Debt VS Equity when Raising private Capital seller finance live

And like that, we're live. Hello YouTube, I'm Christian, this is Cody. We are live yet again as we are every Wednesday at 3 o'clock. We will give everyone the appropriate amount of time to get logged in before we fully, uh, get started. But welcome to the channel for those who are new. Again, we do this every single Wednesday. We're gonna have one topic that Cody and I discuss while everyone gets into the chat and thinks of the questions they want. The rest of this chat is going to be answering your questions live on YouTube. So if you have questions about real estate, creative finance, specifically seller financing, contract for deed, different debt products, business in general, you name it, we are here to answer your questions. So excited for another Wednesday. Finally figured out how to use the good camera on YouTube directly. So yeah, welcome to Cody and Christian in HD. Um, but yeah, we'll get started, uh, on our main topic. But again, anyone feel free to jump into the chat at any point. So today's topic is debt versus equity, and if you guys have questions specific to that, let's try to start with those. But when would you use debt? When would you use equity? We're actually going to be talking about this this week in our mentorship group, but Cody prefers debt. I typically prefer equity. And so we're going to talk about the pros and cons of each, why we prefer what we prefer, and we're going to go from there. So Without further ado, I'm going to turn it over to Cody. Cody, when would you use debt as the primary vehicle for raising private capital?

When you can cash flow it out of the real estate. When I got started, I realized that to buy any piece of real estate you want, you find something you want to buy and then you figure out the money. And the two types of money are debt and equity. There's different types of equity and there's different types of debt, but if you can line up 100% debt, you own 100% of the deal. And it's free real estate, and I like free real estate. So when would you use debt? If you can 100% leverage the deal and you still cash flow with a healthy margin, long-term fixed rate debt absolutely will do it. If you can't do that, then you'd have to look at something like an equity partner.

Yep. Now an equity partner is going to be where you have someone who actually buys into the ownership. Typically you're going to fill out an LLC operating agreement, so you're going to do this in the company, and you determine at that time who gets how much equity or ownership in the deal. Now, the rules for this is you want to back your investors with more equity than they put in. For example, we're buying a deal right now in Walla Walla. Our investors, who we're still looking for one or two more people, but as we fill this out, they're going to put in $300,000 and they're backed by $420,000 in equity day one, day one in the deal. That is a secure backing. Now, the disadvantage to equity is that one, You're giving up ownership and it's typically much more expensive on the back end to get that person off than— and then you use debt, the buyout is going to be more expensive typically on a debt product. The nice thing with it though, the huge benefit is that you save on cash flow. If there's no cash flow in the deal and they're another owner, there's no cash flow to distribute. Now you can work any sort of special clause in here for minimums and what you owe people, But generally speaking, you save a lot on cash flow if the deal doesn't have a lot of cash flow day one, but a ton of upside. Again, probably more expensive, but you can pay them out of that future upside. Why do I like equity? Is because equity typically comes with a buyout option. I like options more than I like obligations. When you can move your pieces around or renegotiate or move them to a future deal, I like the flexibility as a business owner. More than I like a set obligation for debt.

And for me, I don't want to struggle as much in the future. I am very focused on struggle now, scrape by now so I don't have to later. And so I opt to do it with debt where it's very painful in the beginning because if you don't make your mortgage payment, you lose the real estate. If you don't make your lender payment, you do in fact lose whatever you backed it with. So you have to figure it out. However, instead of giving them a multiple, if I borrow $1 million, I have to pay them back a million plus interest instead of maybe a million five plus the cash flows that they would be entitled to as a partner. So there's pros and cons, but it's a lot harder when you borrow 100% of it. That's how I did my first 30 units. We partnered up and we did joint ventures with equity partners with buyouts. A lot more expensive, but it was easier in the, the beginning. Yep.

So it's gonna mostly depend on one— the most important thing is what does your deal support? For example, if we have a deal that cash flows, let's say day one, the cash flow on the money that you put in, so your cash-on-cash return is 30%. If the cash flow is 30%, I'm absolutely going to opt for debt. I mean, it just makes sense. The property can service way more than enough to pay whatever you raise money at, you know, within reason. Uh, you can service 10% debt to an investor, no problem, have plenty of leftover. That's appropriate for a debt product, and you're not going to struggle very hard on that because there's enough excess. If you have a deal, uh, say like our, um, the side-by-side duplexes we bought right off the bat, it was one of the first deals we ever did. There was very little day one cash flow, a ton of rental upside, so there'll be cash flow in the future.

Rents were in the $700s, now they're over $1,300.

And we picked it up about $100,000 below market price back then, but we have 5 years on the partnership before the buyout. And we're raising rents, I'm like, okay, that's going to be worth significantly more in the future when it's yielding more money and you have 5 more years of appreciation. So when we bought that deal, ton of upside, we bought that where we double the investor's money in 5 years, but we don't share any of the cash flow. Now you can blend the two however you want. That's just a good extreme example of debt and equity.

You can do whatever you want as long as you can get it on paper with your journeys and everybody's happy. Yep.

Another advantage with the equity is while it is more expensive, you do get to arbitrage more time. You don't have additional payments for an extended period of time. If you're in your build phase like we were, I really like conserving as much capital as I can, which is important. Yeah, which is really important, so that in 5 years when we're doing that debt pay down, we're saving up out of the cash flow that we built. We're actually using our debt hammer to pay off debts, or executing buyouts. Like Cody said though, those buyouts are more expensive, which means we do have to work harder and be more profitable in that 5-year period to hit all the benchmarks. It is making it harder in the future, but you are arbitraging time. So again, it's a combination of what pieces do you have and how do you want to execute them. Again, we built a lot of our partnership on equity partners. There's a huge problem with them that I want to recognize that I don't think we brought up yet. Equity partners are humans in your deal. Humans are your biggest variable, and I hate variables. What I love about that— love, love— is it is a solid contract with really nice fixed parameters that everyone's lawyers have reviewed. Here's the interest rate, here's the balloon payment, this is how much is due and when it's due. Not a lot of room for ambiguity. Almost every frustration that I've had in real estate has been a person, not a contract. Our contracts have been excellent. Our people have been harder to work with. Not that they can't be worked with, but it's emotional, it takes time, it's frustrating. I haven't loved every single equity partner that we've done on every single deal.

Yep, it just doesn't always work out.

Yeah.

Now looking back on it, there was a time where Christian and I, we did our joint venture, we did our partnership. If you want to see the video, we announced— we called our shot where we were going to buy the 38-plex before we bought it on this YouTube channel. So you can scroll way back to that. I think that was in like October of 2021. Mm-hmm. But there was a period of my time when I was getting started about 2 and a half years into the journey where I had to make a decision between debt and equity, and I opted for equity. I was able to scale a lot bigger, a lot faster because I did that. But financially, right now, I would have been more stable had I done debt. That would have been on the 12-plex and the 6-plex over in Moses Lake. Because then I could have leveraged that without pulling out all the money and paid off the investors. So there's a time for debt and equity. Because I opted to bring on an equity partner like Christian, it stabilized my universe back then, which is nice, but I would have a lot more money today with less real estate had I opted for debt.

So a lot of it is know your strategy, and more importantly, know your deal. Match the right debt product or equity product to your individual deal.

And either way, it still worked out. I'd say it didn't suck.

It did not suck. I'm proud of the business we've built. Going back in time, there's a couple deals that I would have done with debt instead of equity, and there's a couple of deals that we did with equity that I, like, had I known what the future would hold, I wouldn't have done just because I didn't like the hassle of the project. They still made money, um, some of them made a lot of money on paper, but they're a pain and they absorb time, and time is a resource that you also have to account for. Um, but that's the nuts and bolts on debt and equity. If you guys have questions, feel free to throw those in the chat. I'm seeing a whole bunch of stuff about salmon in the chat out of the side of my eye, so I'm gonna have to do some figuring out about what that's all about. But, uh, we will, uh, proceed to the chat unless there's anything else that you want to share about debt versus equity on the front end of this.

