Creative Finance Live - How we are dominating multifamily in Walla Walla

Perhaps we'll find out, but for now we're live.

Ta-da! We did the thing and we're together for once.

I know. So yeah, the cool camera doesn't want to integrate with, uh, with YouTube stuff, so here we are in not HD. Welcome everyone. So today our topic is going to be how we are taking out a city called Walla Walla. Washington. We're doing a huge deal there. All these huge for us, 60 units, but really creative structure. So as people come in, we are going to cover how we are pulling that off. In the meantime, I'm going to see if I can't upgrade the camera settings while we turn it over to Mr. Cody to talk about how we found the Walla Walla deal.

Well, Walla Walla, there's 60 units. It's, uh, one portfolio from one owner that we're splitting up into two separate PSAs, purchase and sale agreements. And when we started digging into this market, completely different area, it's about 2 hours away from where we invest in Moses Lake. It was quite the haul, but we drove over there, checked it out, and it was actually really, really nice. So we made a decision: whenever we go into a new market, we're going to absolutely take over that market. And there's not a lot of people playing the game in Walla Walla that aren't already buying in Moses Lake, so it became a logical market for us to take over. And, uh, right now we're under contract on that 60. It is seller financed. We're also working on a 16, a 12, and a couple mixed-use massive buildings in the downtown corridor, which is going to be extremely fun.

So we'll share a little bit in this video how you build the relationships to actually put that together, where you find the 60 and then all of a sudden you're taking over the whole town, because that's something that we've done before and we can do again. Camera quality will just be what it is. So I'm going to accept that and we'll have good audio. It's what it is. As we go through this, we're going to give people time to hop into the chat and you guys can share here, uh, all the questions that you have, and we're going to start answering those in real time. As we started on this one, that deal came up from a broker who we worked with multiple times in multiple cities. Uh, first called me when I was in Dallas about a 12-plex that Cody knew all about. And Cody happened to be right next to me in Dallas. So when we brought that up, uh, we were able to name who the owner was, where the property was, uh, we liked the price, and we went under contract for that within, I believe, 24 hours. He sent the PSA, we signed it, and we closed it without further modification. I love deals like that.

Absolutely.

I absolutely love deals like that. Shortly after, he found a 12-plex in one city north, 20-minute drive, called Ephrata, Washington. Turns out that same owner was also interested in selling a 5-plex, so we ended up buying that too. So another 17 units in the portfolio all in one shot. We were not looking in Walla Walla, Washington. In fact, I've never been to Walla Walla, Washington. The only reason anyone would know what a Walla Walla is is because it is, uh, Washington's premier wine country. A bulk of our wine comes out of there. There are 130 separate wineries in Walla Walla. Couple of colleges too, but they're smaller. Awesome, awesome place. Wasn't looking there, and he called and said, hey guys, I have an opportunity and I need someone who knows how to look at this creatively because it hasn't worked conventionally. As far as actual deal structure, nuts and bolts, we did it in 2 transactions. How did we put it together, Cody?

Well, originally it was going to be a seller-financed 30 units and a conventional 30 units. That was the thought process. And our total cost out of pocket was going to be about $2 million, $1 million on one deal and $1 million on the other. What we ended up being able to do is actually buy 37 units conventional and get less of a down payment on that commercial loan and significantly reduce the down payment on the seller finance deal because they were getting more cash because we were— it was going to come from the bank, but we brought more of the deals into a conventional purchase. Which means again cashed out. So we have to do a lot less money down on the seller deal, and these are closing in the next 60 days. And then we've got the conventional purchase, which we negotiated with the bank to do less money down as well.

So you're able to do that low down. The fun thing when you have two transactions, especially when you have it split between a seller finance portion and a conventional, is the conventional, the terms are locked, and outside of that, everything else is whatever you negotiate. So if you want to play with the price on one side, you want to try to pull price off the conventional so you get better terms on the conventional side, and you can put it over on the seller side, and then you can work on the rate on the seller side.

Yep. So we picked up the price from one side of the deal, the conventional, and moved it to the seller finance deal so that we could get less money down with a conventional lender because we're getting a great price for what we were buying.

Exactly. When in doubt, take the price and move it somewhere else. That is the, that is the strategy on that deal. Now, following that, what we've done with this particular broker is we have gone through multiple transactions in multiple cities. He knows how we operate, and we've shown that we close on everything that we say we're going to buy. That doesn't mean buy a bad deal, but generally speaking, we do this with no modifications If we say that we are the buyers for it and everything presented up front is true or adjacent to true, we will go ahead and close the transaction. He found this deal. He knows it's going to be a difficult close as far as it takes some time and there's some moving pieces. It's gonna be a lot of work for him, but he's gonna get a fantastic commission. He had to sell us on Walla Walla. It was not something we were trying to do. Um, now that we're in Walla Walla He did the same thing he always does. It's the same thing we do. Once you're in, you call all the neighboring properties and you go, hey, I'm a new player. This is who I am, what I've done, what I'm trying to do. Tell me about your business. In this case, he called every property owner, commercial and multifamily, and I highly confident in the next 90 days we're going to be taking out multiple other buildings in downtown core Walla Walla.

