How to find Brokers who Understand Creative Finance - With Top Seattle Broker Erich Bubbel

Hello and welcome back to The On Reading Podcast by Multifamily Strategy. I'm Christian Osgood, your host, joined today by my friend Eric Bubel. He is one of the best brokers in the greater Seattle area. He's also a phenomenal investor. We're going to talk about both these things, how he balances the two, some crazy stories from the field, and most importantly, what you need to do as an investor to work with a top broker like Eric. Eric, welcome to the channel.

Thank you. That's some high praise, man. Appreciate it.

Dude, Eric is, uh, Eric is pretty humble, but he does a lot of transactions. He is a top earning broker. You're currently with the Compass Group now. What is your subgroup of Compass called?

The Investment Sales Group over at Compass Commercial.

There we go. I wear the hat almost every day. So there we go. Free branding for Eric. You guys check him out if you guys are investors and Buying cool stuff in Seattle. Ignore my hair. I wear a hat every day for a reason.

Eric rocking the gear.

I love it, dude. Always, literally always. It's the best hat that I've ever had. I need to make my branded version of the same hat. You actually sent it to me, so I have to get that done. How long have you been a broker?

Yep. So I've been a broker for, I'm in my 12th year now.

12 years. What did you do before that?

Yeah, so after college, I went to school as a marketing major with a minor in professional golf management. So I, uh, that gave me my Class A license and I can run any aspect of the golf industry. And I chose to go into teaching. So for a couple years after college, I, I taught golf.

So you went into golf.

Yep.

How do you make the transition into real estate?

Yeah. That's, uh, that was a tricky one. So, you know, I was, I was a golf instructor for about 3.5 years. And I would say at the close to the end of year 3, I was looking at how many hours I was working, which was about 70 to 74 hours a week, 6 days a week, and how much money I was making. And I realized pretty quick that I just couldn't. Support a family on that income. It was just going to be a dead-end job for me, and I was pretty much going to be capped out at that income for what was going to feel like forever. The industry just is not as lucrative as maybe commercial real estate is. So I knew I didn't want to go back to school, and I was deciding what to go into next. And a sales position is probably something that I was looking into, whether it be maybe insurance or real estate. And then I had a really great client that was in commercial real estate, had his own brokerage, and he ultimately just said, hey, if you want to make money, you do what I do. And he had a couple other guys at his brokerage who were younger. They were a team and they were one foot in brokerage, one foot out the door in syndication. And I basically met them one day, asked them if they'd take a chance on me, and I was off to the races with about $14,000 in my bank account.

Well, that's the fun of the Owner Meeting Podcast. That's exactly how you get pretty much everywhere, right? You meet someone who is doing something that you want to do, take the chance. It's a relationship game, which is, I'm guessing, how the rest of the story goes with building your career. So 12 years in, how did the first year of brokerage go?

First year of brokerage, I would say, you know, Commercial brokerage, when you get into it, it's, it's a 24-month process. You know, it can take that long to really start making money. But, um, let's see, I, uh, the first year ended up being a good year. You know, I ended up getting a lot of deals done, but I implemented that 70 to 74-hour workweek and to just dial in for dollars. You know, I would make anywhere from 75 to 120 calls a day. And you can build a book of business pretty quick if you, if you're determined. And I was broke and determined.

So there we go. That, and that is, that is any sales job there. But if you are broke and determined, you will likely outcompete everyone around you. So you put the, you took the hours from golf and you turned that into a more lucrative career. You got the right connection to do it. You started taking off. As you're building your brokerage career, when did you start investing yourself?

Yeah, so I didn't buy my first deal until my third year in the business. You know, I'm pretty good at learning from other people or also other people's mistakes. And the biggest piece of advice that I was given, and it was told to me over and over again, was like, hey, you need to start investing in deals or buying deals. That was either from the people who taught me the business or clients that I, I was calling and working with. Like, you need to start buying deals. Trust me, it'll work out. Like, You need to build your retirement. So the more I thought about it and what I wanted to do, the easiest path to get into real estate was to owner-occupy a multifamily property. And I was specializing in multifamily. So there was one deal in the third year where I cold-called this triplex owner in Everett, and I was actually calling them for a client who wanted to buy it. She had a specific price in mind. I think it was $450,000 at the time, and the clients that I was repping couldn't get anywhere north of $400,000. So some time had passed. Those clients ended up buying a different deal. I reached back out to that owner and asked her if she wanted to do a deal direct, and she was an old retired broker. I was like, no commissions, I can get to the $450,000 price. And that's kind of where I got my start was to owner-occupy.

