Creative Financing Rule: More creative = Less Repeatable

Welcome to the Multifamily Strategy.

Hello YouTube and welcome back. It's Cody and Christian and we are here today for our Rules of Real Estate number 11. The more creative you get, the harder it is to repeat. Now if you've been following this channel for any length of time, you may realize every deal we do is simple and creative.

Yes, at the same time. And we have to keep it simple because the more creative you get, the less repeatable it is. We get creative because we want to prove to everybody out there that there's so many different strategies to go buy real estate if you don't have money, if you don't have a track record. However, when you're going out and you want to keep scaling, the key is keeping it really simple because if you get super creative, it's very difficult to go out and repeat. There's a lot of moving parts. Yes, you can go buy a deal, and this is where it's really important to be able to identify opportunities. 'Cause if there's something that gets a little bit difficult to do, it's not super intuitive, it's not super simple, and you close it, how do you buy it, how do you never lose it? Well, now all of a sudden you can go buy real estate. However, it's very difficult to scale that way, and that's the reason we like to simplify everything.

Mm-hmm. If you don't add steps, like one of our previous rules, everything stays really simple. As you get more creative, you typically add new steps, new aspects to the deal. Now, Do you need to do different things for every single deal? Yeah. Likely. Have we ever had a note, ever, that looks exactly like another note?

No.

We've never done a deal with the same exact set of partners with the same exact structure. The capital raise is always different. There's always a bit of uniqueness. However, as you get more and more unique, it gets harder and harder to repeat. You can get to a point where you get so crazy and so creative, no one else can follow it. You can't repeat it. It becomes a non-scalable model. If you're going to play this game, you need to be able to scale.

It's important to look in the future. And if you're looking way down the road at how you want to build out your goal, what if everything worked, right? If everything worked, would you be building the business you want to build? Well, that's a great thing to look into the future, but it's hard to get there if it's really difficult in the meantime. Like, oh, this has to work and this has to work and this has to work. It's fun to think about if everything worked, but it's better to rely on simple systems that you know you can repeat. There's a lot of different models out there. BRRRR works until it doesn't. Sub2 works until it doesn't. Flipping works until it doesn't. If you could just answer the two questions, how do you buy it? How do you never lose it? It is so simple that you can repeat it over and over and over. You just have to find the deal, then the debt, and then equity if you can't get 100% debt. And it is exactly that simple. That's why we love to keep our rules so simple. We're also like, I'm not the smartest person out there. I have to keep it simple for myself, but it allows me to repeat it over and over. It allows Christian to repeat it. We just bought a deal that closes tomorrow and we got another deal that closes on Friday.

Yeah, I can't wait that long.

Can't wait. But it's because we kept it simple. We're doing exactly the same thing over and over and over. We're booking coffee meetings. We're learning how people got to where they're at. They typically offer to sell something to us. And then we buy it with typically no money out of pocket. Pretty repeatable. We could do that. We can go call people, we can buy coffee. I can afford a $7 coffee for them. Yeah, we keep it that simple. We keep the steps so simple that we can just keep repeating it. Now, there have been deals that have been super convoluted, super complicated. The 38-unit, yep, cost us hundreds of thousands of dollars more than it had to because we didn't know exactly what we were doing. We had a great opportunity, We didn't know the best way to structure the debt. It got complicated. We had to renegotiate. We got the investors a phenomenal deal, cashed them out, and now we're 50/50. We love that deal and our investors love us for that deal. However, we don't want to just go repeat that because it was complicated. It gets a little bit more difficult. The way that we're operating business now, we keep it a lot more simple and allows us to repeat it and go a lot faster than if we were just making it like that deal.

Mm-hmm.

38.

Had a few things that we needed to happen. So we, we brought on partners, we had very expensive buyouts. Turns out if you want to refinance it without those same partners, you need to get them all the way off. So we had to execute 5-year buyouts in month 6. Really inconvenient. Oops. Yeah, bad way to build your business.

They're happy.

Multiple fixed—

6-figure.

We don't have 6 figures. It's gonna stay in here. We don't edit that out. But 6 figure mistake on a journey to make 7 figures, which the property is doing for us.

Worth it?

Yes. Expensive? Absolutely. Poor way to build a business.