The main thing is debt costs you money today. It costs you more today because you have to make your payment or you lose it. Equity costs you more tomorrow because if you want to buy it back, you people don't like getting bought out at principal. So you have to manage your ability to cash flow stuff right now, and to the extent you can do that effectively, you can scale. There is a time where if you go quickly enough, you will likely need to stop just borrowing money because you do have to pay off borrowed money with money. And if you don't have a huge exit, then you're building yourself a trap. Nope.

All right, we're gonna get started with the questions. For the, the 20 or so of you who are here in the live, make sure you give this thing a like, tell your friends we're live, everyone on board so we can blow this video up and get more questions in the chat, because the more questions we have, the more everyone gets to learn. Um, so have those rolling. I see a couple of likes, so thank you all for, uh, we appreciate it. Yes, thank you for respecting the request.

All Nighter Hider, hey dudes, sup? You're back and you survived getting paid 50 cents a pound for your salmon.

That is good to know.

Glad you survived. Whatever doesn't kill you makes you stronger. Fact, Dan. Oh boy, lots and lots and lots of salmon. Why they cut you out of your fold. Okay, that's still about the salmon.

My Apple idea is the first question. Uh, do you need a buyer's agent plus the seller's agent/listing agent? Who pays the commission for both? Uh, let's go standard transaction, then we'll talk about some special cases. But generally speaking, um, you're gonna have the seller side is going to pay all commissions for all brokers. It's typically in the listing agreement. Now, if it's off-market, they're still usually going to do it. When you're getting into creative finance and you may be putting less down, sometimes that changes. Like right now we're doing a deal where that was the condition from the sellers. I don't want to be paying anyone's buyer's agent. Fees. It's like, okay, well, that's just going to be absorbed by us in closing costs. So all negotiable, but most typically the assumption is, unless otherwise stated, the seller is going to be paying for all broker's commissions.

However, if, uh, it is there, you do have to have enough down payment to actually pay the closing costs, because that money doesn't just come out of thin air. It does come from somewhere. All bills are paid with money. It's probably going to come from you.

Yeah, more often than not. Especially in a very low-down deal. That's where you run into that situation where you need to make sure the broker's paid. If you're getting hesitance from a broker on seller financing because they're not sure about their commission, that is the time that you talk to them about that and say, hey, we're going to make sure you get paid either way.

From Gabe, which is right above my Apple idea, what all goes down during your typical due diligence period and how long usually from contract signing to close? So in a due diligence period, I'm looking for a few things. I'm looking at the leases, the rent rolls, I'm going to look at a cash flow statement, which is a trailing 12 months of income and expenses. Everything should zero out. Zero is a magical number in accounting. Then you should look at a stop letter, which is where the tenant signifies their rent when they moved in, their security deposit. You're looking to verify what the tenant signs for in relation to what the owner is signing for, because you don't want to just take the word of the owner and then be completely wrong. Then they don't give you a whole bunch of deposits and you got to go after them legally and it's hard to get that money. So we're looking at that. Uh, bank statements are a big one. I want to actually verify with the bank statements that everything maps out.

I'd argue those are the most important. They're the hardest to fake.

Those are the hardest to fake, but not impossible. But those should also be really quick to get. If it's hard to get, then they're probably trying to pull something. In due diligence, also going to call up an insurance broker and get an idea of what my insurance premium is going to be for new coverage because that's going to be a lot higher than theirs. Most owners are underinsured because they're insuring closer to the basis of when they bought it, not what it would actually cost to rebuild it today. And those are the big ones.

Yeah, that pretty much covers it. That's the— that's all the financial due diligence. Then physical due diligence, getting that inspection report and making sure that you actually walk the property yourself is absolutely huge. Cody and I have had a lot of properties where they are fantastic on paper. The pictures look really nice. The Google Maps looks really nice. The agent says they love it. We go there on site and there's little stuff like the last time we went to a property we were buying, I believe it was advertised as 34 units and we went in and just physically counted the front doors and there were 30. They just added 4 units.

Yeah, that was, that was dumb. And then his argument was the Excel spreadsheet says 34. It's like, count the doors.

Yeah. Oh, well, I think we're doing this. We're counting a unit a little differently. I'm like, yeah, I'm counting a unit as a unit that someone can live in. Um, nothing beats physical inspection. There's also— I mean, there's certain properties that are just rough, even in good areas, where you get there and it's like, hey, uh, there's obviously a drug problem here. You can, you can suss that out in about 12 seconds being on site, where you might not do that if you're buying remotely and not visiting the property. So that's another huge part of due diligence is you, the buyer— I, I think this is a requirement— you need to walk property. I know so many people who don't do that, and those are a majority of the people who I've seen do a deal where they're like, this is how I lost $50,000 on my first flip, was they didn't walk the property first. They thought, hey, I can do this all in the cloud. Um, physical inspection is ridiculously important due diligence.

Where do you guys see yourselves in 20 years? Well, I'll be about 43.

Yeah, I'll be older than that. I'll be 50. Well, 51. Um, in 20 years, I, I think of so many things in, in like the near-term goals of like where I want to be in 5 years. Originally, I wanted to retire my wife and be financially free in a 10-year goal, and we did that in 11 months. So that kind of shattered what I realized was possible. Uh, the biggest thing for me, I want to be in Texas in 20 years. I don't care a lot of about a lot of material things, but I love having an awesome house. I live in a very small, very, very, very a financially responsible house in the city of Renton in 20 years. That is the one luxury item that I really want. I want to have a big house with some land, and my wife wants farm animals. And so I'll be doing exactly what I'm doing— scaling my portfolio, teaching real estate— because I love what I do. I'll be doing it from a cooler studio in a bigger house, and that is pretty much the only material thing that I care about that will be different.

Other than that, I just want our businesses to be farther along and 20 years, I'm going to have a car that costs like 3 times the cost of your house. This house that flies. I don't think that will— no, probably not.

20 years. Uh, maybe calling it now. Cody will have—

calling your shot.

Cody will have a flying McLaren worth 3 times what my current house is worth.

McLaren. All right. What's your opinion on deals listed on LoopNet, Crack Scene, other platforms? I've heard another podcast, the deals listed there are mostly dead deals.

Um, LoopNet, CREXi, and other platforms, they are mostly dead deals, which is fantastic for those who know creative finance. Everyone has looked at them conventionally. Some of these ones that have been there for like 100, 200, 300 days, you can just reach out and say, hey, I'm really interested in this and I don't have a problem with your price. It could be something as simple as, this, this price worked last year, interest rates have doubled or more, um, it works on last year's numbers, have you considered seller financing, or have you considered the ability to carry a contract on this? It's possible that you can get away with that. But, um, other than that, the thing that I like to look on it is it's a good place to find brokers who's actually representing these listings. And there's two steps to this. We always forget step two. Step one, who has the most listings there? And step two, is that a broker who's consistently closing those listings? Because there's some bro— some brokers are just super bad who have a bunch of listings that never sell. You don't— probably don't want to work with that broker.

Uh, there's a question up above on the 20— I saw that, I missed that— on the $20 million plus of your portfolio, what is the net cash flow annually per year jointly? Just a global cash flow. It is closer to 7 figures than it is to 5, and I'll leave it at that.

Yes, it, um I don't like announcing every single piece of our—

however, but however, uh, we don't pay ourselves anything out of that. I mean, we're paying ourselves maybe like $1,000 a month, the cash flow out of the actual real estate this month, which is good because we get to reinvest everything into our business strategy, which we also put online.

Yeah, I'm not a fan of the hyper-prugality thing. Like, some people just like live on a shoestring budget forever and save every penny. I don't think that's healthy or motivating for most people. I, I think that is the reason people hit burnout is they never reward themselves. That said, I live in a 1,200-square-foot house, one-story on a quarter acre, not even. And I went from two cars to one car recently. Like, I have a Tesla Model Y. It's a decent car.

It's a nice car.

But like, we're fairly frugal. We have a lot of delayed gratification where it's like we have decent vehicles We could both buy the dream car right now.

