How ONE Multifamily Property Made Us MILLIONAIRES!

We're millionaires and here's how you can be too. Check this out.

Hey, I'm Christian. This is Cody, and welcome back to the channel. If you have not yet, please hit like and subscribe for more content. And here we go.

First deal that we bought together, 38 units, sat on the market for 13 years.

That's a long time.

That was a long time. It got listed for $2 million when I was 8 years old, and I bought it for $2 million when I was 21 with this guy. And we overpaid for it. Absolutely. It was a negative cap rate. It had a negative net operating income the way that it was run. Yes, that can happen. And if you don't believe me, there's some haters in the comments that don't believe me. Ask ChatGPT. However, that made us $1.5 million. We got the value up 75% in a whopping 9 months on appraisal with a bank. Then we refinanced it and pulled out some of our money. You can absolutely do that, and we're actually going to break it down in the numbers.

About a year after we got started on our journey, we were asked by a few groups, how did you guys make your first million dollars? And the answer is we bought one deal that made a million dollars.

Ta-da!

Today we're talking about that deal. Really excited to share the numbers with you and how that came together, because you can do this too. It really comes down to what is the project that you want to take on. This sat on the market for 13 years for a reason. It's a huge project and most people don't want to do it. We were early enough and ambitious enough and young enough and had enough time because neither of us had kids and I just had a wife. Like, we weren't a massive busy organization.

I don't think Daniel will appreciate just a wife.

I had the wife, the best wife. She doesn't watch our channel, that's fine.

But she does comment.

She does comment, which is occasionally me because we need to get these comments started. Please comment below. But When we did this, we had the time and the energy.

It was right in our business cycle to take on a huge project.

No one else wanted the project, which is why we made $1 million. It does turn out that if you want to make more money, you typically do have to take on a harder project. When you solve a problem that other people aren't able to solve, you typically do make more money. That was the case for this deal. What did the numbers look like on this transaction, Cody Davis?

All right, well, we bought it for $2 million, $300,000 down. Now stay with me, we didn't have $300 grand. $1.7 million seller financed at 4% interest. So our total payment, we actually had a custom amortization, was $10,000 a month. The asset top-line income made about $5,000 and change in the first month we owned it.

This breaks some rules, doesn't it?

Well, it didn't cash flow and it was our first deal together. However, we did have a plan to get it to make over $30,000 a month, and we're almost there. But we had a mortgage of $10,000, We eventually were able to get the income up to stable $20,000 a month. We refinanced with the bank, which took our mortgage up to $12,000 a month. We have an operating expense of $7,000, meaning that when we refinanced it, we had a consistent cash flow of about $1,000 a month. It was a little over that because our income was actually over $23,000 at that time, but we refinanced and we kicked out all the deadbeat tenants after that. We then went in, renovated a whole bunch of units. We have spent a little bit of our own money renovating that project. And today it's worth about $3.6 million. When we release all of our units, it's going to push it over $4.5 million, and we're only going to owe $1.9 million. So we're going to pull out a ton of money, put it on an agency loan, and we're going to pay out last little bit of investors in our portfolio. We're going to sit on solid cash flow and call it a day, because right now we are right around 50% LTV just a little bit over. We're about to pull it under 50%.

Now we're going to break out an Excel sheet and actually go through number by number how this worked and really how the valuations are done. We'll show you market cap rate, how the increase in rent actually made us over a million dollars. But what we really want you to see here is why did we make this much money. We talk all the time, the two rules: how do we buy it, how do we never lose it. When you buy a deal that loses money day one, first of all Not a great idea unless you have a plan. You're looking for long-term cash-flowing fixed-rate debt. We got it in long enough debt. We wanted to get this done in the first year and a half. We exceeded that expectation, which is fantastic. Took us about 11 months to finish the refi. But when we did this, we went, okay, we got 5-year debt to do a 1.5-year project. Yep, we have margin for error. We have a lot of margin for error. Or we have time to get this figured out. We knew where most the money was coming from in the first few months. We fixed the income problem and we got it cash flow positive, and we were highly confident we could do that.