And the reason we're doing that is because we did a little bit of research and we found that the biggest buyer in Walla Walla in the last 12 months bought $20-ish million of real estate. It was a little over $20 million. We're closing in on about $8.5 million. So we've got another $13 million to go before we really become the number one player. But when we go into a new market, we want to do our research on the front end as we're buying our first deals and see, is it feasible to become the number one top player in the area? And the answer is yes, we gotta buy 2 more deals and we're done.

If you're able to pull that off repeatedly, city to city, because we'll have that in Moses Lake. Uh, Fredo is going to be easier because it's just a smaller town. Uh, and then Walla Walla, you have so much influence over rents. You can very, very, very predictably determine what your financials are going to look like this year and next year and the year after without having to depend on what are other people in my market doing. We had that happen on an appraisal recently. Cody got an appraisal for one of his buildings, and all of the comps in Moses Lake were buildings that we have bought.

Every single one of them.

Yep. You control the price, you control the comps, you control the rent. If you, uh, well, if you control the rent, you have enough units, you get to directly impact all that. And that's what we try to do in every single market. If you're going to play, choose somewhere where you can win. And we've done it before. And we're doing it again. Very, very excited for this project. This will be a fun one for us and hopefully a lesson for you guys in another way of structuring creative finance. You can use the bank, but if you're trying to move price around, if they can do a partial carry and there's multiple properties, figure out the right mix of let's pull some price off the bank one and stick it on the seller finance one. Maybe that means we get a little lower rate on the seller finance side, um, to account for a little higher price. There are different ways to play it, but you just don't violate our normal principles of how do you buy it, how do you never lose it, and long-term cash-flowing fixed-rate debt.

All right, we're going to jump into the comments.

That we are.

From Ramiro: Hey Cody and Christian, how do you vet a private money lender? What are some red flags? Uh, super happy for you both. I appreciate that. So as far as vetting a private money lender If they're just an individual, I want to know where their money's coming from. If they're borrowing it from someone else, they're likely not a good quality lender. If they're borrowing from one person to give it to you and try and arbitrage it, that's not a solid idea because they're doing a 1-year note and they're giving you a 2-year note. How are you going to pay it off? Now they're in trouble and you don't want your lender to be in trouble. You want everybody to be winning. So I want to know where the money's coming from. Other than that, I just bet the contract more than the private lender. If it's just an individual, even if they're known for doing shady business, if I have bulletproof contracts, I'm happy. That's the bottom line.

Yeah. And reputation is important. I try to get some references every time. I usually work with the private money lenders that other players around me have used. That being said, I mean, we've had bad experiences with private money lenders who everyone recommended to us. I had title companies, other investors tell us a certain party that we should work with, and they were a pain the entire time. And what ended up happening is through the transaction, failed to place a fantastic loan, held us to our contract to place a new loan, and our cost of debt doubled over the course of, what, 5 months that it took them to place a loan.

Incompetence. Yep.

Won't work with them again. But, um, yeah. Can't replace your own personal experience, but generally speaking, references is the best way to go even though it's not bulletproof.

Hello, Dividend Dave.

Good to see you.

From Benjamin. Hey fellows, when searching for owners on OpenCorporates, I often find that the lawyers are listed as the agent. What do you recommend doing when that happens? Well, they may be listed as the registered agent, but if you scroll down further, you should be able to see the members of the LLC. If you have someone listed as that registered agent who's doing the filings every year, then, um, yeah, that's probably going to be the lawyer because the lawyer is going to handle those filings. But below that, you will often have members. And if you can't find it and you go to Secretary of State's website and you put in the LLC and it's super private there too, you might just have to give a call to the attorney. I've done that before. Sometimes you get the contact information, sometimes you don't.

Yep, it's— there is no perfect method to find everyone every single time. There is just best practices. And I have found that if you don't find it on one thing, you take some clue off that, maybe the lawyer's name, the city, um, something about where it was filed. You just type in all the clues and you put it into the— into Google with the word phone number. And you do that enough times, it's— we've been able to find it for just about everyone, even in states that are traditionally very hard, such as New Jersey is a great example of a very hard place to find contact info. It is still doable. We found it almost every single time.

And sometimes that the registered agent who's a lawyer is also the owner, so don't discount that.

That's a good point. I actually know a lot of, uh, a lot of lawyers who are, uh, multifamily owners. That's the ones we work with. Um, let's see here.

Just answered that question.

Yep. So from, uh, Cody: Hey guys, when you had no money down in the beginning, what was your process on cashing out investors, or did you I did.

