If you have something that offers significantly more than a standard unit and you can communicate that, they will make exceptions. I have some properties that are like— they're duplexes that are huge units that are almost like, you know, it's almost like just having a house. That's different than just renting a little teeny 2-bed somewhere in a larger apartment building. Housing authorities will take that into account. So if I have amenities like a big yard, we have sprinklers, and you know, it's like we have landscaping, we have this huge yard, you have a 2-story mega house, you have washer and dryer in unit, you have all these things, you have 2-car garage. If you're getting all those, yeah, your fair market rent based on bed-bath count, they will offer more money if you have a ton of amenities and their tenants are getting something above and beyond. Dylan, I'm gonna try to get my grandma to buy out your partner in the 10-unit. Well, 10-unit building and a 12 or 2-unit building. So it's going to be a 12-unit total transaction. Um, I'm going to go prep for that, uh, right now actually, where I have 10 minutes to get that done. And my slide, I'm going to put together some pictures for everyone. I haven't actually done that yet, so I should probably go prep my slides. Uh, but again, everyone is invited. Uh, I, I'm on the YouTube channel right now, so if you're watching from Instagram, I did post the link there, but you guys can, uh, check this out here on YouTube. Multifamily Strategy, for those who are watching on other channels, uh, that is our Facebook group. I will accept people into it, uh, and you can go to the upcoming event there. That is on Facebook, uh, Multifamily Strategy. Follow the link, join the group. Uh, I offer this every once in a while. This is free membership to our internal community, and we will see you guys there. Troy, I'll let you ask the last question here. Have you ever had existing, um, an existing tenant at market go qualify for Section 8 in the middle of a lease and convert them to Section 8? No, but I have had someone get— who was in the middle of, uh, the eviction process, they were being very communicative, but you still continue the process. We're being really friendly with them on like working to try to find them different housing, uh, looking for options, and they got their Section 8 voucher approved midway. We were able to transition them on to the housing program and that was able to do it. And Christian, uh, would it make sense for you to sell everything and buy like a $10 million property in Texas? Not yet. I have all these stabilized properties that are in my property management that I own. I am slow, and it could make financial sense, but for me, I'm really slow to trade things that are working, that cash flow on long-term fixed-rate debt that I can own forever that are very low bandwidth. It's hard for me to take a piece that I know is working and trade that for something else. I've seen too many people trade too many times until they trade into a mistake. And like, for me, going into hospitality was a mistake. Had I traded my multifamily for the hotel and then realized I don't like hotels, I would have been— I mean, that would have been awful. Um, so I'm slow to take what I've built that is working and stable and nice and trade it into something else financially, it could definitely make sense. Mathematically, right thing to do. Personally, I can buy deals without money. Let's just go figure out a way to take out that big $10 million deal and still have these. I think and is better than or. Uh, that's my opinion. Instagram, I see some comments over here, and I promise I am really good at getting to these. That being said, I did not, uh, I I did not do a good job of checking the, uh, the Instagram feed on this particular one. Um, I have shared the Facebook link one more time in there if you guys want to see the, um, uh, the Zoom that I'm just hosting, uh, here on the how to trade pieces or trade out partners on a piece of real estate. I'm going to be going over exactly how to do that. I want people to actually see real time what this looks like, um, how I present it. But if I'm going to do that, I need to finish the darn, uh, the darn presentation for y'all. So I will see you guys all over there. Link is in the Instagram chat and in the YouTube chat. If you haven't joined yet, I'll go ahead and open that up and I'll see you guys. I'll probably be 5 minutes late to my own meeting putting this together. Uh, for, uh, those, uh, I'll do the normal sign-off. Uh, like, subscribe, do the things that you're supposed to do to help me get this out. Like, seriously, I, I depend on you to run this channel. If no one shows up to these things, I'm gonna stop running them. So, um, Guys, I appreciate so much your support for the channel. Uh, like, subscribe. I'll see you all on the next episode, same time next week.