I mean, buy the Aston and the McLaren. Yeah, not the flying McLaren, but yeah, we have some nice stuff.

I have a nice hot tub and a decent sauna, and I like— I have some stuff, but for the most part, we've kept it really, really, really frugal. And, um, yeah, that helps a lot. All the cash flow gets reinvested in the real estate, which is how we hyper grew our real estate. There's a better way to word that, but it's not coming to me. I actually got inspired by MrBeast on YouTube, of all people. Um, he does this thing where he basically takes roughly 10%, moves it out towards other pieces of his businesses, or buys real estate, or does the things he does, because he has some awesome real estate and some awesome companies. But for the— his whole build phase, 100% reinvestment. Whatever I made on one video, the next YouTube takes 100% of those proceeds, and we just gamble it every single time. We are going to be successful. Like him, it's a calculated gamble. I know what I'm doing. I have an idea. I believe in this idea. I'm investing in my company. And he built a— I think it's worth multi-billions now, uh, multi-billion dollar empire through 100% reinvestment. So that's what Cody and I shoot for.

Now, are we gonna get to a billion that fast? Not, not that fast. Not that fast.

It took him 11 years. We have time.

Half time. I mean, maybe in 11 years. We have 9 left.

We got 9.

We've been doing this for 2.

We'll see where we end up.

We—

someone asked, we're gonna be in 20 years. If we hit that billion, we're gonna have a— we can both have a fancy car.

Cody, do you still keep your real estate license active? I do. I don't use it unless I've got a friend who wants to buy real estate. I'll always help a buddy, but, uh, that's not a career choice.

I let mine expire.

I let mine expire, and then I was like, oh, what the heck. I have a couple friends who want to buy some stuff, so I'll help them. On average, what percentage of gross income goes to expenses? Between 32 and 40%, depending on the size of our deal here in Washington State. It also helps that we can have a little control over our management costs.

Yes, me owning the property management company does keep expenses down a little bit, but again, a lot of your, you know, a lot of those expenses are just kind of fixed things to your market. I can shave a few percentage points off. But, um, yeah, it depends on your market a lot. Like, places like Texas where tax is twice as high, a lot of these properties you're looking at a 40 to 50 expense ratio, and that's fairly average. We're in a market that has, uh, relative to the rest of the country, lower taxes on property. Our sales tax is insane, but our property tax is low. And in addition, we have the lowest utilities cost in the United States for electric and very, very low water cost. So we get to come in a little bit cheaper, usually around 35% on a lot of our stuff.

From Benjamin: I keep talking to owners who own a decent amount of property but aren't fluent in creative financing. What do you recommend to find the right peeps? Meet more of them.

Meet more of them and then just keep it really simple. Like, if the conversation comes up, are you open to carrying a contract? No? Okay, I'm not sure if it works bank-wise, but we can certainly try. And then I usually get back to them with what the bank says. If I know the property is overpriced, the bank's going to come back with that. I'm like, okay, well, look, it's not financeable. Let's open the discussion on creative finance. What would it look like? And light education of— some people aren't well-versed in it. Keep it super simple. Look, here's the price. The deal is going to work at this interest rate. And if we do this, I need this amount of time, say 10 years, to guarantee that the property is going to perform as I think it will and we don't have any major rate changes. Most people can understand the Fed massively messed with rates. So you're like, I just don't want the government messing with the rate. So we need a decently long term. It works at this interest rate. If you're comfortable with this, we can put this together. My legal can draft something, we'll get it over to your legal and go from there. But keep it super simple. Don't sell them on the benefits of seller financing. Just give them a picture of, okay, this is what it would look like if we did this the way that it would work in my head. And put it on paper. It takes a few sentences. I did this recently for someone.

What are the options if the debt on the property is seller-financed debt? Well, you can assume it— it's private money, so anything is negotiable. You can negotiate on the front end, but if you're coming in as a secondary party to try and buy it seller-financed, they could just let you assume the note, keep getting their payments to what they originally agreed to if it works for you, and then have the actual seller put a second lien seller financed. You could have 100% seller financing from two different sellers. You can absolutely do that.

And it's actually not uncommon for someone who's seller financed the deal, if someone's selling it, to let you assume that note. And often I've noticed in this market anyway, as interest rates went way up, they'll go, yeah, you can assume the note, but like say you have 4% interest, they might say, yeah, I can assume the note, but I want to modify it so that when you assume it, it jumps up 5%. They can modify it, or you can write a whole new note with that seller. And I've seen both done, but usually for a small cost or an adjustment somewhere. A lot of these seller finance notes, since they were already open seller financing, they want to vet you a little bit as the new buyer. And a lot of them prefer to continue to hold the note. It's not uncommon at all.

What's the exit strategy for you guys? Is it going to be tough selling to try and cash out, or would you exit on terms? We don't plan on selling the real estate. If it was worth buying, it's worth holding. That is just a hard and fast rule for us. However, if we were to exit the markets that we're in, we are a pretty dominant buyer over there as far as the type of inventory that we buy. So on the— if we wanted to sell everything, it would probably have to be on a contract. Yeah.

And on the long term, I want to pay off everything. And there is a time to sell a property. I'm not going to say that there's never a case for that because you have to manage your 3 resource pools: equity, cash flow and cash. And sometimes if you just have no cash, it is worth selling a building. So I want to put that out there. But you always buy everything so that you never have to do that. You can make the choice to do so if it moves your pieces accordingly. So I want to leave that open. That being said, what we want to do is own and pay off all of our properties in those markets. When we haven't paid off, I would prefer a contract to exit a market because now I just have payments and I have collateral for an asset that I'm already comfortable on how to manage.

Yep.

To me, that is a nice way to unload a portfolio, keep income rolling, defer capital gain tax. And, uh, if I get a whole lump sum of cash, I have to do something with it. I don't want to just sit. So it's like more work.

You can give it to me.

Well, yeah, on it. But if I gave it to you, it'd be with interest, then it'd be the same thing. I'd be turning my real estate into a note. So, uh, I can lend it to someone, but I'd rather lend it to someone backed by the asset. Um, so I think exiting on terms way in the future would be the option, on the assumption that neither of us have kids who want to take over the portfolio.

Or kids right now. No kids.

Yeah, we have no kids right now, but if we ever had any, and, you know, 30, 40, 50 years from now, we're like, hey, We have heirs who want it. We can figure that out. But generally speaking, most people whose parents love real estate, no matter how bad they want, their kids usually don't share the same love. And it's a lot to manage with the portfolio we're building. So most likely the exit would be we pay it all off and we exit on terms.

In one of your videos, you mentioned you run your PM company a bit different than a lumberjack landlord. Can you explain in what ways and why?

Yes. Matt Hawkins, the Lumberjack Landlord, self-manages. Now he has a network of brokers. He calls it insourcing property management. So when he says he self-manages, he still runs teams of people. Um, I think that gets misconstrued sometimes, but he will have essentially a pool of brokers for showings. He has a pool of brokers where he can send a text out and whoever grabs it first gets paid, and they'll do the showing, and it's all, uh, done on a contractor basis. He does some of his own maintenance and runs some of his own crews, and he subs out some stuff, but everything he does is done personally from the LLC on a contract basis. He is the head of it, but it's all just a network of contractors. Now, the way we run property management, because we're a network of LLCs, instead of hiring a property manager or set employees in every single LLC, because in this state, to manage third party, you have to be a licensed property management company, or the LLC can hire you directly. I don't want to hire the same person as a W-2 on 25 different LLCs. That would be a nightmare. So the easiest way to do it is have your set people who run your company. For us, it's Hannah Caldwell, my wife Dani, myself. I'm actually hiring someone else in Moses Lake right now. But as we're putting together all these pieces, there are some set players who I actually like to have in-house, in office at all times. So I will actually run this with a handful of W-2s in-house in a property management company that we have absolute control over. Now Cody is actually a licensed broker in that, even though we did that equity swap a while ago and I own PM. Cody stays on there, and for us there's some advantages of as owners we get to use a lot of that software for our own bookkeeping, and Cody gets a lot of benefits for helping start that company and hanging his license there. So that's how we run the company, but I actually have set employees who manage the contractors, where Matt will be the key person, and everyone is hired direct through, uh, Matt, who owns the properties without LLCs. So different structure completely. I am actually stealing his broker idea though. I have a few brokers who do our showings, and that is awesome. Saves us a ton of money, and their results are ridiculous. Professional showers— brokers love that. It's just stable income that supplements their big hits of income selling properties. If you can find a few hungry brokers, especially some younger, newer brokers, who professionally show property. Uh, that's the best thing Matt ever taught me, I think.