Yeah, in the beginning I borrowed the down payments and I did that for 2 12-plexes and a 6-plex. Shortly after that, I had worked with Christian. We bought a 38, we bought some 6-plexes, a 7, and something else. And that got me all the way up to 81 units by 21 years old. We'd have to track what all we bought that was included in that 81, but, um, We scaled enough where we had enough cash flows coming in from everything that we had built to start paying off debts. Some of them in the beginning, instead of doing something like a BRRRR where I'm going to refinance and cash out investors, I— if I owed someone money, there's one deal where I sold— I let Christian buy into it. He bought into my 12-plex, the second deal I ever bought. He gave me a chunk of change that he made from selling his duplex., and I use that money to pay off my investors. And now I just owned a deal with my partner Christian and had no hard money debts. So you just have to figure out where's the money coming from. If you don't have cash, there's cash flow. And if you don't have cash flow, sometimes you have equity that you can exchange out of to pay off your debts to up your cash flow.

From the Backyard Boys: I'm 21 and have a house that has $80,000 left in the mortgage. I'm looking to refinance and getting into investing. Should I try to refinance or sell? Well, it depends on what you want to do. If you want to sell it, then you can sell it, um, assuming that you're not living in that house. Just based on, um, you know, usually you don't sell the place that you live because they need to find somewhere else to live. Um, it depends on what you want to do. My instinct is if your goal is to own multifamily, you don't need the single family. Selling it can make a lot of sense, especially as an investment property. That could be the right time to do a 1031 exchange. However, a lot of it depends on what you want to do. If you can refinance and pull out enough money to buy a nearby property, and like say you buy a fourplex right down the street, well now you have 5 units right next to each other. The fact that it's single family doesn't matter as much to me. So would be very, very, very dependent on your goal and what you want to do. The nice thing is with a high equity position and not a lot of debt, you have options, and that is the important thing. So I would, I would answer that question better if I knew what the overall goal was.

REI Stoners is listening from work. They just closed on a duplex and signed up for Matt's course.

Nice. Matt has a great course. Matt Hawkins has a great course on property management, how to self-manage. It's, it's Fantastic content. I've gone through it. He runs it a little bit differently than I do, but it is a fantastic way to operate. So good job, that's awesome.

What does the timeline normally look like for a typical deal? Well, typically once we're under contract, you're what we call mutual acceptance. We, if it's a small deal, we're talking 10, 15 units, we'll usually do like a 14-day feasibility period to verify the due diligence docs. And if we don't like what we find, we either renegotiate or we walk away. We prefer to renegotiate. If it's too bad, then we'll walk away. But we're just spending 14 days on a small deal to verify everything is accurate as it was originally presented. Bigger deal, like the 60-unit in Walla Walla, we did 30 days just to make sure we could get everything we needed. If you are doing seller financing, there's not a financing contingency. But you do have your title contingency because they have to provide free and clear title. You don't want it to be fully encumbered with loans and then take that over. So you make sure that that is free and clear of any other liens, and you get title insurance for that. As far as actually closing a deal, typically our timeline from start to finish is about 60 days. It can go a lot faster, so we do on or before, and then a 60-day timeline. Walla Walla was 120 because the amount of moving pieces was ridiculous.

Yes, that was, uh, that was absolutely ridiculous. So, uh, depend— and it was on both parties' ends. They had some pieces they were moving as well. But generally speaking, 60 days is more time than you'll need.

And in what order does everything occur? Well, you get under contract, then you're going to do your financial due diligence. Meanwhile, you're also doing your physical inspection. If you're doing conventional loan, then you're going to be doing your financing period. We're getting all the due diligence docs to the lender for the actual financials. You're getting the appraisal ordered, you're getting everything set up to get the loan funded. If it's seller finance, you don't have any of that. Don't have an appraisal unless you want to order one, but you're getting insurance set up before you close. Don't forget about getting your insurance set up. We did that and we had to scramble the day before on one of our first deals. Oops. But, um, you get your insurance set up, you get your property management agreement signed with whoever's managing your asset, and then, uh, you're all set to sign and close. But the order of operations is you line up your deal and then your debt, and then if you have to put money down, you line that up too.

Yeah, that is pretty much the, the order of operations. One thing that you can skip that a lot of people add is, oh, you do this extra, like a bunch of extra negotiation up front. You do the, the letter of intent, the LOI. You can skip all that. That you don't want to skip any steps, but you definitely don't want to add any. And so keep it exactly in that order: PSA, physical, financial due diligence, earnest money comes in, uh, make sure your capital raise and insurance and legal are all set up. And once they're done, you're ready to move to close. It generally— we give ourselves a 60-day window, and we usually close closer to 45 days more often than not.

How many units would you recommend for your first deal?

Um, I would say that is the wrong question. I started with 2. Cody started with 12. We're about the same place today.

