Don't focus on price

All right, we're back. It's Christian. I'm here again with Cody, and today we are talking about the one other really inflammatory thing that we like to say, which is price does not actually matter. Now, to some extent, price does matter. I mean, you can't just overpay ridiculously for a piece of real estate. That being said, it is not the main thing. We value terms way over price. I want to go in depth with that today with Cody.

Price, and when we're diving into this, price should not be the thing you focus on. When you're buying a piece of real estate, number one, we have a little different rules than most people. A lot of people start out with the single-family space, and in the single-family space, you're buying single-family condos, buying duplexes, triplexes, fourplexes. Your price matters a lot, but we're not buying that type of real estate because we don't see as much value there in the future as we do in apartment complexes. In commercial multifamily real estate. And so a little saying that I've figured out is that I've overpaid for every single piece of real estate I've ever purchased on yesterday's dollar. A lot of the folks that are looking outwards into the real estate space are equating prices today with yesterday's dollar and not accounting for inflation. You have to look into the future right now and see that the government is printing so much money that not only are our tenants paying back all the debt for one, but we're paying it back with cheaper dollars. You borrow a dollar today, it's not the same dollar you're paying it back with tomorrow. Mm-hmm.

Well, another piece of our space that's different than a lot of people is we utilize a lot of creative financing, so we don't actually play on the same rules. I'm not as worried about will the property appraise and will the bank lend on this. When you can play with things like what is the interest rate, what is the term, can we entertain interest only. When you have more pieces, there's really two rules that we're looking at. First, you have to know your market and you have to love your market, because you're going to find appreciation by investing in the right areas. Once you've done that, the two things that matter are how do we own it and how do we keep it. We keep it with cash flow. That provides the safety net that you need to be able to cover your expenses and not have to sell in the downtime, which is why the price matters a little less, 'cause we'll be paying it down and it will be—

By we, we mean our tenants. The way you structure this is you gotta figure out how to go buy something. People get stuck in a conventional box, and the problem with the conventional box is you are looking at the price. A lot of people think that the price is the most important thing and you make your money on the buy, You make your money on the location. Mm-hmm. If you buy in a bad location, I don't care what price you get. If you buy real estate based on how cheap it is, you're not going to have a whole lot of fun. If you buy in a great location, you do not compromise. The questions you got to ask are, how do I own it? How do I never lose it? Back to Christian's point, it's based on the cash flow. Mm-hmm. And when you focus on terms, you focus on creative finance, you can get into these deals with less money down. You can acquire non-recourse debt, which means that properties— property A is not going to tank property B if it goes south. And there's just these different strategies that you can use to get into the deal. And if you structure the debt differently than you would get from a traditional bank, you can get low, low interest with very little money down, non-recourse debt, and it allows you to weigh up your cash flow. You can structure it to where it's not a typical amortization. You can pay off the loan faster. And now you just got to figure out how do I build a portfolio? How do I go get it? And then how do I structure the note, the debt, so that I have enough cash flow to never ever lose the property?

And that's the piece that you care about beyond the price. That's actually where we find a lot of deals when they've been listed forever. I'll have the conversation with someone of, "Hey, I don't have a problem with your price." And they're like, "Well, everyone we've talked to for the last year when we listed this had a problem with our price." I'm like, "I don't care. Do we have flexibility on how we structure it?" A lot of people care about the price more than anything when they're selling a property. That is a very common thing to get stuck on. If you can overcome that, you're playing in a different field than almost everyone who's calling them. And that opens up opportunities that we get that other people don't have a chance at.

Yeah. And let's say you're looking at buying a property for $2 million. It's worth $1.8 million. You pay $2 million. I had someone tell me this. I bought a property for $2 mil and someone said it was worth $1.8 million. If you could buy that property for zero cash out of your pocket and other people paid it off for you completely, when it's all said and done, you cashflow $300 grand a year. Would you do that deal? A lot of people would say yes. You take your vision off of just the price and you figure out what does this allow me to do. If you're willing to overpay for $200 grand, now you got to quantify that in time. Dollar amounts without time associated with it are meaningless. If it costs you an extra $200 grand every day, you probably shouldn't do that deal. However, if you're going to keep this thing for 20 to 30 years, it's not a whole lot of money. $200 grand over 20 to 30 years, even 10 years, is not that much money every year, especially if it cash flows to the point where your tenants are going to pay off the whole loan for you.

And that's the common question is people are like, well, so you're going to buy something, you're going to just start underwater. Like you're going to pay more than it. What happens if the market tanks right after you buy it? And that is why cash flow is so important. The answer is that's fine. We don't have to sell. I'm not worried about one market cycle if we bought right for cash flow, which is why terms, supersede price.

Yep. And you should really look into what's your ratios, because ratios are really important too. We paid $2 million for the 38-unit when some people say, oh, it's only worth $1.8 million. And when it stabilized, we see it being worth about $4 to $4.5 million. Great equity bump. But if the market crashed today and we just got everybody paying, we still cash flow $5,000 a month. That's with 1990s rents. They haven't been raised since the '90s. And so if you're looking at stuff and you're looking at buying a deal and you're looking at just cash flow, price, equity growth, understand that the price doesn't matter if you hold it forever and it cash flows with room to spare. Because your tenants will pay it off over time if you're in the game to get in and out, you're selling real estate like you're selling a stock, you're trying to day trade real estate, you're going to have a difficult time because you do have to account for price at that point. But if you're in it for the long term, you buy based on cash flow, you set your principles out from day one and you don't violate those, price does not matter if you get terms.

So I hope this video was helpful. If you've looked at a deal and haven't been able to make sense of it, If nothing else, I hope this helps you look at a deal a different way than you have before. If you agree, let us know in the comments. If you disagree, let us know in the comments. Anything we can do to add content or add color to this, we would love to. So feel free to reach out. We do actually respond on this channel. We are on that. Follow us for more if you like or dislike this content. I love being challenged on this. So let us know your thoughts. Follow us for more, and we will see you soon.

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