What are the factors that are important for market selection?

I'll let you start that one since I took the last question.

Deal. Well, I like buying in markets where people like to live and where there are people moving to, because if I have an apartment that's empty, the only person that can rent it is a person. Fact. So I'm looking for populations that are going up. You can look at world population view.com, correct? Hey, I got it right. And then other than that, I'm looking at the average income for the area, the median income for the area, to see what people can reasonably afford, looking at the average rents in that location to see the relationship between the actual median and average income versus the rent to see if there's room for it to go up. Because if the median income is $3,000 a month and the rent's $1,000, there's not a lot of room for it to go up. The median income is $5,000 a month and the rent's $1,000. There's some room for it to actually increase. So I'm looking at little metrics like that. Yep.

If you'll get any of the markets that we own and the population growth on that chart looks like this where it's going up, usually it looks pretty exponential over time, like it's just going up and up and up and up. Places like Grant County, fantastic fundamentals. They just tripled their power grid. They're doing a whole bunch of building now. They're working on getting more water to the area because there's a bit of a shortage there. Not going to go into the details because they'd be boring, but, uh, poor long-term planning by the county. They're working to fix that. As soon as that problem's fixed, which will be in the next few years, the ton of development we're already seeing is going to absolutely take off. So long-term holds in markets like that where you understand what the plan is and it's already increasing rapidly in population— absolutely love those. Caleb Hommel, who's often on this channel and has contributed a lot to our mentorship group, one of our first ever mentees. You look at the markets he buys in in Texas, I've never seen graphs like some of these. It literally— population will go like this over time, then just go straight up. And he bought right in the middle of that giant uptick. So if you're buying in the right places, that, that little graph is the number one metric. Humans need to want to live there because you're providing housing for humans. Basic supply and demand.

Do you find properties on the MLS that have been there for almost a year when you actually mention seller financing? Well, after you've asked if it's still available and you verify that and you go through your, your call script, ask if they'd be open to holding the contract. You can do that on the first call when you're calling that real estate broker.

Yeah.

From Vinnie, y'all are awesome, course is great. Appreciate that, Vinnie.

There's a fact verified.

From Benjamin, maybe you mentioned this already, but are there tax implications or financial planning considerations for debt versus equity? Well, if you go into an equity partnership, you're going to have to file a different tax return. Partnership returns have different requirements than if it is just a solo-owned entity. So absolutely there's some stuff you're going to have to consider, and there's a lot more work that goes into partnership returns that we found most people do them wrong. And so if you're going to do them right, then yes, absolutely there's some considerations you need to consider. Can't wait to learn from you in September. I saw you guys have a meetup in Tacoma, Washington, and others. Absolutely, I'm excited for that one.

That one, they reached out a couple months ago, and I love events because not everyone does this. I love events where they plan it like months and months and months ahead. I like the speaker lineup. It's a lot of friends of ours who we spoke with before, who some of them run fairly large companies. Um, I like the lineup. I like that event. I like the location, everything about it. That should be one of the bigger events for us in the year. So if there's one to come out to locally in the greater Seattle area, um, head out to that one. I believe— and I posted this somewhere on my Instagram and I shared it with Cody, so either of our Instagrams— there's a discount code there. So if you look through, um, I'm @ChristianOsgood, he's @doingcodethings on Instagram. If you look through, you can actually get a discount for tickets there. So if you're one of the, uh, 30 or so people watching right now, you can get a discount.

From Chris: I'm from North Central Arkansas. I've been watching for a while. I'm trying to figure out the strategy that y'all use. I've spoken with attorney who was not super excited about it. Well, then find a new attorney.

I would say, yeah, find a new attorney. Our strategy works everywhere. Works everywhere. But more importantly, like, the current bank system is not like this has been around for centuries. This is how real estate's more or less always been done, or any transaction. I have something you want. Do you have the money for it? No. Well, then I'm going to finance it. Um, we were having this conversation a while ago when people were like, well, this is like a whole new thing. I'm like, dude, uh, private debt and leveraging stuff, that is all over. Like, there's, there's a bunch of stuff in the Bible about that. That is not a new book. Um, no, no, it's been out for a while. Bestseller. Um, you're going through the stuff. The concept of seller financing is absolutely not new. It is a very, very, very common practice. If you have a lawyer who's not excited about seller financing, they do not understand real estate. It is a very common practice and, in my opinion, undisputably the best way to acquire if you are starting with low or no capital. I, I just can't think of any model that would be simpler than what we do.

From Benjamin, I'm doing long distance from Hawaii, uh, will you two be doing any long distance investing in the future? Absolutely we will. We've found that it's easier to build a base local to you and then you can expand out. However, there are people that do it out of state. Caleb is an example of this. He's crushing it with 28 units out of state. He lives in Cali, he's buying in Texas, and he's working on a 24 over there and some other bigger stuff. You can absolutely do it, but you're going to need to get some boots on the ground relationships to make that happen. Grow in Homes: Thank you guys for all the content, super helpful, and we are all very grateful. Looking to buy the duplex next door to our 6-plex. Seller's open to a note and wants $410,000, 33% down. We think they'd take 20% down and to be paid back in 10 years. Duplex could make $48,000 a year gross income. How would you structure the note? So you've got $4,000 a month, $4,000 a month in income, $48K a year. You're probably going to have $800 to $1,000 a month of that being in actual expenses if you put into professional management and pay your taxes, insurance, utilities, maintenance. So you've got $3,000 a month to service the debt. And pay yourself cash flow. If you are putting, let's just say, 20% down, then you're going to owe about $330,000, meaning that a note on that, you just figure out at what interest rate you cash flow. You have $36,000 a year in income to pay a $330,000 note. If you did, let's just say, 5% interest only, It'd be like $16,500 or so a year in interest. So you would cash flow about whatever the difference is, $20,000 a year. You just write it where it makes sense for you, and you're good to go. Love the BPCon 2022 shirt. Met you there in San Diego. Super humble and approachable. Been following you guys ever since. Just listened to you on BiggerPockets and Oh no, on Dropping Bombs. Heck yeah, that was a fun podcast.

I'm grateful we got to do that. I was on the couch and got like 4 lines in there, but I was off camera and present.

And by the way, I just found his number on Google. I cold called Brad. So you can do this with anybody. That's how we got on there. I just had to keep, keep in touch with him. Also interested in getting into your course. Does it include seller financing, negotiation tactics? We talk a lot about debt structure. Debt and equity structure is the people that manage their money the best play this game at the highest level. If you can manage your pieces better than others, you will do better than others given equal circumstances, which is across business everyone's pretty equal. You just have to play your cards right. So, uh, yeah, we do talk a lot about seller financing and how the actual practical application behind it works. I bought 2 cars with seller financing. Nice, Brian. Maybe one day I'll buy a car with seller financing.

Apparently it's pretty common to do, so that's, uh, hey, that's awesome.

Or we'll just do cash. Or we can't do that yet.

Yes, uh, no, we keep buying real estate.

Just bought my first house because you guys turned 19 the other day. Congratulations, Jackson, that is awesome.

By the way, Jackson, I am, uh, I am updating our website, and if you are open to shooting us a video testimonial saying, I, I learned something and helped me buy this house, um, I would love to add you to our website. So if anyone's had any cool successes and wants to shoot a testimonial, even if just from our YouTube channel, um, that would mean the world to me.

Yeah, we will put you on the website and appreciate all of you. The most quoted Supreme Court ruling is Hale versus Henkel that states our power to contract is unlimited. Seller finance is a contract.