Um, turns out if you partner on everything, you're in about the same place.

Yeah, that's just kind of how it works. Uh, bigger deal that you're comfortable doing is the best. That's just factually what happens. However, you're going to get similar experience and similar knowledge closing on any multi-family deal. You'll learn a lot on a duplex. It's going to give you confidence to move forward. The size of the first deal is less important than closing the first deal. By, by leaps and bounds.

When calling an agent about a property, how much analysis do you do before you get into the conversation, if any? If I'm trying to get under contract, then I'm going to do some due diligence. But odds are, if I haven't spoken to them, I don't have enough information. So I'm going to make that phone call, and then I'll do the math. I'll do it in my head in a matter of not very long. And most people will say, here, I'll call you right back, and then in 30 minutes call them back after they do the the math. But, uh, no, I don't do a lot of actual financial analysis until I call them.

Yeah, you just don't know what you don't know. And almost everything on a listing you find online is going to just be incorrect. So just assume everything's wrong. If you like the building and you like what you're seeing on the front end, uh, give it a call and get the details. Then you can do all the math.

Do you inspect a property after it's under contract? Yes, we don't do that before 4, because we don't want to bother tenants.

I have a broker who called yesterday who was like, yeah, I'm just having a hard time selling your thing because everyone wants to walk it before they, uh, before they buy it. It's like, that is just not how multifamily works.

Yeah, it shows he doesn't know what he's doing.

Yeah, it's not selling a house.

Hey guys, this might be too general, but what is the best way to leverage equity in my house? We want to rent the house out and buy a First 5-plex in California, can't really buy here. Well, you can buy there, but, uh, if you say you can't, then you're also right. Don't leverage. This is one of our principles: don't borrow against anything you're unwilling to lose. So if you're unwilling to lose your house, I wouldn't use the equity in your house. I'd find another way to do it because I didn't need a house to buy properties. So you can do it without. If you're willing to lose the house And you want to play that game, then you could go get a HELOC. You can usually get a HELOC for $100,000 without any income checks if you have the equity. So I'd look at doing that if that's something you wanted to do. And if a 5-plex is $300,000 a door and where you live in Cali, it's $1,500,000. You just have to figure out how do I take the $100,000 I pull out of my house or $150,000 I pull out of my house and buy $1,500,000 worth of real estate. Low down payment year 1 and then save up and do a down payment in year 3, then year 5. There's lots of ways to figure it out, but lots of people are buying in Cali because every property you see is owned by someone.

Turns out same rules apply: deal, then debt, then equity. You just have to figure it out in a way where it works. There's lots of people in a lot in Cali. Advised by the owners I am building relationships with to buy small single family without funds due to trust issues with the lender. Should I be seeking better connections for success? So the big thing for me with the owners that you're meeting with is you want to meet with the people who've done what you want to do. I am guessing that the people who are saying buy small single-family homes probably aren't people— probably, not definitely, but probably aren't people who are playing the game that you want to play. For me, the guys who taught us what we know mostly just buy multifamily because they want to buy multifamily. That has been very, very, very consistent, and I believe that to be true. I am— that is my instinct. The owners that you're building relationships are very small owners who you're going to surpass very quickly, is my guess.

I met a gal though with you. Yes, she did. 1,000 houses. So you can make money in both. Yes.

However, if you're trying— if you're not trying to build a business of 1,000 houses, probably the wrong person to seek advice from.

James said, by the way, I think we will be purchasing your course very soon.

Oh, that's awesome.

We'll see you in there.

I am excited.

Hey guys, I was watching your video for finding owners. I haven't been able to find the governors for the property. I've only managed to find agents. When I do reach out, I get rejected. What are your thoughts? Well, you might get rejected because of a lack of confidence on the phone. That does happen to a lot of people when they're getting started. I know that happened to Caleb. It happened to me. Probably happened to you when you got started working at lands.com.

Oh my gosh, yeah. I, I just had a phone job, so by the time I started doing this, I had made thousands and thousands and thousands and thousands of calls. But yeah, I mean, it still— I call people though, and then sometimes people just don't want to talk. That's fine.

It is what it is, but you just got to get your confidence up on the phone. The way that you connect with other people determines a lot of what you get out of it.

And I still today, like, I try to take calls for people, but when people have a bad intro, I don't want to talk. I'm too busy. I'm sorry, not interested.

Bye.

Um, it's not personal, it's just when you own a lot of properties, a lot of people call you because this— I have more properties for people to look up and give us a call on. So it happens a lot, but I do take good calls when someone calls and has like a good question or good intro and they're confident. I always hear them out. So that's usually it's tonality or intro, um, just stuff that needs to be practiced. I think the best stuff for that is probably Jordan Belfort or Chris Voss on how to, uh, how to speak and use tonality and come up with a good script.

Where do you find a traditional hard money lender that's willing to lend for the down payment and second position? The majority of the people that are going to lend for your down payments are just people, they're not companies. I found that to be consistently true.

