How I Seller Financed an Entire City!!

I just arrived at Moses Lake, Washington, the first town that we took over without spending a single dollar out of pocket. On today's episode, I'm going to talk about the creative finance structures that we use to buy deals just like this. We're at the original 30-plex that I bought with my buddy Cody, one of my favorite deals, and showed me what was possible. We're going to drive by a handful of buildings, over 100 units in Grant County. On today's episode, I'm going to show you how we structure each and every one of these deals using creative finance and how we bought all this real estate without spending $1 of our own. It's Cody Davis. He's back on the channel. Cody, good to see you again, man. This is the first deal we ever purchased together, 38-unit seller finance. This started the entire adventure. Cody, tell us how this deal actually came up and how we got seller finance terms.

Well, it was on the market for 13 years. Got listed when I was 8. We bought it when I was 21. It was listed cash out. Asked them to seller finance and they said yes. So $1.7 million of the $2 million purchase, they said, yeah, we'll take payments on, just find $300 grand. We forgot to do that till the last couple of weeks. And then we did end up putting it together. 3 people, $100 grand each. And we bought this with no reserves. No cash flow. Well, it was negative cash flow.

It was a lot of all the wrong things to do. Everything wrong. If you could go back in time, how would you have restructured this deal? Because we did close it, you know, in our 20s, $0 out of our pocket. But what would we have done completely differently?

It would have been better to ask for like $130 grand per person. So we had an operating budget because this is a big campus. It's 3.5 acres. There's a lot that we did end up upgrading. And if we had been able to do that, we wouldn't have had to refinance our really cheap interest rate with the seller. To get liquidity.

Now, you had landed the original pitch with the broker. At the time, you were 20 years old, I believe. 20 or 21?

Yeah, 21.

You're 21 years old. What gave them the confidence that after 13 years of this going on and off market, that seller financing to you and I was the answer?

Well, it was the way that I was communicating, the communication style, because they didn't ask for a proof of funds, which is good. We didn't have one. Yeah, I conveyed that we could close, that we knew what we were doing. I mentioned that I had worked on other deals in the market and I identified that they're just trying to get their price. If you know what they want, it's easy to give it to them.

So you figured out what they want, you knew what you needed, and then you just proposed it and you showed up, I assume, suit, tie, dress shoes, ready to go build all that confidence, right?

I was wearing slides and sweats.

Yeah, kind of like today, except for I have closed-toed shoes today. So there we go. He's grown up a lot. But guys, when you're finding these deals, it's not about looking professional. It's not about negotiating the daylights out of everything. Figure out what they want. Make the offer. Be confident in your ability to close. And like Cody mentioned, raising capital, we forgot to do that critical piece. Do not worry about the capital until you have the deal, which I think is the one thing that we definitely did right at this property.

Absolutely. And don't add steps.