So take that to your lawyer. Um, yeah, that's, uh, that's silly if a lawyer is telling you not to do our strategy. It is the whole brand and the whole reason we started our YouTube channel and our course and our mentorship. The whole thing is we have learned that real estate is very simple, and every other online guru that I've met has tried to complicate it by, hey, I have this secret, it's it's going to make you a million bajillion dollars. It's super simple. It's not that it's easy, it's very, very, very simple. And so if you have a lawyer who's like, hey, this isn't a great strategy, it's like, it is so simple. Find a deal that makes sense to you, negotiate a debt product that makes it cash flow, then lock in the longest-term debt you possibly can because all your value is in the excellent debt product you just negotiated.

Get paid to wait for it to go up in value and to get paid down. And then you just own the real estate.

It's buy and hold real estate with a custom interest rate and term. There is— I, I'm mad at your lawyer. He's pissed me off. Find a new one. Uh, what do we have next?

Insurance goes up when you buy a property. How do you estimate how much? You call an insurance broker that services that type of asset. That is your answer.

Ours usually gets back to us, if not within a few hours, within 24. Like, we, we don't have to wait long on that. Now, if you're buying hospitality, we learned, uh, it takes way longer. So plan that out like right at the beginning of your transaction. But, uh, multifamily, like, call early, but you should be able to get a basic insurance quote if you give them an address and a few pictures. It should be in your inbox in hours. It's very easy for deal.

Just closed on my second duplex via seller financing. Do you guys ever give them terms if they give you price? You know what will work better. Uh, we've presented terms that make sense to everybody and we've gotten them accepted. Yeah, yeah.

If the question is like terms over price, I usually prefer terms to price just because that's kind of our, our bread and butter. That's, that's where we can make the most modifications because prices it only moves up and down, right?

If you're playing the equity game where you're trying to build your equity and get a whole bunch of cash later, price is really important.

Yeah, that's one thing. So when you start, you need to optimize for cash flow. It's the most important thing, period, because if you have no cash flow, you're just out. That's, that's how you lose the game. Um, that said, if you keep overpaying for properties day one, you're going to end up with a negative net worth and a ton of cash flow. So there is a point where you do actually have to win on price from time to time. So just keep all the things in balance. We shared this— oh, we recorded it. I don't know if we released this on YouTube yet. So coming up on YouTube, um, we have a video where we really do break down the 3 resource pools of your equity and your real estate, your cash flow, and your cash is the 3 things you need to keep in balance. Make sure you don't optimize just for one and then end up needing the other ones because there's going to be a point, especially if you want to refinance conventionally down the line where you don't want to have a negative net worth even with an insane income on your property. So keep everything in balance.

We heard an old video that you don't like to sign NDAs. It's not that we don't like to sign them, it's that we don't sign them.

Yeah, um, NDAs, it depends on what it's for. I just had a conversation with someone about the potential of buying their company. That's the only thing I can disclose. Do I sign an NDA on the rest? Uh, they have things that they need to protect before they release all their information. Now that makes sense for an NDA. For a piece of real estate—

real estate's public.

I just don't sign them because it's just— it's kind of like when an agent— like, I got one of these today. An agent who I'm working on a deal with sent me an exclusivity contract saying, I want the exclusive right to represent you. Like, okay, verbally, like, yeah, you're the guy representing me. I'm not going to sign something. I'll do what I say, but I don't like signing stuff that is just a mess, especially when you do a lot of business. I don't have the ability to hold in my head every darn contract I sign. If we're working on 30 deals at a time and everyone had to sign some contract, uh, we had a thing that happened early on where we had a lender who had to sign a contract that was absolutely garbage, but we missed one line in And they tried to— when interest rates doubled and they failed to place our loan, they tried to charge us $21,000 because we didn't want to place a new loan at, uh, double the cost.

Yeah. Um, so they're, they're a really dumb— like, they're just not competent brokerage out of, uh, Tacoma.

Yeah, we'll leave it there, um, so we're not slandering anyone, but, um I did it in my head. Me too. Um, when you're putting these together though, we sign as few things as possible. And I actually— I try not to overquote him, but like, I got that from Cardone. Cardone was like, I just don't sign these. I was like, that's a great idea, we should not do that. It is a best practice. The less exclusive things that you sign, the better. Yeah, just do what you say and never violate that, and you'll have a reputation of these guys are good for their word. Or this gal is good for the word, whoever is watching.

Jackson said that they'd send over testimonial, would love to hop on a 15-minute call. Absolutely. Shoot us an email, multifamilystrategy@outlook.com, and we will make it happen. Jonathan said, hey guys. Hey. All right. On to Will. I'm still confused on how you'd pay back the down payment for these deals starting out, whether it's a hard money loan or equity. Is it only from refinancing or do you use cash flow and pay it back? You can do both. You pay for your bills with money, and your goal should be to be able to spread out your obligation over as many years as possible. Equity typically has longer timelines, but it costs more in return. Debt typically is not as long of a timeline if you're borrowing it as hard money or private money. However, it doesn't cost as much typically as equity. So you have to gauge how long it's going to take you, and then if you have a lot of obligations, you might need to just buy a bunch of real estate so you get a whole bunch of cash flow to pay it off. We've done that before. We found a way to buy any piece of real estate we wanted to within reason. Like, we're not buying a $100 million deal, but we're playing in our own little sandbox. And in Central Washington, within reason, we can buy whatever we want over there. So we figured out how much real estate do we have to buy to pay off all our obligations with the real estate. That's where our rule came from: get the real estate to buy the real estate. Because if you do that, everything is free free.

And, uh, for this one's for the super nerds, but the longer you play the game, the more pieces you have— we talk about this all the time— the more plays you have. Cody and I, and I think this is like a super cool transferable skill that we both have, growing up both of us played Magic: The Gathering, the card game. And as you start, if you just start with basic cards, your deck kind of sucks. Like, you just, you build this deck, you get— I think it's like 60 cards you can put in a deck Um, but you build the best deck you can, you can with the pieces you have. As you play more, you get more pieces, you have more equity, more cash flow, and more cash to play with. You have different partners with different objectives. You can move around. The game gets more complicated as you get larger, but you also have much more plays available. So as you build this out and you're doing your strategy, you take the obligations you have and the options you have and you get to move them around. The goal of moving your deck of properties and debts around is you're trying to move the balloons as far down— I guess down the stack so you don't draw them. You want to move your— any balloons or obligations further down so they don't come up, and you just keep adjusting those pieces.

And I'd like to tell you, I'd like to add on to that, that you're not literally just not paying them. You are using the pieces you have on your board to renegotiate, get new legal docs in in place so that you can move it down the stack.

Yeah, if anyone's confused, I'm going to use an actual real-world application. We're buying the deal in Walla Walla, uh, I think the best deal that we've ever done by actually a fairly sizable margin. It's just—

it is good.

It's just an excellent deal, uh, good price, good terms, good location, fully stabilized. When you are buying a great deal though, I have a couple of smaller debts with some of our OG investors With balloons coming up in the next couple years, we're rolling them into this deal on a new contract. So that debt that comes up in 2 years, we're putting it on a new contract with a 5-year buyout. We're transitioning some debt and some equity to just an equity position in a property.

However, it is an option, not an obligation. So we have an option to buy them out, otherwise they just write a great deal with us.

So now that is a— it's further down the stack, going back to our Magic: The Gathering example. Now my deck, I'm further from drawing that card, and when I draw that card, I have an option to execute or not. An option trumps an obligation. Again, it's just like a card game. If you want to get— if you're sub-18 and you're people who are like, hey, how do I learn how to play this game? Um, I would say most important thing is meet the players in the game and network with them early. And then number 2, play more board games. Play resource management games, get a deck of Magic cards. Yeah, these are all the types of thought processes that you use in real estate. Is strategy board games absolutely no difference? It's the same logic.