And you can get almost every time much better rates and pricing with individuals because you customize it. A private money lender is going to be a middle person who is making a spread on lining up capital, and they promise a certain amount to their investors. So they have metrics they need to hit plus a spread for themselves, and those are usually a 1 to 5 year debt product. Yeah, when we do private money, we either get a loan or we'll work directly with them, and we'll work directly with equity in the properties. We'll actually bring them on flexibly as either a debt partner or an equity partner with a buyout agreement. You don't typically do that with a standard, like, a family office or something with a private money lender.

What kind of debt coverage ratio do you guys like to see at acquisition? 1.5 is ideal. How much do we actually buy at 1.5? Um, not that much. However, we have bought multiple deals that are there.

Yep, we did. We get them there fairly quickly.

We bought a 5-plex recently that was at a 2 day one.

I love that deal.

That was a great deal. We bought a 10-plex that's at 2 right now. We like to have our stuff above 1.5 though. All right, what is included in your training? We've got 200 recorded videos, and if you do the mentorship calls, we meet 3 times a week every single week— Monday, Tuesday, Thursday. Yep. On a seller finance traditional lender deal, do you use a bridge loan to bring all the money to the closing table? How was it structured? Well, traditionally we have debt, which is the big part of the money, and then we have to figure out the little part of the money. What we'd like to do is borrow that down payment. I prefer to do it as debt because we have the cash flow to pay for it. And my first deals had the cash flow to pay for it, so I was able to pay for it out of the real estate. The real estate bought the real estate for zero money down. And yeah, it'd be viewed as a bridge loan because the hard money payment was due. And that first loan was one year, I got extended to be a second year, and then I paid it off. So you can absolutely, uh, view it as a bridge loan, but the money has to come from somewhere and someone, whether it's debt or equity. When talking to owners, Cody emphasizes— uh, where did it go— expressing to them what changes for you once you, you meet your goals. Can you expand on what you mean, or perhaps give an example? Absolutely. So Christian's why was to retire his wife. That was what he was looking to do. What changes for him when he actually hits his goal, which is his why? And that's, that's what really matters for people. It's not the fact that he's trying to retire the wife. It's like, what happens when Danny gets to be done working at the school district?

And a lot of people resonated with that, because at the time, she was a kindergarten teacher in the middle of the pandemic. And so that was, uh, school districts got really crazy and extra political, and that was not something that we really wanted to be a part of. So for her, when I communicate like, hey, we're trying to get her out of teaching— this was a 10-year plan, now it's a 1-year plan— people like, oh, that is really important. Like, that's life-changing. When, when she's out of there, she gets to start pursuing new things. And what she ended up doing was coming on in the business. But it's the actual like, hey, there is a journey we're going on, it's important that we get to the end because something's going change when that happens. And that was the change at the end of that.

Yeah, so it's not why you're doing what you're doing that you really want to share, but it's what changes for you when that happens.

Yep. Because now they're like, hey, I'm trying to help a kindergarten teacher get out of a rough situation. That is different than I want Christian to have a wife who doesn't work. That doesn't— that's not as exciting, right? Uh, and by the way, she opts to work for the company as what she wants to do, and she is very good at it and loves what she does.

If there's a property on the MLS that you would call or that you like, would you call the agent? Yes, absolutely call the agent. Don't call the seller. They don't want to talk to you.

They hired an agent to talk to you.

Whatever the terms are, I'm in, please. Thank you both so much. You bet. All right, from Mitchell: any specific questions you find particularly useful during coffee meetings with owners? Nope, I ask what I genuinely want to know. I'm there to learn and I am a student.

Yeah, um, there are a few basic concepts of questions that I think you can kind of start and end with. Um, I think starting with a question around How did you get to where you're at? If you're trying to learn how to buy a 12-plex, how did you buy this first property, or what did it look like when you got started? A question I've heard Cody ask on a lot of our first meetings together was, uh, what did your first partnership look like? When we were working on partnership stuff, genuine questions, but you're asking how and what questions, um, throughout. A good closing question when they've given you all the pieces of, hey, this is how they built their business and how they partnered and how they whatever it is that they shared, sum up the knowledge with, okay, in light of what you've done, what would you recommend I do as a next step? Because what that has them doing is they're thinking now back to your original goal that you brought up and go, okay, in your position, how would I move forward? Now they're thinking about how to advance you and they're giving you tangible advice, which is your takeaway. Outside of that, that's basically it— how and why questions. Until you get to the end and then just ask how to apply the knowledge they gave you.