How long did you owner-occupy that one?

I was in that deal for about a year, a year and a half. Perfect. Yep.

The ideal amount of time for the house hack. You get a little over a year, you find the next thing. Was your next project, did you move to a house or did you do another house hack after that?

Yeah, so the next project kind of I fell upon it. I was, it was a 4-unit in Renton. I went to meet some clients for a listing appointment. We were literally at the table, 2 brothers ready to just get out of this property that they inherited from their parents quite a few years back. They were, it was a rundown 4-unit, mismanaged, really low rents. And we're about to put on the market and sign the listing papers at the, at the meeting table. And right before they're signing, they're like, hey, you know, do you, do you Do you believe in this value? I said, absolutely. Like, this is a deal I would buy. And they said, okay, well, would you actually buy this? And then that led to a conversation on how I can buy it. And they were willing to do seller financing. And from that point, I came up with $40,000 down. That's the disposable income I had at the time. And we did a, we Bought the property for like $675,000 after inspection and ended up selling that 4 years later, pretty much at the peak with a lot of luck when interest rates started to go up, when they made their first tick up, sold it for $1.1 million and then made my next deal. That's not bad.

So, so one deal, how many, how many years of golf coaching would that one, one deal have, have made you?

Yeah, 8 years would've taken 8 years of—

Holy shit. That's awesome, dude. That's awesome. We were just, funny enough, Eric and I are doing a deal right now and we don't count it until it officially closes, but if everything goes through the way that it's contracted, it would be about 3 years of my wife's teaching is what we'd make on one little deal that we bought 100%, actually 200% financed in Mason County. When you have a little bit of creative finance, you buy at the right price. It is amazing. Even when the projects are hard, if you look at your time per hour that you can make investing in some of these deals, it is absolutely insane.

Yeah. Even just doing a deal in brokerage, you know, one commission check from selling a property is as much as I used to make as a golf instructor for a whole year of work, 74 hours a, you know, week.

Yeah, it's hard work, but if you look at the total hours, the dollars per hour can be absolutely crazy.

Yeah.

How do you differentiate a deal for yourself or your client? There's that inherent kind of conflict of interest. If you have all these clients who are looking for deals and you're also looking for deals, how do you determine when it's appropriate for the deal to be one that you want to take down versus a deal that you're going to go ahead and bring a client into?

Yeah, I think from, from the conflict of interest standpoint, it's tough. You have to balance that. So, you know, if I'm going to do somewhere between, call it 20 and 30 transactions, I'll only take one of those transactions. So the percentage is, is very low. And, you know, the only goal I have is to try and acquire at least one deal a year. Sometimes that changes when you sell another deal and you have to be in a 1031 exchange. But you know, building the connections, you know, some of the deals that I purchased were actually brought by another broker. So I was never in touch with the landlord or anything like that.

Awesome. That, oh, that makes it clear. Clear and easy.

Yeah, absolutely.

When you are finding clients, for those who don't know, I met Eric, it was pouring down rain in Dallas. This was way before I moved to Dallas. I just happened to be speaking at an event for Michael Blank. And so I'm at a syndication event. This was 4 years before I syndicated anything. I just started this creative finance journey and we bought, of the whole portfolio I had at Moses Lake, we had about 100 units at the time. We bought the crappiest, tiniest triplex in the entire city of Moses Lake. And Eric calls, goes, hey, I saw you just bought this building. I have a seller-financable 10-plex, just came on market. What Eric didn't know yet is that I also owned the 12-plex built the year before by the same builder. Like I was a great buyer for it. Eric called me on like the lamest purchase I'd ever made. I mean, it was great price, but the tiniest purchase I've ever made. Eric, how are you— is that how you find a lot of clients? You're just like, hey, who's active in this area? Or how are you finding clients when you're reaching out for buyers?