Like Catan, when we're looking at our pieces and we're figuring out how to manage it, we look at our investors. Maybe we've got some investors that lent us money, and they can be the sheep, and we got to take the sheep and we got to trade it for the bricks, which it could be our equity in the real estate that we're buying now. Yeah, we get to exchange resources, convert debt into equity in something we don't even own yet that has a ton of upside.

Someone's gonna snip that soundbite where we just called our investors sheep, and they're gonna put that online.

That's okay.

These guys hate their investors. Our investors are the gold resource.

We're trading gold.

We love them. Uh, they're whatever the most valuable resource is.

Either way, it's free marketing.

Yes. Uh, but that is, that is how you play this game. And so the more cards you get in your deck, the more options you have. Build your business around the pieces that you have and where you want to be.

Now, from Gabe, do you ever rent units out to Section 8? And if so, is it as nice working with them as Tom Cruise says? Tom Cruise, for those who don't know, is a lot bigger than we are. He has a lot more cash flow, a lot more tenants, a lot more Section 8 people.

And physically, he is a lot smaller than we are.

Different Tom Cruise.

I know, I was just— I was play on the name.

Ah, but he, he is bigger than us. He has efficiencies, economies of scale. So it is probably a lot nicer at that level than anybody who's going to get started. Realistically, when you get started, you're going to have some bad tenants that are going to trash it, and it's going to be a lot tougher. When you get to the place where you're cash flowing 6 figures a month, 7 figures a month— I don't know that he's there yet without course sales, but even where he's at with 6 figures a month in cash flow from the real estate on Section 8, it's a great place to be. He can afford to turn units when they end up with— everyone's got bad apples in their portfolio. It just happens if you get big enough. When you start out, if you get one of those too early, it can really suck. So no, I wouldn't say it's as nice working with them as people paint pictures to be, but you can make a ton of money doing it. All right. Oh, that skipped a lot of questions. Let's go back. Oh, there we go.

How do you estimate how much taxes will go up? Do you use comps or just a formula for your area? It's gonna be a formula for your area. Easiest way to do it though is look at recent comps and go, okay, what, uh, do it as a percentage. So what percentage of the sales price did tax move to on, say, the last 5 similar deals, and if you can come up with a ratio of it's X percent of the purchase price, that rule is usually transferable to the rest of the market. In our area, it's roughly 1% of the purchase price is going to get you pretty close. In Texas, you're going to be close to 1.8% because I do own a little teeny bit in Texas. I know that market a little bit better, and by teeny bit, I mean like a teeny, teeny, teeny, teeny bit in Texas. Um, but as you're doing these, like Every single market has a ratio that's fairly specific. That is the math behind it, is, uh, it usually doesn't jump up immediately. So look at recent comps, look, and, and you can usually see the tax history. You'll see the jump. And so look at the ones that have been realized where you're like, hey, tax just went from like, you know, X to Y, and go, okay, on that jump, the new one is X% of the purchase price, whatever that percentage is, use that as your multiplier, and that will be your math for the foreseeable future. Easiest way I know to do it.

What are your thoughts on smaller locations as far as investing? As long as it has a growing population, I'm happy. We don't play games that we will lose. In business, you have to play games when you're getting started that you will just win. You don't take fights if you're going to lose the fight. So when we go into a smaller area we can dominate that area. There's not as many players playing that game. We can come in, clean up, own the area, and be the best managers of real estate in that location and build a name. That's why we love Moses Lake. We were able to go in, pick about 100 rentals over there. Now we're going into Walla Walla. We're going to pick up a couple hundred rentals over there in the next year or two and be off to the races. But we can dominate those smaller markets. Then more people go to the market, gets a little bigger, and we're the big player. If we need to exit, we can exit. But we love smaller tertiary secondary markets because we can clean up, and we like to play games that we know we will win in business.

All right, can you explain to me like a 5—

we already answered that.

Oh, we did? Oh, good, good, good, good.

Truly appreciate your advice. I really wish I could tap into your mentorship. I'm working on it, very motivated, and a realtor. I'm in talks with another brokerage to make a deal work when I get something solid. Absolutely. Well, let us know if you need anything in the meantime, but that is why we are here. Can you describe how balloons work? Well, balloons go pop. So a balloon is associated with an underlying debt product, and think about it like a traditional home loan. Traditional home loans don't have a balloon. You have a 30-year mortgage, a 15, a 10-year mortgage, At the end of that term, you own it in cash. That is a traditional model in today's day and age for real estate loans on the residential side. With apartments or with storage facilities, to get their fees on those bigger loan products— banks like to get their fees, so they're going to have it due in 5 years or 10 years. It could still be amortized over 30 though. The way it works is you'll start paying down your loan if it's amortized, and then at a 5-year, 7-year, 10-year, whatever you sign for, balloon, the rest of what is owed is due. You have to refinance, write a check, or sell it. Those are your big options. You could also restructure, but not always with those bigger loan products. So that is just when you have to get new money to pay off the old money. That is a way that the lenders are going to get their fees and actually get paid. You want to manage so that not all your balloons pop at the same time. That is a good way to blow up, and that is not what you want to blowing up is not what you want to do. If you borrowed $100,000 for down payment, you could structure it as $20,000 a year for 5 years, for example. Obviously there would be interest, but for simplicity's sake— yep, that is correct. You could do it over 5 years, or you could just pay interest on it and then write a check for $100,000 in 5 years. If you did that though, you'd be betting on the fact that you will have a lot more than $100,000 in 5 years. Yep.

Uh, Growing Homes, What is it called when you structure a creative finance agreement with an interest rate but not amortized? That is just interest only, commonly called IO. Basically knocking out chunks of principal monthly faster than on amortized schedule. Oh, okay. So they're saying—

so it's a custom amortization.

Yeah, custom AM. So you do not do that though.

If you're, if you're thinking about it from a mathematical perspective and a risk mitigation perspective, it's always better to do interest only and then make the extra payments as you can. You don't want to get into this fixed loan where you have to make really big extra payments and then you have months of lower income and now you have to come out of pocket. It's better to have the option to make the extra payment rather than the obligation.

Now, if you can get it to cash flow and you have a principal-only loan, so essentially 0% interest, and you're just paying down your loan over time and you can cash flow it That's awesome, but that will be considered a custom AM, and those are very easy for any lawyer to write. We always have those drafted. But on a custom AM, you basically just say, like, the first time we did it, we just said, hey, we're going to negotiate for the payments. We need payments of X, and we don't want interest rate to increase or to exceed Y. And so we agreed on an interest rate and a fixed payment, and then we just kicked it over to legal and said, here you go. Figure out the breakdown between principal and interest, and that's all I did.

Would you recommend Caleb's contact brokers route, or would you skip tracing owners— oh, would you skip trace owners off of Google addresses? I did the owner route. I like that better. You can do the broker route, but that is difficult in the very beginning.

And I found the brokers will come to you, especially the really good ones, as you start to get traction on the direct-to-owner. Because when you're buying the deals and they're like, oh shoot, These guys are coming into a market that I'm in and they're doing deals that I wasn't aware of. When they find something, they're going to look at the active buyers in that market and they're going to find you and they're going to call you. The broker piece will take care of itself eventually if you don't do it. That being said, I love doing both. I think everyone should do both. You should have relationships with brokers in the market. You should have relationships with owners that are your own relationships. If I had to choose one or the other, I would choose the way we started. But I do want to say Caleb's 3 deals in, he's 20 years old. He is— I still think he's going under contract for that 4th deal. He's had— he has a very, very slow-moving, uh, person on his transaction. But I think Caleb's gonna have 50+ units by the end of this calendar year, and he just uses the broker strategy. So you can do both, no right or wrong answer, but I do prefer ours if you're only doing Do you do wraps when doing seller financing if the property is not owned outright?

No, the type of deal that you're going to buy on a wrap will never make you enough money to warrant doing it. That is just a fact. Find a way to cash out the loan or assume it.