All right. What is the typical advice you hear from multifamily owners that you are building relationships with in the beginning? So when I was getting started, what they said is, Cody, developers are the richest people on planet Earth until they're not. And they're not when they can't cash flow their projects. So if you want to play the game at the highest level, you need to buy apartments first. So you have the cash flow, and then you can take the cash flow from the apartments and get into development, because that's where people make the big money. Problem is, people trying to start with development and they end up losing everything that they've ever built. That's what helped shape the principles that we have today. If you want to grow responsibly, then you only borrow money that you can service with cash flowing from the dividends of your investments. And so we buy the apartments For him, the number was 40 apartments, and then he started building, and then he got uber rich. So for me, about 100 apartments, and now I'm going to be building a bunch, and I'm actually going to be building with him. He's going to help me build. So that is, uh, the best advice I got when I was getting started.

Let's see here.

Um, can you explain what an equity agreement looks like?

Yes, yes we can.

It's just an LLC operating agreement. You form an LLC with someone else, if I I do it with Christian, we both have equity. We've started a company and, oh, a couple companies. And if we're 50/50 on our deals, like the 38-plex, it's filed with the state. We'll have a registered agent, we'll have the governors, which are us, we're the members. And then we have an operating agreement that spells out what the ownership and the responsibilities and the liabilities of each member are to that organization.

Yep. So debt is you have a note against the LLC. This is you're actually giving up ownership of the asset. Now what we do is we put fixed rate buyouts over a fixed period of time where we have an option to buy back the equity in all of our LLCs. The goal is to own the properties. Sometimes if you have to give up equity to raise the money, you want an option of how am I going to own it. And sometimes we're going in and For example, say Cody and I own 75%, but to bring in the down payment, we give 25% to another investor. Well, I don't want to own just 75% of a building. There's a lot of models that let you have little fractional shares. I want to own the building. So this partnership wants 100% of that building. Build a model that allows you to do that. That's how I would structure your equity, is it looks like an operating agreement with partners who have a stake in the asset with a fixed buyout in a fixed period of time.

I'll eat a steak in the asset, especially in Walla Walla.

They have some— yeah, there's some good farming out there. They have good steak.

What does your kitchen rehab consist of? Well, when we do a full-on rehab, we're doing new cabinets, new plumbing, and, uh, countertops. Countertops. Yeah, if you buy new cabinets, it's best practice to put countertops on them.

It is, uh, but it's a good decision to make. I have found unless you have Class A or very high B, it's almost always better to go with laminate countertops. Stone is not appreciated. Um, it doesn't really add to your pricing and it gets banged up, uh, on the Class C or B- properties.

Just do stone, bottom line. What's your cost? A lot. Um, no, on, on a kitchen, maybe $8,000. Not that bad.

I think that sounds right. It— anything where you're doing reno, there's so many variables, it will cost different every time. We have done so many projects and there's always different pieces. If there's something to do with plumbing, your bill has gone up significantly, very quickly. If there's a custom piece that needs to be ordered, your pricing can change. But I think generally speaking, if you're redoing a kitchen on a pretty standard mid-sized unit, I think that's about right. I'd probably budget $7,000 or $8,000 $1,000 in our state.

And we are out of questions. If you wouldn't mind hitting the like button, that would be appreciated a lot.

Yeah, there's 27 of you guys in here and 6 likes. Unless you guys all hate us, hit it. And if you're on your phone, you can minimize the chat and hit it because I get that comment all the time. So smash that like button for us, we appreciate it. Benjamin has a question here, and then this will be our last call for questions. Get the last wave in, and the next time it runs out We will be seeing you guys in a week.

I've taken your course and applying your advice as much as I can. How does the relationship transition to a deal? Number one, when you're getting through the meeting, you're starting to cultivate that relationship with them. The question that I asked that consistently got me to deals was knowing my pieces. How do you recommend I start moving forward? How do you recommend I go about getting my first property? Because they know my pieces, I know theirs. I've gotten many, many offers for them to sell me their stuff.

And I think one thing that's— I just brought this up on a podcast— when you do this, so say you build 20 new relationships in your market, pretty simple, right? So you're calling, you know, 5, 6 calls a week, booking coffee meeting every weekend, you're a few months into this. Once you get that first deal The first step you do, so say you have 20 relationships, none of them turned into deals, you found an opportunity, you closed your first duplex. You either call or text all 20 of those first people you met with and you just thank them. Let them know, hey, I just bought a duplex, here's where it's located, it's right down the street from your property or it's in the same town. Thank you for meeting with me, this was really helpful in me buying this property. What you've just done is you moved from someone who might buy real estate who they met with to someone who bought real estate and is grateful for them. You get instant buy-in from all those people, and that is where the deal flow tends to come from. People love working with people who are having success. If you share your successes with all those people, um, that deal flow— you're gonna get a lot more in that 2-month cycle than the 2-year cycle.

James said, appreciate you guys. Thank you, James. From Mason, how do you get more owners to pick up? You call more owners. That's That is the only answer.