Yeah. So I mean, When you're making cold calls, it's really tough to, it's a tough cold call to make when you don't have a property to talk with somebody about, you know, if you call them out of the blue and be like, hey, you know, love to talk with you about your property and, you know, would you sell? That's, that's a tough one. But if you call and be like, hey, I recently sold this one, or hey, I've got a property available, are you a buyer? And then that can turn into, no, I'm not a buyer, but I'm a seller. So when I've got a deal off market, there's a lot of ways that you can really reach anybody in your, in your market, wherever you are. You know, Washington's great. The Secretary of State, the looking up an LLC is really easy. It doesn't cost any money. So you can find, call it a 4-unit that's next door to where you live that you see all the time. And you can look up on county records who the owner is. Most likely it'll probably be under an LLC all the time, but If it's under an LLC, you can just type it in literally into the Secretary of State and go down to the annual reports and then click each annual report back in history until you find either an email or a phone number. That's a great way, great cost-effective way. Other than that, I spend a bunch of money for to know everybody's numbers.

Yes, there's always the paid way, but if you're going one by one, that's basically how I did it. You go to OpenCorporates, which that's what that site does. It searches all the annual reports. It tells you what it thinks the owner is and Same exact process. If you go Secretary of State, as you mentioned, the nice thing is it's really easy to go through some of the historical data until you find, did they ever use their own phone number? Did they ever use their own email to log this? You find the person, you give them a call. If you missed it, Eric said it so casually, it's hard to get people to want to sell real estate. If I come to you and everyone gets beat up for it all the time, So if you are an owner of real estate and you get the 15th broker who's reached out and said, hey, you, you looking at selling this? I'm great at selling property. My defenses are here. I'm like, nope, not interested. Even if I am kind of interested, I already have a guy. I already, I have a million smokescreen. I'm going to throw up all my guards. If you're asking me if I'm buying real estate, I am instantly interested. When I ran the call center in Tacoma, we did this whole data project. That was our entire script. So we're reaching out to people, we'd gather data about their multifamily properties, and the last phrase in the entire call is, hey, we're going to be calling about 100 other owners. If you're looking to expand your portfolio and you're buying, is there anything we should be looking out for? If they're selling, it's intuitive that, well, no, I'm not buying, but I am actually interested in selling this. You're going to call 100 other owners. You should tell them that I have this thing for sale. But you're asking if you're a buyer. It is— that question has bought me so much real estate. I do the same thing as an owner. I reach out to other owners. Hey, I just bought the property next to you. We're property neighbors. You're expanding. I'm expanding. Let's grab coffee. Let's talk about the market. Let's see what's working and not working. It's implied that I'm a buyer because I am buying. I don't have to ask them to sell their property. That seems to be as a broker and an owner. That's really the secret to getting in the door is who's active and coming in. I mean, that was a great way to start the relationship. It was helpful for me because you actually had a 10-plex when you called me and I happened to know that 10-plex. And between us, I would've paid $100,000 more for it than was suggested. You're like, yeah, $900,000. I was like, I pegged that thing at $100,000 a door that I would've paid for. Seller financed, 5% interest, That is a fantastic, fantastic deal. Yeah, dude, that's awesome. When you're doing, when you're getting into creative finance with an owner, this is, mm-hmm. A lot of people want to know this. I have done 1, 2, 3, I've done 4 creatively financed deals with you. One private money, 3 seller financed.

Yep.

All of them, we had to get pretty darn creative with the seller. Even the hard money one, we had to, we had to work that equation to get that RV park closed. That was a project.

Yep. That was a fun one for sure.

How do you enter into that conversation with an owner to figure out the creative finance side? Because so many brokers don't understand how to put it together. They don't understand how to ask. You seem to find these opportunities more often than many. How do you enter into that?