I— if I'm signing for a property where I'm on title, I want the debt in my name. I don't want to have the multiple party thing. All the extra steps again are The reason our business is so repeatable is because it's so darn simple. If you want a strategy that adds steps, it's going to ultimately slow you down. You're gonna have to come up with more legal, more creativity. It's going to take you longer. You'll end up on average doing less deals than if you just did the more straightforward deals in your market. And as we and many, many people in our mentorship have proved, uh, Caleb being another prime example, Ethan, Vlad, a whole bunch of people, is you can just find these easy-to-do deals with one or two big owners in your market, and you can just repeat it again and again and again and again. And they scale faster than all the people I know using sub-to and wraps and other, I'd say, more elaborate strategies. Uh, the simpler you keep it, the more repeatable. The more repeatable, the easier it is to scale. The more you scale, the more pieces you have, and ultimately you make more money and have a more stable portfolio.

What do you recommend— this is from Will— what do you recommend for going direct to owner if you're looking to invest out of state? Well, I wouldn't start trying to do direct to owner out of state. Like I mentioned earlier, I would stick in your market, even if you're in an expensive area like Hawaii. People own real estate in Hawaii. People own real estate in Hawaii in cash. There are people that own real estate in Hawaii with mortgages. You can still learn from those players, buy there, and then you end up money to have a track record to work with brokers out of state.

If you are starting out of state, and sometimes that's just what you want to do and that's your business plan, and I respect that— if you want to do that, you need to buy a big enough first deal to merit traveling there. That is the mistake I see a lot of people make as they go, hey, I'm going to buy a duplex or a single-family property in another market to get started. I would think at a minimum— Cody started with the 12-plex— just north of $1 million. That's a big enough deal where if that was out of market, that would merit multiple plane rides to see the property, do the inspection, to check on it once a year. There's more than enough cash flow in that property to cover your plane ticket and still have a profitable venture. If you're doing just a little duplex, it's probably not going to make enough to merit looking out of market. So if you're going to go out of market, go big enough to make it make sense.

Can you model a cold call to an owner? We talk a lot about that in the actual course, but the actual premise is you're acknowledging, number one, we've talked about our circle drill on this channel. You have to get through that very quickly in your cold call. So you're starting out with the introduction, hello, my name is Cody, but you have to acknowledge right away that they've done something and that's the reason that you're calling. So if I'm calling on a 12-plex on Marina Drive over in Central Washington, That would be the reason I'm calling. I saw you on a 12-plex on Marina Drive when I bought my first deal in Quincy. In this case, I've got a 12-plex over in Quincy. I've never bought in Moses Lake, trying to figure out how to do it. You have a little bit of back and forth conversation, and then I ask for the coffee meeting to try and learn how they got started and built their portfolio. But you have to acknowledge a relatable point, a goal, and then ask for the meeting. And then in the meeting, you talk more about your goals, and you can talk about what it really means if you actually hit those goals, the significance, which we talk about in the circle drill.

Now, public service announcement, we have 2 questions left right now. If you guys have additional questions or you're thinking about asking a question, uh, please do so in the chat. Once we run all the way out of questions, we will call it a day. Um, so get your questions in the chat now, and we will continue on to Tyler's question. Hey guys, spoke with an investor-friendly real estate agent about seller financing. He said they basically like, uh, they're basically finding a unicorn. Do you recommend using an agent or looking for deals on my own? Um, I have a few agents who have said that. I've seen a lot of agents say that about our markets. Uh, we invest currently in City of Union. We own a little bit in Seattle, so hopefully not forever. Um, talk about things that I would rather sell. I just don't like Seattle as a city. Uh, we own in Grant County, we're buying in Walla Walla. All of these places I have been told by many brokers, oh yeah, you're not going to find these seller finance deals. Or the one I get even more, oh well, that's going to be hard because everyone and their sister wants to buy those deals. I don't know why you guys would get first shot at it.

Um, because we know how to play the game and keep it simple.

Yep, because we will close it is the answer. And then when you prove you close it, it gets way easier.. But if a broker's telling you right off the bat, hey, these don't exist or these aren't in your market, they are wrong. I have had that. I have seen it happen just off the top of my head with people that we've mentored or people in our network. I've seen that said in New Hampshire, New Jersey, Rhode Island, Texas, the Carolinas.

Someone said it was illegal to do in Texas.

I remember that. I remember the all caps, illegal. It is not. Wrong case study.

Caleb Hall.

Uh, I've seen it said in Tennessee, I've seen it said in Washington, California, Arizona, Nevada, and Utah off the top of my head. Those are the places where I've actually been in conversations with people in our mentorship group who have been buying a deal where the broker said you can't do this in this market. It's difficult to do. Oh shoot, yeah, Oklahoma.

Go Chris. Florida.

Yeah, this is just like top of my head actual conversations that we've had. This happens all the time. They are not unicorn deals. There are people in every market who own in cash. Um, Caleb, I'm not done. One of his cities, he's like, I'm gonna protect this city, no one needs to know about it, because he's found a couple of owners. But cities where Caleb has just had luck out of state, he's invested in Laredo, McAllen, and Houston. Where people said, oh yeah, this is going to be super difficult.

They're not doing it here.

Can't do it. Jumped right in. Two of those three owners have a lot of other real estate, and he's entering into conversations with them now to pick up the rest of their stuff. It doesn't— even if it was a unicorn deal, every single market I've ever seen in a secondary or tertiary market, there's usually 2 to 5 people who are the main players who own basically everything. You meet one of them and have a great transaction with them, you automatically become the rest, like the most logical buyer for the rest of their portfolio. One of the guys Cale is buying from, 80 years old, none of his kids, he only has two, none of them wants to own any of the stuff. And the properties on one of them are like Class B, Class A stellar real estate. You find one or two people like that in any market, you just become the guy or the gal in that market. Totally repeatable, works everywhere in the country. I know for a fact, I've seen it happen again and again and again and again.

What's the best way to practice analyzing deals starting out? Keep it simple. Income less expenses equals your net operating income. Your net operating income plus your debt equals your cash flow. You want that number to be bigger than zero.

Yes, you do. Keep the cash flow positive with margin because stuff does happen. We've had vacancies before. So create cash flow in excess. A good debt service coverage ratio is a metric that we do care about.

Yep. Keep that above 1.25, ideally for us above 1.5, and stabilized above 2, meaning that if your mortgage payment's $10,000 a month, your net operating income's $20,000 a month, and your gross rental income is probably over $30,000.

So yep, easy, easy metrics. We don't— most of those acronyms we don't care about. I care about cash-on-cash return. And I care about debt service coverage ratio. That is about it for acronyms that I care about.

And I don't care about cash on cash because if I just have it positive and it debt covers with margin, I will have some cash flow. The return is less important than not losing the asset. Fact. Do you add a no prepayment penalty clause in your agreements? I don't like to do prepayment penalties, but there are some where I do have a prepayment. The very first deal One of the things that they needed to see in my deal to give me a 30-year fixed rate mortgage, no balloon, was a 10-year prepayment penalty. And it was a hefty prepay. For the first 6 years, it was $150,000 on a $1 million loan. That's a lot of money. For 4 years following that, it was $100,000 on a $1 million loan. That's also a lot of money. That is cost prohibitive to refinance. They didn't want to get paid out, but they gave me a really good debt product for a very, very long time that's amortized like a home loan. So I just can't refinance it. Sometimes that is the way you get your phenomenal debt products.

And that's the fun thing with the debt product. If you have long-term cash-flowing fixed-rate debt, you don't need to refi. Like on that one, a 30-year loan, it will be paid off by the time the loan's done. There's not a need to refi. It could be advantageous potentially.

Yeah, if I could refinance it like a year ago, I would save so much money on interest. But whatever.

That being said, so cash flows is locked in, deal works. It's more important to close the deal that works and is stable and is done, uh, than to get every single one of your terms. But the preference would be not to have a prepayment penalty, of course.

Do you look for turnkey properties or do you do rehab properties? We do both and we like both.