Yes, don't add steps. Cody Davis did the same. Okay, we're coming up on the first duplex I ever purchased in Moses Lake. I don't own it anymore, so all the garbage outside of that, that's not me. But that little duplex, we renovated the whole thing. Financing was 101% private capital at 9% interest. Renovated it with my own money, refinanced it shortly after, sold it and took the proceeds, bought that 12-plex. The 12 bought the 10, the 10 bought the duplex, and that's how we turned one duplex into 24 units. Not bad. The 12-plex behind me was purchased seller-financed by my buddy Cody Davis. I actually eventually bought into the LLC that owns this, but he purchased this 5% interest, 10% down. The seller has actually become a dear friend of both of us. A refinance that we did on this after we installed those roofs behind me pulled out enough cash to buy a seller-financed duplex and a seller-financed 10-plex. So we turned a $0 investment, or in my case, the proceeds of a duplex plex into this building and eventually into 24 units in less than 2 years. This 10-plex was really fun. So remember that 12-plex we purchased earlier? We used the cash-out refinance as the down payment on this. The seller, his name is Chad, he was selling this deal and I got a call from the broker who's since become one of my best friends. I've done 4 seller finance deals with that same broker since this deal. He called and said, hey, he's willing to sell for $900,000, which was the exact price I wanted to offer on it. Even better, 5% interest, 15-year note. Now, technically it's 8 years with an option to extend for another 7 as long as we're in good standing. But it's 15-year debt product at 5% interest only. So low payments, 10% down. We're able to take the refinance from the 12-plex after we purchased it and buy all of this here. Now, this is just a little 1950s 10-plex, but it's a way to turn 12 units into 22. Further up the road, we also bought a duplex. Same thing, seller financed, 10% down. This is the 30-unit hotel conversion. We bought this for $1.6 million. No creative finance, this one was private capital, and we got more than 100% loan to value. Not only did they give us the entire purchase price, But we got a vast majority of our rental budget as we redid the roof, the paint, the plumbing, the electric, and basically the entire building. When we bought it was a dump. Today, this is a nice place to live. Okay, so brace yourself. The interest rate was 13.5% interest. Why would we do something so crazy? Because we're able to stabilize the entire project very quickly. Now, this broke some of my rules. If I could go back in time, I actually would not do this deal again, even though it worked. So what we did, $0 out of pocket, we bought the deal. We bought it cash flow negative knowing that we got an amazing price. Now, the reason that we did it this way, we had enough global cash flow in our portfolio to be able to structure the deal to cover the negative. However, bleeding money on any project, I don't think it's worth it. If you only buy income, your income will only ever go up. We had a lot of risk and guess what happened? The project actually took a lot longer than we thought it would, which means we had more negative cash flow. Than we originally factored for. Still a great project. We still did a great thing for the community fixing this hotel. However, at 13.5% interest, really brutal deal. Total debt structure, we borrowed $1,850,000 for a $1,600,000 acquisition, did a ton of maintenance and repair. I eventually did have to contribute to this account to finish the renovation. So not a perfect deal, not the perfect structure. If you can go back in time, just start with cash flow. Welcome to Pheasant Street. The 3 side-by-side duplexes behind me here were purchased 10% down with a $900,000 purchase. So we only needed to come up with $90,000. Now, this was 2 weeks after we closed the 38-plex, which we had raised just enough money for. So I had none of that $90,000. However, we had a fantastic deal. Seller financed, 5% interest, 10% down, and it's in an area where duplexes were going for a little bit over $300,000, about $350,000. So we were walking into some day one equity. That's how we structured this deal. Of course, when you have 5% debt and you have 10% down and you're winning on price, when you win on price terms and everything, really easy to raise capital. I found one person who had $90,000 with a sole goal of doubling their money in 5 years. So I made him a deal. I'll pay $180,000 in 5 years. That's giving me 5 years of cash flow. I got 100% of the cash flow of these deals in that structure. But with a great debt product, we were able to negotiate a deal that easily doubled his money and allowed me to own this without any partners. Hey, so we're technically not supposed to be here, but welcome to my duplex. This burnt down. So again, technically shouldn't be in here, but we snuck on in. They forgot to lock the garage door. They had to rip out everything on both sides. Someone had a loose cord. They plugged it into an outlet. It was an old extension cord. It caught fire at the outlet, burned down the unit. It's one of the ones where the tenant's at fault. But we ended up with a full burn down on one side. The fire spread to the other side, so both tenants had to leave. Tenant on this side was pissed, but there's nothing you can do. Health and safety has to take precedent. This is what happens though. If you have the worst thing happen, total loss of building, they've stripped everything out. Everything had to be remediated. All the windows blew up. Insurance will cover basically all of this. There'll be a tiny bit out of pocket. But ultimately, these are 1955 duplexes. We're going to get a brand new duplex in its place. If this happens consistently to you, insurance will just make you uninsurable. So you don't want this to happen often, but this is exactly what insurance is for. We'll have a brand new duplex. They rip it down to the studs. You get the contractor quotes and they come in, remediate it all, and then they'll build you a new duplex. The total downtime on this, though, is going to be about 1 year. Wow, that is wild. Yeah, they really did just rip this all the way down. And what a lot of people don't realize is that your rents are also insured. So fortunately for us, we get paid exactly what our rent roll was on a fully occupied duplex. Every single month. In fact, we actually had a scheduled rent increase. They pay the rent increase at the scheduled time. They honor the leases one to one, exactly as they were. So I am getting rent on both sides of these while we're getting a brand