We refinanced it and took it negative again, and now we're taking it super positive. Yep, check out the numbers.

Yep, you're allowed to play with that a little bit.

We're going to skip to the numbers. Check it out.

All right, so here's the actual numbers on the deal, and welcome to my Zoom room. I'll share my screen here. I'm going to show you guys the building, And then I'm going to show you the actual numbers, like how we bought it, what it was cash flow on day one. I'll actually show you some of our bookkeeping software in this, but I'll show you like an actual deal. This is the deal that made Cody and I our first million dollars. And it's going to make us our third million dollars as well. There's two series of projects on it, but phase one was the actual acquisition. So without further ado, let me go ahead and share my screen here and we will dive right on in. Share. This is the neighboring property. We're going to cruise on down the street. First, I'll show you this location here. So located, um, Moses Lake, Washington, just outside of the downtown on the other side of the peninsula. So here's all of downtown. Yeah, here's the Boeing Airspace, the huge airfield, and right smack in the middle across from Home Depot is the property. So now if I go actually into the neighboring property here and we'll cruise over to the street level, been a few changes. So we've actually sold off this little access point here. This is actually mid-project, so you can see they're working on it. There's some cones out, but they actually turned this into the roundabout that you see here. This is now completed and finished. It looks much better. Much, much better. There is our building to your right. Oh, and all of a sudden it changes colors if we go farther back in time. But this big long building is 13 of our 38 units. And as you get into the back, there's this little campus here with all the trees. In the trees here, you have an 8-plex, an 8-plex, and a 9-plex. So 25 units in the back. 13 units in the front. Really cool building. We've done a lot of work to it. We actually just finished residing, rewindowing, and actually did a bunch of projects on this. So excited to show you guys those. I'll try to sneak in some footage when I'm in Moses Lake here soon. So we'll see if it makes the edit cut into this video. But the actual deal, $2 million purchase on market for 13 years. Anyone could have bought this seller financed, $300,000 down. We definitely did not have those $300. So what made this deal attractive? Well, at Washington State, for that price, $2 million for 38 units, the price per unit is absolutely ridiculously low. On the low end for apartments like this, you're going to find $100,000 per door is about average for what you would sell for a building in this condition. So right off the bat, huge win in price. Problem Collections were about $5,500 day one. Now that is horrendous in any state on 38 units bringing in $5,500. There were just no collections. There were vacancies. A lot of their family members were living in here and were paying rent. So how do you solve this problem? There's the building. Well, let's hop over to the actual numbers. You can see what we started to do here very quickly. So this is the start of 2022. We picked it up in October. October, you're going to get $5,500 a month. The next month it was like $6,500. We did about $7,000 in December, so we weren't really doing much. What we negotiated in the note was $10,000 a month payment, so a large chunk of principal and 4% interest. However, our monthly payments for the first 6 months were only $7,000. We were slightly negative for the first 3, which is a violation of principle. We don't do that anymore. This is how we learned. But look at this. January, $7,940. Hey, we made almost $1,000, at least in rental income. You still have more expenses that go along with running it. But overall, we made our mortgage payment back. February, $10,575. That's about our break-even point for running this. March 12, April 19, May 19, then 22, 26, 16, because we had a bad collection month, 18. And then you see these big variable swings. So what's happening in here is we got through our refi right about here and started doing evictions and re-leasing. There were some nonpays in the portfolio that had fallen too far behind. We had to have that rough conversation of, hey, it's time to It's time to either come up with a plan or we can't house you anymore. That's an unfortunate part of being a landlord, but that's where you see us start to fall off here a little bit where payment was variable and it starts to pick back up. And if you go into this year, we're getting right back on track as we're in the middle of the main leasing season. So phase one got us to right here. So while we were just working on collections and maintenance and repairs of the building, we got up to $26,000 per month from $5,500. If your fixed payments are $10,000 a month for mortgage and your expenses come to $5,000 to $7,000 a month, $26,000 is going to work. On completion, these units will be renting for about $1,000 a unit. For 38 units, we'll say, well, let's factor for some vacancy and maybe