Yeah, so, you know, I have more data than a lot of other people because I pay for these services. So I can see a lot what the debt is on this asset or this parcel, and it's not always accurate, right? You're always fighting that. But when you're making the call and you're talking with somebody and, you know, I'll, I'll talk from a broker standpoint, but you can take this, you know, that your viewers can take this and use it for if they're trying to call for themselves. So you, you call somebody up, they, you get 'em on the phone, kind of get past the initial talks and they start talking about their building. Well, if you're getting the rents, you understand how many units it is. Then you can start to ask about the debt product casually. Be like, so, you know, do you still have a loan on this deal? And they'll say, yeah, I do. I'll be like, okay. Or they'll, they'll say, yeah, I do, but it's like, you know, $20,000 or $100,000. And let's say it's a $2 million deal. Well, that tells me that there's such a small amount of a loan that, hey, they could possibly be a candidate for seller financing. And then you can also talk with them and understand their age, most likely over the phone. And if you can sense that they're a bit older, then it's like, hey, you know, do you still want income if you were to sell this deal? Like, does it— is income still important? Because honestly, you're a great candidate for seller financing. You might be able to get a little bit higher price because of it. And you can get a down payment that, you know, still gets you flush with cash. In the meantime while still making, you know, interest-only payments or principal and interest payments.

And that, so ultimately it comes down to you're just asking the questions to map out their goals. Like you, you know where the pieces are and that helps, but ultimately what you're doing is you're just mapping out what is it that matters to you as a seller? Is it, you know, are you after the maximum price with the position you're in? Here's the options that you have. It's a fairly passive approach.

Yeah, it is. I mean, they're gonna tell you, yeah, I've got a loan. You know, if it's a $2 million deal and they're like, yeah, You know, I've got my loan still $1.5 million. You know, most likely they're not going to be able to cash that out themselves. So you're going to have to do it with a new bank, right? So it's like as soon as they tell you and you know the numbers, it's going to lead to that, that conversation. Like, you know, I get called on my properties all the time by people wanting to buy it, right? And everybody wants to do seller financing. And the first words out of my mouth are like, hey, I'm open to looking at an offer, but I need to be cashed out. Because I've got a, I have a loan on this. And then they'll come back 2 weeks later and, you know, talk with me about doing a seller finance deal. It's like, no, I can't do it. I wish I had enough equity to do it, but I can't do it.

Well, this ties really well into, so, so for investors who are listening to this, you know, hey, how do I work with top brokers like Eric? Well, how do I move up the list? I see a lot of people aggressively asking their brokers, hey, I'm interested in buying things seller finance. It's like, well, yeah, you and everyone else, of course. Everyone's interested in buying something with no debt qualifications and custom debt, right? That's implied.

Yep.

What is the ideal client? When someone comes to you, they're looking to buy real estate. What makes someone a client where you're like, hey, I am going to spend time and energy finding this person a deal above and beyond, you know, the random person who calls you and says, hey, I'm looking for seller financing and I have no credit.

Yeah. Yeah. I think that's a good point. So, God, it's a tough question to answer. So I think if you're, you like, if I was to go to a new market, right? Let's say I'm going to go buy deals in Michigan. I would take the approach on really having a firm buy box because when you call a broker and you're trying to get your first deal or whatever, and you're saying, hey, you know, I like to buy 10 units, I like to get seller financing, but I only have, call it $100,000. Well, most likely that broker has a lot of other clients and options that they can call that can close this out very quickly, and they have a lot of cash reserves to work with. So I think you have to make yourself enticing from a buyer standpoint for also someone to work with, and that's just the truth. So for example, if you're newer, if you come to me and tell me that yeah, you want a value-add deal, you want something you can put some sweat equity into, or maybe even owner-occupy and jump into, you know, your first deal, it's a 4-unit, but you tell me that you want a 7 cap with value-add that's trending to a 12 cap. Yeah, everybody wants those deals. So it's also understanding the reality of where the market's at and You know, if you're a buyer and you see the long-term plan, just owning real estate versus just trying to get a home run deal every time you buy, you're never going to buy. You know, it's, you have to look in the current market, the situation of what's going on, where rates are at, where cap rates are at, what you see typically on the market and have a very tight buy box. You know, you might have to buy a 4.5 cap deal, but if it's trending, to a 7 and call it 1 or 2 years, like that's a great deal. That's a fantastic deal in this market. But if you think you're going to buy an ACAP day 1, sure, it's possible. But what are the actual percentages of getting that? It's pretty low.