new duplex built. Great deal. Don't want it to happen often. And most important, safety. The tenants did in fact get out. No one was harmed. Everyone was safe on both sides. No injuries. That's the first thing you worry about. After that, how's your building financially? We're going to be just fine. Also, that little turd right there, 3 units, bought another 3 units with it. All seller financed, 5% interest, 5-year notes. Ended up selling that one to Cody. I'm here at 29 Basin Street, Ephrata, Washington. We purchased this with seller financing and with private capital. For a true zero-down deal. Now, it doesn't mean $0 out of pocket, but we covered the entire purchase of this building through Creative Finance. Come on in. So these are actually mixed-use. It's the only mixed-use in my portfolio. I'm a multifamily investor, and that is the core of all these buildings. Upstairs is multifamily, and we're just about fully leased. A big part of this project is renovating all this space. So you might notice the ceiling's still down. We're doing a few last-minute touches. When we bought this building, this thing was a piece of garbage, and it's really fun to get to actually contribute something meaningful to a city that really does need the housing. Freda is growing, and with the lowest cost of power, a lot of AI infrastructure is starting to move out here in central Washington state. This was actually owned by someone who is not the most skilled landlord I've ever met, and as a result, this building was really worn down. It had tenant problems, had maintenance problems, but we bought it for the right price— for $600,000, 9 units in the downtown core. The mission: start leasing up the retail. Now, we just leased our first of 3 in this building. Right next door is a cleaner. We're going to finish this unit out, hopefully get a tenant in here very quickly, doing the same project next door. This is considered a heavier value add. We were able to do it because we had the income from upstairs in our favorite asset class, multifamily. Now, the debt structure— we purchased a vast majority of this with private capital and it's at 12.5% or 13% interest. That is expensive debt. The goal is to finish these, lease up and get out of it as soon as possible. We're in the process of finishing that refinance and should be done this month. So we are almost done with the project. We just needed to land that one lease right across the way. The remainder of our purchase was actually seller finance. So we blended private capital and seller financing. It was also higher interest. While it wasn't a lot of money, 10% interest, the mission here is to get out of the debt product as quickly as possible with the stabilization of the building. But a really cool way to buy a deal, $0 out of pocket. Next to me is the 5-unit building. This is actually how we got started. This is the first acquisition, $405,000. It's 3 multifamily units, 2 commercials. So we have this barber shop that actually just moved, so we're just leasing it, and an old PM office which I've actually used as my headquarters for all of Afreda, Washington. These buildings are awesome, and 4.5% interest, 10% down. So with $40,000, we're able to pick up that building, which is how originally I bought that building with no partners. Now, later, when I built this portfolio, I rolled that into the rest of the real estate. So we got into it very low down, had partners buy into the LLC, which backed the capital out. And now we have all these buildings. And now I own that building right next to that 9-plex, which is right there. They actually share a parking lot on the back end. So when I'm talking buying downtown core, $0 down, $40,000 down, and backed out the capital as part of our renovation. One more property to see. Let's head over. This 12-plex was purchased from the same seller as the 5-plex, was purchased just after, also seller financed, also 10% down and also 4.5% interest. Their goal was to find someone who would do a good job with the property, who was trying to grow their portfolio, who was ready to retire. They had a property management company, built their portfolio almost exactly the way I did mine. So when we met up for the owner meeting, that is what we talked about— how they built their portfolio, how I started a property management company. I was the perfect buyer for these buildings. So we structured the deal, we put together the debt. Their comfort level was 10% down as the minimum to know that I had some skin in the game. Which came in from my equity partners. Now, later on, we actually bought out those partners with a new partnership that allowed us to own all 3 buildings together in one LLC. Very, very simple, minimal people. So 3 total people, 3 buildings, and we get to do some awesome projects for value-add real estate that was desperately needed in Ephrata, Washington. That was a lot of the deals we bought in Grant County, both Moses Lake and Ephrata, Washington. There's a few deals that I skipped. We drove past a couple of triplexes we bought seller financed. There were some smaller buildings that I've owned here and there, a 6-plex across the street, also seller financed. But I wanted you to see a bulk of the portfolio and a bulk of the structures. Anything you missed has a very similar structure to what we shared. But that is what Cody and I did. And eventually Cody did some of his own projects. I did some of my own projects. We did that in Grant County, Washington in our 20s, and for me in my very early 30s. I then took those same strategies and I rolled them out in Stephenville, Texas, and in Abilene, Texas at a much larger scale. Uh, link below to the last two videos where I actually run through both of those portfolios. And if you wanna see the debt structures and the equity structures we used, this is all about the creative finance and debt, the equity structures and partnerships videos linked below. Check that out. A really fun episode running through Stephenville in a very similar video. But I hope you enjoyed this. My encouragement for everyone is these deals are out there. The first 17 out of 21 deals that I did were seller financed. Now, many of these have been refinanced into conventional debt, but you can build a massive portfolio without ever using a bank. And that was the first town that we absolutely took over transaction after transaction after transaction. No credit checks. We were both unemployed at the time, so we had no income. 2 completely unbankable, inexperienced real estate investors built a massive portfolio. And these strategies work in every single market, including yours. See you on the next episode.