a few less expensive units. So realistically, when this project is completed, we're going to be closer to, we'll say, about $35,000, $36,000 per month of revenue. Now we'll get into refis and other stuff and changing your debt stack on other videos. But that's how we bought this and how we never lost it is we knew on this deal collections are solvable. We had a secret weapon on this, which is we were in a time— notice the dates here, 2021, 2022. Where the government will actually backstop you for— they had all these relief programs so people would not pay their rent and then the government would pay the rent for them. While I think that's silly, that really helped us ramp up collections as those programs ended. That is where we got new debt and went ahead and started removing some of the people, which I mean, you can see that can cause a $10,000 a month swing in your monthly income. So those factors can really hurt, but still $5,500, even bringing that to $16,000 is an astronomical change in the property. And it's that income that we proved we can get over a sustained period of time where the bank put a new valuation on the building and our new loan— remember, we bought it for $2 million. Our second loan, about 11 months into the entire deal, was $2.3 million. Loan. So we actually got paid the $300,000 to buy the deal. Granted, we put reno into this, we did a whole bunch of stuff. Last part of the math that I want to share, and I'll hop back to the main screen here if I can figure out how. But the last thing I really want to share is how the ownership structure is set up. So the ownership structure originally was set up with myself and Cody each owning 20% of the LLC, and we gave 60% of the equity to the partners. Now, that is wrong. Don't, don't do it that way, because when you buy them out and that's how it was designed, they— we brought them in with buyouts. If you sell more than 50% of your LLC, it triggers excise tax. You don't need to do that. So what we should have done was have brought them in for 49.9% of the equity. However, we didn't know. We didn't know. And I'm glad we closed the deal. So we raised the money on a 5-year note saying, hey, for this deal, there's a lot of upside. This is a huge deal, but it is a project that's completely destabilized and we've never done a project this big. There are actual legitimate risks as an investor giving your money to 2 people on a project they've never done before on a building that's been on market for 13 years that everyone else passed on. So it was more expensive money. They were 2-to-1 buyouts in 5 years. So 3 people put in $100,000 for $300,000 down. We have to buy them out at $600,000. What we ended up doing is when we did the refinance, we actually bought them out at that time. We negotiated. So we did pay a little lower buyout, still very expensive money. However, we brought in the capital to close the deal. The deal made millions of dollars. Right now it's worth about $4.2, $4.3 million. And again, we bought it for $2. We could afford to make those buyouts. That is the ultimate goal of every single deal that we do. The real estate has to buy the real estate. Mistakes we made were buyouts were too expensive, weren't structured correctly, correctly, and we gave too much equity. Those are all just mistakes on the capital raise, mistakes on the actual deal. We didn't structure it for cash flow. If I had done this better, I would've said, hey, we can't make any payments for the first 6 months. Instead of $7,000 payments, I would've looked at this and said, look, there's a lot of stuff we have to fix. And your worst case scenario is we fix half the problems and you have to take the building back. But we are going to get in here and this is a very active project. I would've been just fine paying a little higher interest rate and getting those 6 months of absolutely no payments. Our buddies Caleb and Chuck have done that. That would have been a better structure for this particular deal. Again, you only can do what you know how to do. This was Cody and my first deal together and we learned a lot doing it, but that's what the numbers look like. $2 million purchase, seller finance, 15% down, 4% interest. That was a 5-year note, though we refinanced it before the end of the first year. And the actual project was put enough love into that building and enough effort to fix the nonpayment problem, get enough collections to prove that you can run the asset and pull it into long-term bank debt. Today we have a 10-year note on that property and it is absolutely decked out. New siding, new windows, new trim, new paint, new interiors, new appliances. Many of the units have new electric and new cabinets. It is a whole different animal from what we originally picked up. Security cameras. Paying kind, paying tenants that people feel safe to be around. It's a lot of changes. And if you want to do a project that makes that much money where you double the value on a bigger building where you're making a 7-figure profit, you're going to probably have a bigger project like this one was. This was very hands-on. It was a very difficult deal, and I'm very glad that we did it.