And in my experience, those deals, when those home run deals come up, they're going to get passed to the clients that you've already done transactions with, the people who did the base hits or the, you know, they hit a double with you.

Yep.

It's the people who've already transacted. You already know they can transact. You know what they're like to work with. You have an existing relationship. So when these best deals come up, you're calling your clients who you already know can close. And that's just a sensible thing to do. Like that's usually your first call is the most likely buyer. You're not going to call the random guy who called you 3 months ago saying like, hey, can I have a unicorn deal? When the unicorn comes up, it's the guys who have already transacted. I'm not saying do a bad deal, but I absolutely agree. You don't have to just only do home run deals. It's one of my least favorite things that I hear on podcasts or when people are like, yeah, they're like, oh, I just, I rip every dollar out of every deal. And I'm like, no, do good deals, but do deals that move you forward. If it adds to your income and it's cash flow on day one, like that's my buy box. If I have day one cash flow here and I can add something to the management structure to improve the property from how it's working right now. I'm interested because when I close this thing, my income goes up for the rest of my life.

Yep.

That's phenomenal. I like making more money. That is generally a good thing to do for my family. So we buy good deals and sometimes they turn into great deals.

Yeah. And that's one, I think one other point that would be helpful to your viewers is when you're talking with the broker that you want to work with, it's important to go over, hey, how do you, you know, this is how I underwrite deals. How do you underwrite deals? You know, and we're, let's just talk about the expense load on the property because if you're trying to be ultra conservative on every level and have way higher expenses than are realistic to a building, that's called underwriting yourself out of a deal. So, you know, there might be a great opportunity where let's call it, it's a 6 cap on current numbers. But because of how conservative and how nervous you are to buy your first deal, you're adding so many extra expenses in there just, just in case of precaution that all of a sudden that 6 cap in your eyes looks like a 5.25 cap rate or a 5.5 cap when that in reality is not the case. You know, sure, there's the natural expenses you should have, but you have to be careful about how many expenses you're underwriting in a deal because you will, you will end up not buying a deal or making it harder for you to find one. And you're going to see all these good deals pass your— pass by and you'll see them sell for a ton later. So that's another big mistake I see newer, newer investors jump into.

Well, and the way they usually do this math in my experience is because I'm all for conservative underwriting. I absolutely do that, but they do a conservative adjustment to every line item. So they go, yes, you're like, well, what if vacancy is higher? Well, that's a good thing to factor for. What if my interest rate's a little higher than today's interest rate? What if they tick up a half point? Okay, that's a good thing to account for. What if my maintenance cost is 15% more than it was? That's a good thing to factor for. But if you do that on every single line item, you end up with this horrible looking property because you underwrote it to everything just went wrong.

Yeah, exactly.

You will have stuff that goes wrong, but you usually don't have something go wrong to every line item. You usually don't lose all your rent.

Mm-hmm.

And have your maintenance costs go up and have your insurance rate go through the roof and have your tax get adjusted twice as much as you expected, all in the same go. It, that almost never happens. And so you've underwrote to an unrealistically conservative scenario. That's almost always how it happens though, is the people who go in line by line Yep. Do the math where it is and then just make a conservative adjustment to it. If you want to make a 10% or whatever adjustment to like, hey, let's leave room for error, do it globally as opposed to line by line. I noticed that you get a much more realistic conservative estimate that way. You can go conservative on everything. Your numbers look crazy.

Yep, absolutely. And it's also the, you know, the biggest one too is You know, someone will want to put professional management in 2 to 4 unit buildings. That, that, that'll kill a deal real quick. That's tough. So as long as you, it's fine to do it, but as long as you know that instead of self-managing and having a cash-on-cash return, that might be 5%, you're looking at a 3% cash-on-cash return or 2.5%. So just know that your numbers are going to be thinner. And 2 to 4 units typically don't ever support professional management from like having heavy cash flow. You're okay with having zero cash flow, professional management all day.

Yeah. Well, especially, you know, you're in the, the greater Seattle area. I know you broker all over the state, but yep. It's a, it's a tighter market. It's a higher appreciation market, you know, or we're one of the tech markets. So you have these long-term holds where you can make a crazy amount of money if you're not bleeding. For a lot of people, that's their underwriting and that's what you're competing with. They're like, if I'm, if I am parked at breakeven, I'll buy the deal. And that's what you're competing with in a lot of these core markets on the West Coast.