Now take that back to the saying I always share: the story's worth more than the real estate. Yes, it's very expensive for us. It's a great story for our investors because they're getting a very solid return. It's just not going to take 5 years, it's going to take 6 months. So regardless of if stuff goes great for you or if it doesn't, if it ends up costing you more money if it costs you more money, that means the money's going to somebody. Use that story to catapult you into the next opportunity. And that's what we did. The 38-unit was the very first deal we did, being— we being Christian and I. And we were able to catapult that because we keep everything so simple. We're not getting super complicated. And then shortly thereafter, we bought a 6-plex and another 6-plex. He bought into my 6-plex. We bought some triplexes, some duplexes. A 7, he bought a 12, and we're buying a 10 right now. You know, and let's talk about those 2 deals really quick.

So we're closing 2 deals that Cody mentioned this week. Super, super simple.

Now, the 6-plex, it's on Broadway, major street, 1 acre of land, multi-family 10+ zoning.

Beautiful. How are we acquiring that? There's not a whole lot of steps we added to it.

Now, we didn't seller finance this one for once.

We're using a different strategy.

We did 100% leverage though. It cost us zero money.

We have an awesome group of lenders, Flynn Family Lending.

They— Baller.

Yes, they are phenomenal. They're able to help us get into this opportunity. The price is absolutely spectacular. We don't usually negotiate price. Turns out we didn't have to on this. This is actually the price the seller wanted. Now we're able to pick up money that was a little bit more expensive than what we usually borrow at.

10.5%. Oops. However, we bought a deal zero money down, 6 units on Broadway with an acre of land.

That is scalable, and that is simple enough where anyone else could find an opportunity where you have an underpriced property, you pick it up with, granted, expensive debt, but you pick it up without a whole lot of hurdles. You can do that indefinitely. The next deal we're closing Friday. I know we have to wait a while, but 2 days. I know, I know, don't, don't rub it in. In 2 days, there's gonna be 10 more units. And this one was a little bit unique for us too. We actually have an existing LLC that owns another building. We don't add a lot of new buildings to LLCs. This was an exception because the same partners are buying a building that's almost identical to the 12-plex already in the portfolio. There's 10 units, same builder, almost the exact same unit count, 10 and 12, No changes at all to the partnership. That LLC and the money that we created by adding roofs, improving the property, raising rent over time, better management— we're taking money from that property to go buy another 10 units that are almost exactly identical but on a better street.

Now, is it zero down? No, it's $180,000 down. However, we got the $180,000 from a piece of real estate that I bought zero down 2 years ago. Is it free? Well, yeah, because I didn't have to go earn that. I didn't have to do the, the 9 to 5. Love you too.

Yeah, as long as your real estate's buying your real estate, it's still free real estate. When we say no to low down, people ask us other questions like, how do you do rental costs when you're doing low and no down?

Cash flow.

Yeah, your properties make the money. You're not making the money. And this was an instance where we just pulled money from one property, invested it into another property.

And that's the reason why you have to keep it simple, because if you get super complicated, you can't scale. The model that I built and then eventually started partnering with Christian on— because Christian came in about 2 years into my journey, about a year and a half— I have to scale if I'm 100% leveraging in the beginning because I don't have enough cash flow to afford reno when it pops up. If you're doing the model zero down, it's phenomenal, it works. However, you have to underwrite for cash flow, long-term debt, and you have to build the model based on buying a whole bunch of units because over the past couple of years, next to no money, $3,000, turn that money into over $20,000 a month in net cash flow from the real estate. We're able to build a couple companies out of that property management consulting, which is helping other people buy zero-down real estate. Between everything, the cash flow's over $50,000 a month. Now we can take the $50,000 and renovate the buildings. But that's all zero money because I didn't have to go earn that from a 9-to-5 selling my time. We kept it so simple that it's repeatable. If we had made it complicated, if we had repeated complicated deals and only tried to do that one deal structure, it would have been very difficult to scale.

In summary, you absolutely need to scale if you want to play this game and you want to get more pieces on the board. If you want to scale, you need to keep it simple enough to do that. It's as simple as that. Commit to scaling, don't get too complicated.

And that is it for today's Principles of Real Estate Investing with Cody and Christian. However, if you want to see your questions answered live, we are going live every single Wednesday with Whiteboard Wednesday. We'll see you there, 3 o'clock. Welcome to the Multi-Family Strategy.