Yes, I actually have an unusual amount of fun with the rehab. That is why my wife joined our property management company. She loves that part of the business. We really like our contractor teams, and I prefer personally to keep the best teams in the market busy all the time, because if they're always working for us, I am their priority and I am their lead income stream. If you really want to dominate your market, become all of your key people— become their largest client. If you can pull that off, you just get special treatment that other people don't get. And so while I love turnkey properties, and we're, we're very close to turnkey on that Walla Walla deal that we're buying, I mean, that's going to be like, we might need to raise rent like $100 over the next 18 months, maybe. Um, there's not much to do on it, maybe a small siding project, a couple of the bath fans I thought were in need of replacing. I mean, we're talking light, light, light, light, light reno. I like to find a few heavy reno projects to bleed in with the turnkey property. That keeps a good flow for us and a lot of market dominance. But again, you worry about, you know, how busy are my contractors. You worry about that stuff later in the game. If you're just starting, don't overthink market dominance. Focus on, you know, how do I buy my first deal on long-term cash flow like that.

For your first deal, do you recommend scouring the MLS, looking for deals on LoopNet, CREXi? You can absolutely do that. Let's That's how I found my first deal that I actually closed on. It was on the MLS. It was listed with seller financing.

First deal we did together too.

Yeah, it was on the market for 13 years. So it wasn't listed with seller financing, but I asked very kindly and they said yes.

Are you willing to seller finance? Yes.

So yeah, you can absolutely find great deals that have been on the market. Doesn't matter whether they've been on the market for a day or for a decade. You can buy those and we've done both of those. And then additionally, for those deals, if down payment's required, how do you convince private investors to lend you money? Well, depends on the deal. If you have a phenomenal deal and a ridiculously good debt product, money is only an issue in the absence of value. So finding said money to actually fund those down payments and fund the deals— if you're not getting the money, you haven't portrayed the value and the opportunity correctly, or there's not enough value in the opportunity. It's one of the two. But I would line up the first two pieces first, figure out the deal, what's so special about it, what's special about the debt opportunity. And then from there, you can actually look at making the investor pitch. But you don't have enough details to actually make that pitch yet. So as I always say, you're not there yet, don't worry about it. Do you have a standard for cash-on-cash return? I do not. I do not care.

I Generally do not, but I will look at that on, especially on a first deal where you're trying to build some cash flow. You want to make sure there's enough margin. I would say, well, cash-on-cash return is not the end-all be-all. It's a metric I like to look at because that's going to be the indicator to me anyway whether I want to use debt or equity. If I have a high day one cash-on-cash return where I actually have a pretty high yield, let's say 20-30%, then I want to use debt. If it's going to be lower day one but the deal still works, It's not going to be a, um, do I buy it or not based on that cash-on-cash return. What it does is it indicates, do we want to raise as debt or do we want to raise as equity? So I will look at that. If I'm going to raise on debt, I want to make sure that the cash-on-cash return is notably higher than whatever I'm going to be borrowing on. That's, I think, the sole use for me. But I do look at that on every deal.

Okay, you mentioned the state of Tennessee. If I'm trying to find the top players 'in a town there, how do I find that?' Well, you can reach out to the brokers. The brokers that are selling stuff know all the owners. It's a good way to get connected with them. You can do the Google Maps method. We have a video, it's about 8 minutes long, how to find every property owner ever. Absolutely, you can do that in Tennessee. I've done that because I've got, uh, friends and girlfriend lives over in Tennessee, so I've actually scoured that market. That does help as far as digging into it, but I found that it is very easy to find contact info there.

Uh, what I used to do, because I used to run a call center that literally mined multifamily real estate data— and this is actually Caleb just ran this project in, in Texas, and that's where he's finding his next deal. Uh, it's very easy to go to like a title company in most, but not every state. If you're in Georgia, I'm sorry, it's super hard to do. I've tried. But in most states you can go to a title company and get a list of all the owners, and you can see recurring names. And so you can literally just run a filter in Excel, just ask them for like, hey, I'm looking in, um, say these 3 zip codes, multi-family owners who own buildings 5 units and up. And most title companies can pull that report for you. They call it a broker's farm list. But you can literally pull these lists and look for recurring names, and you can just map out which characters own the most. And that takes— it's like a week from you ordering it, you getting the data, and then taking the 10 minutes to sift the data by first name. It's very easy to identify everyone in market.

Bought a $400,000 house in June, got a loan for $300,000. Family member lent me 25% down payment at 0% interest and paid closing costs. I did not put a penny down on that deal. Congratulations. That's awesome. House has equity of $126,000 right now. Looking to do a burr next year. That's fantastic. Congratulations. From Grow In Homes. Christian, we've seen a few of your Instagram videos with you growing food in your backyard. We share that passion and want to inspire more people to learn about growing food.

That is— so my wife is an amazing gardener and I'm an amazing eater of things grown in the garden.

There's the partnership.

Yeah, there. But, uh, seriously, it's, um, it's really fun. I, over the last couple years— quick, quick, like, sidebar from real estate, um— but as we've started the companies, I've done more things to optimize my health because I find that I can think better and I have more energy. I can actually work harder and do— I'm just more productive than someone with a lesser diet or or less sleep or less fitness. So I have found the more things that I grow in my backyard without using pesticides or anything else where I just know I grew it here, I know where it came from, I know how it's fed, I know how it's cared for, I eat better food and I feel better pretty consistently. If you guys want a good hobby that doesn't take a ton of time and makes you feel better, gardening's a good one. You get some sun, you get to grow stuff, there's a little bit of strategy to it. And, um, yeah, we really enjoy it. We grow a ton of stuff in my backyard. I'll do another video on that soon, but I am glad that that is appreciated. I'll share more on that.

And I like consuming the food too, so my blueberries are freaking awesome. Thanks guys, just finished the course, looking forward to joining the mentorship soon. Absolutely, Brian, excited to see you there. And then our last question of the day Would you ever consider a monthly payment structure for your mentorship? We have a monthly payment structure for the actual mentorship calls, but it is more expensive than just doing the one-time fee. We like to structure everything similar to real estate. If you buy a good real estate deal, the only pain you should feel is when you write the down payment closing cost check. We don't like to make negative cash flow situations. So you can front it up front and then you don't have to worry about payments later. That is how a good real estate deal should be, and that's how we structure our business.

And I am of the mind of, you know, say you've gone through the mentorship, you got what you want out of it, and just like my Amazon account, or like when I want to watch a show on HBO and I forget to cancel it, super frustrating. What I don't want to do on a course where it's a, you know, it's a little bigger ticket— say I forget what the monthly is on it, but like we were doing that, I think it was like $500 a month or something along those lines.

Might be more. It is more now.

It is more now. But when you're doing something monthly, I don't want someone to bill and then have to figure out all the refunds. What we do now is you can buy mentorship in 3-month blocks. So you can unlock the mentorship, you're in it for 3 months, the course is forever, but we try to make things as simple as easy. And easy as, as humanly possible. So that's, that's why we do what we do. But, um, yeah, check that out. A fun announcement on that, by the way, we are going to be revamping the course. So I am probably this week, possibly Monday of next week, um, we're going to try to relaunch a new version of the site and have an even cleaner, better version of the course. However, with that, you're hearing it here first, I believe there is a price increase. I can't tell you off the top of my head what it is, but We don't even coordinate that. Yeah, that is not my department. However, uh, the marketing team decides that based on how many people we want in the mentorship at one time. So if you guys are considering jumping on board, immediately would probably be the best time. Just as an FYI, this is not a sales pitch, it's just that it's cheaper to do it today than it will be on like Friday or Monday.

And if you noticed, for those who are in the course, because we've got a bunch of people that are in there, we recorded some of the beginning videos on our phone. Done is better than perfect. We're going through with the camera, we're going to revamp some of the content, add a little bit more content. We're not gonna add a bunch because it doesn't need more, but it will be Movetta.

Yeah, so you can check that out at multifamilystrategy.com. And yeah, any other questions, just let us know. You can always reach out to us directly, by the way.

I'm @ChristianOsgood, he is @DoingCodyThings on Instagram, and you can always comment on the channel. Till next time, have a phenomenal rest of your week. And we'll see you on Wednesday. Boom.