It's true.

If you add in that professional management, I absolutely agree. I'm also a huge fan of self-management. I don't think that should be your long-term goal. You want to turn your business into a business, but if you're on the front end of your career, Eric, how many units would you say makes sense to self-manage before it's time to really look at a professional manager, in your opinion?

Yeah, I think when you're looking at 8 units and higher, that's when you can start to underwrite professional management. It's just the cost of it. You know, that 5%, if we're talking about in-core Seattle, you can underwrite to a 5% management fee, 5 or 6, somewhere in that range. But yeah, usually we start to implement that 8 units and higher.

Okay. And if your portfolio is very similar to me, I, it's very easy to self-manage a dozen units. Yeah. It was personal experience. It is not that much work at all.

Yeah, absolutely.

I did not have a whole lot of struggle up until we got a little over 30 units where I was like, I need to start adding people to that.

Yeah.

And you become an unbelievably better manager when you've actually managed before. There's stuff that you just need to know how to look for. I'm a huge advocate for if you're buying smaller or you're getting started, or even you buy your first commercial property, do the math. So, so say you buy that 8-unit, do the math so your deal works if you had professional management. But for 8 units, self-manage your first 8-plex. You'll be a better investor on every other deal you do.

For sure. And when, as you start to grow your portfolio, because you self-managed or know what it's like to communicate with tenants, You can pretty much know how the current management company's communicating with tenants or give them advice on how to communicate with them to keep them in there longer or keep them, or get them to agree to a rent increase. It's all about how you communicate and how you talk with them.

Absolutely agree. Now, 12 years, that's a long time to be a broker. I'm imagining you have seen some crazy things. Do you have any stories that stand out as like, this is the wildest thing that's ever happened? To you as a broker?

Yeah, yeah. There's like, I mean, there's a few stories. So I sold, long-term clients of mine, sold them, I think 2 years ago now, a 16-unit in Ballard. And we went under contract, whole bidding process, right? Went under contract, had their inspection period, and we knew that there was an eviction tenant, kind of a holdover eviction tenant for, hasn't been evicted in 2 years. Same old story with Seattle, right? So after my clients waived feasibility, their earnest money was non-refundable. And right after that happened, we were probably, I don't know, a month out from closing at this point. They finally got the eviction to go through on this one tenant. So the sheriff showed up to the door. It didn't go well. They were, the tenant barricaded themselves in there. They had to break in. Shots were fired. Ooh. Sheriff ended in critical condition. The tenant passed away in the property because of the shooting. And then this building made national news. So it's like, you know, talking with my clients, it's like, hey, You know, here's the situation and, you know, if you guys want to get out of this, I'll, I'll find a way to get you out of this by, you know, whatever financing not working out, whatever. And luckily, you know, it was such a good, it was a good enough deal that they decided to continue pursuing. That's very good. So that was, that's probably the wildest story.

Can you imagine being the seller of that building mid-transaction and that's when this all goes down? That has to be the most stressful. You gotta be kidding me.

Yeah.

Almost got rid of this building. That one tenant.

Yeah. Surprised my clients continued forward, but you know, it was a good deal. It still is.

By the way, I am an advocate for a balance between tenant laws and landlord laws. I don't think that states that are excessively landlord-friendly are necessarily a good thing. I think there is an actual balance for protecting owners, protecting tenants. The eviction laws specifically on the West Coast, I think it's horrible for everyone. You get situations like this where you can have a dangerous violent criminal and you cannot get them out of the property. You can't make your own building safe. I think it's one of the worst things about Washington State, Oregon, and California is they call it tenant-friendly. And tenant-friendly means you could be forced to live next to a violent criminal for an extended period of time because your landlord cannot make the property safe and it's not their fault. So frustrating. I had, so To be clear, Eric has made me a lot of money, a lot, lot, lot of money. We've actually partnered together on a deal. So I've been with him on the investor side. I've worked with him on the broker side many times. We had one deal that was the craziest legal that's happened to my whole portfolio. And I will say Eric's handled it super well. We did a 60-unit in Walla Walla. We went under contract and it was, the timing was weird. But we wrote two contracts, a seller finance contract for a section of the portfolio and a conventionally financed contract for the other half. What happened to us mid-transaction is this was about a 90-day process. And in those 90 days, that was the 90 days where rates skyrocketed. So we went under contract and bank rates were about 5%. By the time we were coming to close, they were already at 7.5%. That changes your math astronomically. We were willing to still close out the seller finance portion. We were willing to adjust the pricing or move around pieces on the conventional. Seller said no. We went, okay. We got to the closing table, signed, seller doesn't sign. They made the decision. I've never seen this happen before, and this is Note for your non-landlord-friendly states, legal process tends to be very long in blue states. They decided the earnest money is contingent on closing both deals. That was not in our contract.