Yeah, that's, um, yeah, I can't make anyone pick up. Uh, if you want more callbacks, uh, don't give too much detail in your voicemail, like at all. No one cares if they even check their voicemail. Super short voicemail, easy to listen to. Don't put your last name in it. Hey, this is Christian, you can give me a call back, I'd appreciate it. My number is 425— like literally just say your name and ask for a call back. You'll get way more callbacks than, hey, I want to talk about your property. Or I had a question for you. It's just, hey, it's Christian, give me a call back as soon as you can. I appreciate it. Here's my number.

Boom.

Get off the phone. That will increase your callback rate astronomically.

Do you get involved with Section 8 and government subsidized housing programs?

We have. Absolutely.

We bought an asset where the original rents were $750 to $850. We just placed a housing program tenant in there for $1,300.

It's just amazing to me. And housing has been very good to us in Grant County. We have had— it's not that you never end up with rough tenants, because sometimes you do. That's why people don't love Section 8. Um, we've had very, very, very, very few issues with Section 8 tenants. Um, it's been almost all quiet people who need a little bit of financial help who do really well. It's not been hard.

What do you do to analyze markets to go into, like you did in Walla Walla and Moses Lake? Well, population review, so you can see what is going up or going down. You can do that on Google. Now we have CoStar, so we have a little bit more of a cheat sheet for checking market analytics. However, in the beginning, looking at the population, driving the streets, seeing if people are taking care of the properties. If they're not taking care of their yards, they're probably not paying you rent. Yep.

And then worldpopulationreview.com has a great graph. Any city you type in. It will show you year over year. It's like a nice easy graph. So if the graph is going like this, up and up and up over time, usually like the market. The other two things you kind of look at consistently, um, job stability. Are there multiple jobs? If it's just one employer, I don't love it. Like there's some military towns where it's a smaller base that could move, and if that base moved, your rentals tanked. Um, I don't like that. So look for a variety of pretty stable jobs. And then the last thing, are people happy to live there? Because if people don't like living there or the town is just super dumpy, even if it's been going up in population over time, that tends to flatline or decline later if people are just unhappy there.

They—

people want to move somewhere where they want to live.

If someone has no money, how do they cover operating expenses after closing a seller finance deal? Cash flow. Yeah, you do it with cash flow. And so if you have your seller finance piece where it's private money, you're controlling the the debt, you could say no months or 6 months, no payments. We've seen people do that. 1 year, no payments. And it's not that the interest is accruing, you're just not paying it. It's that you negotiate with the seller that we're not going to make any payments for the first 6 months or 12 months so we can build in an operating budget to fix up the asset.

I just pitched that on a million-dollar deal, and the reason that a seller would go for this is because on that million-dollar deal, it happens to be 30% down. It's not a super low down payment. They're going to get a $300,000 check, and in 3 months from there, they're going to start receiving normal checks, like just regular mortgage payments. As a seller, I can get behind, hey, it's a kind of a unique asset, you want to get your feet underneath you, and I just got $300,000. I think I have something to live on for the next 3 months. A very reasonable request. We call that move the Hommel hack because Caleb is— Caleb Hommel is the first person that we saw actually ask for zero payments. But a fantastic way to do it if you're not cash flow positive day one but you have a plan to— take the time it'll take you to execute your plan and say, hey, payments are going to start at this time. You get the down payment and then you'll cash flow all the way through. Take those reserves and away you go.

In choosing your market, was there a certain density of multi-family properties you looked for?

No, there, there are some. One, one thing you can take a look at is the the percentage of renters to owners. On a similar vein, that's, that's something where you want to— there are some cities in the U.S. where you own the house with the white picket fence with 2.5 kids and a dog, and that is what you do. You just don't rent there. I don't want to own in a market where just no one rents, where it's culturally weird to rent. Uh, that's not going to do it for me. But the actual density of multifamily doesn't really matter to me all that much. As long as there's a need for housing, I want to own the multifamily there.

What's the most successful avenues you guys have found to match for Section 8 tenants? We don't actively look for Section 8 tenants. That's not our business model. In fact, you can't. Yeah, at least in Washington.

Yeah, in most places. Um, I, I don't know for sure every state. I know in the last 3 states that I looked at, it's the same rules though. Um, you can't deny people because they're not Section 8. What you can do almost everywhere is you just mark it as Section 8 eligible or Section 8 accepted. So you can market towards getting some Section 8 tenants, but all you can really do is mention that you accept Section 8 and then price based on the housing authority's pricing model. So if I know that housing authority will give $850 for a one-bed, for for example, I'm not going to price the one beds over $850. Otherwise, people aren't going to be able to qualify or they're gonna have to pay extra. So pricing model, you can target it and you can mention that you accept it, but at least in Washington and a few other states, you can't deny someone because they apply and could pay it without being on Section 8.

How soon should you call an owner again if you don't get a call back?