Yep.

We had an over 1-year lawsuit over, it was $135,000 of earnest money. Thank God I didn't raise that. That was our money. But that was the first time in my investing career I had my own $135 million and the worst thing that could happen, a legal dispute over something that is very clearly laid out in the contract. We have two transactions. We want to close one and cancel the other. I'm so surprised. Have you ever seen escrow just hold funds like that on a transaction where it's two separate transactions and they hold the money over both? I'm still trying to figure out how it was legal for escrow to pull that off.

Yeah. You know, that one was unique and it's, I know it's been a while. Good thing you had a broker that had a position to be able to apply pressure to that seller. So yeah, that's, that was a tricky situation. I think the earnest money escrow, if you go under contract and no one, you know, one party doesn't sign at the end. You know, that's ultimately specific performance. And if it's not stated in the contract that escrow, like, is to immediately release earnest money, escrow is kind of in this gray area. They can't do anything unless both buyer and seller sign off on where the earnest money is going to go to. And if one party doesn't sign off on it, they just hold it and it gets held. And the seller of that building can't go under contract with anybody else during that point in time. So they're, it's like almost a lien almost on the property.

Yeah. It's called a lis pendens.

Yep.

Where you go ahead and you, yeah, it basically is. You come in, you say, hey, we're under dispute on who has the rights to own this property. What I did not know, investors, this is good to know for Washington State. It's about a year and a half to 2 years to get a court date for specific performance. So while we filed immediately, I believe we settled with them for a slight loss, but we settled with them what, 18 months into that process. Wild. That was my wildest transaction. I will say if we didn't have a broker who could help us handle that, that would've been unbelievably more difficult. Unbelievably. Eric was extremely helpful in that was the most stressful situation you can have where you're like, We wrote good contract. We have a breach of contract. We have 2 or 3 different proposals that I think were really favorable to the seller on like, hey, we have a unique situation. Eric navigated that fantastic. How do you as a broker handle the stress of those things? I found when it's my money, I definitely care, but it's not nearly as stressful if we have something happening to my partners or when I was a broker. Something goes wrong for a client, that eats at me. How do you manage the stress of you're doing like multiple transactions a month, big commercial deals, and as we illustrated, while they usually work out, sometimes stuff goes crazy wrong, unforeseeably. How do you handle that as a broker?

Yeah, you know, I think the stress is there for sure. I mean, you feel horrible for your client you're representing if it's, you know, let's say they wanted to list their property and they're under contract, everybody's waived and they changed their mind. It's like, there's nothing you can do for 'em. They agreed to the contract, they have to move forward. And it's, you're kind of heartbroken for 'em cuz you're literally watching them not get their way. Right. And there's nothing you can do. So it's tough, you know, it just, that's for a broker. If it ever, ever goes in that situation, it kind of gets handed off and then they have to speak with attorneys and that's way beyond the realm of what a broker does. So yeah, it's, it's, uh, it's stressful. You know, I think you try every way possible to help them, like your situation in that one, you know, because they didn't come to the table, I was owed a commission on that. And then that allowed me to apply pressure for the commission. And then ultimately, you know, that, that made the sellers come to the table and do a deal because they would owe me a commission regardless. So it's like having, you know, having a broker too who has the knowledge and deals and understands contract language and, you know, how to apply pressure points is huge.