I called for the Robin Hood, I called 4 times in the same day.. And when they picked up, their immediate thing was like, wow, I rarely answer the phone at this hour. I'm glad you called. They had no idea I called 3 other times. Um, that's— I, I would argue that's probably excessive, but it worked. So if it's important to you that you reach that owner, call as many times as it takes. Like, someone's gonna answer the phone. I even used— I've had someone who actually had something very important to ask I wasn't sure if they just didn't want to talk to me, so I just called them on my wife's phone like 10 minutes after I called them, and they answered that one. I was like, hey Christian, my phone died, um, didn't need to get a hold of you. And then we had a great conversation and it ended up leading to a bunch of information that helped me better manage a property down the line. So, um, yeah, I don't know that there's a— I don't know if there's a call too much unless you're trying to call like every 5 minutes for a week. That's my opinion. I don't know, Cody, do you have a different opinion on that? No. Cool. Yeah, call them until you get the answer that you're looking for.

Have you guys done any deals that have seller finance and subject-to existing mortgage clause? No. Not a fan. Any deal that you can do that on is not a deal worth doing. Because if you're buying commercial real estate, the bigger deals, you don't do subject-to, you do loan assumptions. Yep. That's just a fact. If you're doing a subject-to clause, number one, that's a terrible idea. When rates are going up, because now all the lenders are incentivized to call those notes, which they weren't originally when all the rates were going down. And, um, so we just have no interest whatsoever in doing that. And two, it's just not applicable. It's not practical in the type of real estate that we buy. If you want to be really solid in your single-family space, you can absolutely do it. But to your second question of if so, how do you overcome the unknown of due-on-sale clause?

You don't.

People say you can buy insurance, but if you want to build a big business, good luck insuring everything on, uh, bad principles.

And over the last 60 days, we've actually started to see more of the subject-to deals get called. This has been fairly recent, but it's starting to happen. We've talked about it for a while, but if you think about it mathematically— and I'm going to use 101-level math— but it's like, if last year's interest rate was 5 and this year's interest rate is 4, and we've watched it go down and down and down over the last few years. If you have a bank that's holding a 5% note, why on earth would you want to call that note when you're going to replace that money at 4%? Now, in today's market where you have all these 3% and 4% notes and interest rates are 7%, and the Fed is starting to shut down banks because they don't have enough cash on hand, which we're seeing on— I mean, we've seen that 4 or 5 times on major banks this year. Would it be reasonable that someone in the risk management department would go, hey, people are talking about subject to all over online, should we do an audit and see if the owner on title matches the person on our loan? If no, let's call it due. And we're actually starting to see some of that very recently happen.

Now we've been saying this for a while, and it's not like we're just smarter than everyone else. We've just been learning from people that have been playing the game for 40, 50 years. It's almost like they know a thing or two. So when we say build your business on principles that work through every economic cycle, yeah, there's a reason.

Subject-to is legal, it just doesn't mean that it is optimal. And so it is a strategy and people have had success on it. Worth saying, most people can negotiate or work their way around it. And the nice thing with subject-to is it's really only available on buildings that are small enough where you can usually get it figured out. If you're talking about buying commercial multifamily, uh, one, a lot of the commercial products actually do have annual review periods, so they're going to be looking at what is your financial position. They're going to notice if the title changed or you're doing something squirrely. It will show up in your books and you'll get called immediately. Uh, two, like Cody said, the bigger stuff, you can either assume the loan or you can't. But that makes sense to me. I want to own the debt for the product that I own.

Would you ever consider a lease option as a substitute? No, I wouldn't. We looked at doing some Mickey Mouse games with lease options on an 8-plex, but at the end of the day, that 8-plex could only make so much money. The type of real estate that you're going to do that type of clause on or a lease option on is not real estate that we want to own.

Yeah, the way that you would use a lease option is a very, very niche use case, is if seller financing is not an option, uh, you want to get the property in bank debt but the current operator is incapable of getting the property where you need it to be, and you know that you are a good enough operator to make it happen, you could do a lease option to gain control of the property for a year or two to make the property bankable if you know you're a better operator than the last person. That is the only use case where I can see that being appropriate. How's vacancy at the Robin Hood? Vacancy? No, seriously, uh, summer's been amazing. Uh, Robin Hood is a little bit hard to book. I wanted to book a cabin for myself this weekend and I can't, um, which is, as an owner, is fantastic. I have an RV spot that I'll be staying in, but I will not have a shower because everything, even down to the pub suite is leased this weekend. Um, so very good. We just ran our first concert series too. Uh, we ran a big one, the big one, like the biggest one we're going to be running for the year was last Thursday. And that was, I think, my favorite single day at the Robin Hood. That was incredible. We had about 250 people there, which is strange because only 200 tickets were sold. So some people snuck in. But, um, yeah, it's, it's been very, very well. A very fun project.

We're really proud of that. And with that said, we are out of questions, so we will see everybody next week. Have a great weekend.