Yes. Which is a, another reason why the, uh, random person who has a license at your church is not your go-to agent. That seems to be a common issue. I remember from my broker days, we were like, oh, I got a buddy who's like, your buddy is not your broker. Your broker should be someone who knows how to do transactions, who's versed in law, who has experience. Preferably for me, one of my biggest requirements is I like to work with brokers who own real estate themselves. The fact that Eric can separate being an owner and being a broker really helps me feel good about the way that he's underwriting, the way that he's going to recommend deals, because You've been on both sides of it. You understand the expenses. You understand when projects go to plan, you understand when projects don't go to plan. That means more to me as an investor talking to a broker than your transaction history.

Yeah, I think that's a good way to look at it. And true, it's like you want to work with a broker who specializes in, in what you're looking for. You know, if you're looking for a house, I am the last person you should hire. Don't, don't buy it, have me buy your house or represent you on buying a house. It just, It's not, not the realm I work in. Mine is strictly investment properties. So that's, that's another thing. And that's where you see a lot of what you were just talking about. Like, hey, you know, my buddy's got his license and, you know, I want to buy this commercial property. It's like, yeah, well, your buddy only sells homes, so, you know, you might get in trouble contract-wise or how to negotiate the deal. So it's important to make sure you grab the right broker that way.

Yes. If you're looking for single family, Eric's wife Jackie sold the crap outta my rented house.

That's right.

Fantastic job. Got the right stager in there, got that marketed, and we got exactly what we asked for, for it. And pretty quickly that was, but finding the right person on the team, Eric just happens to be married to another amazing agent and that's right. And wife. Now you have two kids now. Which is wild. You've been at this for 12 years. You started with a 72-hour work week and you said you're doing what, 30 transactions a year?

I would say, yeah, somewhere between 15 and 20. You know, there'll be big deals wrapped up with small deals.

Okay. So, so you're doing, you're, you're doing pretty darn decent volume and you're doing sizable deals. So I mean, commercial, I mean, doing 20 deals in a year is But the substantial, as you've moved through, you're married, you have kids, you've actually hit a lot of the financial goals. I think a lot of people would aspire to as a broker. You're 12 years in. Two questions. One, what keeps you motivated?

Yeah. Well, having little kids, having a mortgage that keeps you motivated, you know? Yeah. You look at your expenses and then, you know, I, I'm a competitive person at heart. You know, it just how I'm driven and I grew up working kind of at an early age with family restaurant and everything. So it's just, it's ingrained to work, you know, it's funny when you meet with different people, especially like the individual who's buying our RV park. Mm-hmm. You know, everybody has these goals like, man, you know, I want, I really want to replace my income. And that's phenomenal. That's a great, great goal, but, and that was my goal too. But the closer you reach to that quote unquote financial freedom, it's like, well, you know, you're also, I'll be 40 in a, in a few years. What else am I going to do? So I'm going to keep working, you know, just keep stacking the money, keep stacking the properties and grow that even more. And another thing too is what I've found out after owning these, all these properties, right, is that cash flow varies. It's not a steady deal where you can, you know, okay, I've got these 8 properties, I'm making whatever, $200,000, whatever number you want to throw to it, $200,000 in income. I've replaced my income. I can now just sit on the beach and relax. Well, no, because this one property needs a new roof this year. That's $100,000.

Yep.

So in that year you're only making $100,000. So it's like you do need to keep kind of pushing the limits and taking each property, getting it to its max value, and then exchanging to the next one and go from there. So the next value add after next value add.

In real estate, it's not— so cash flow is king. That's what's going to keep you alive. But there's 3 types of money in real estate. There's cash flow, there's liquidity, and there's equity. You haven't made it. If your goal is I want to replace my income and I want to own all of my time, you have to hold all three of those in balance at the same time. You have the cash flow to retire and you probably need about 150% of your income because like you said, it's going to vary. Yeah, I had a building that has been 100% occupied for two years. Same month it went to 60% occupancy. It's actually the 10-plex that you sold me. We had 4 tenants move out, 2 of them broke their lease, 2 of them just was an organic move out. It's a paidable, a 40% loss of income. If you were banking on that, that sucks.

Yeah.

So really, if you're used to making, let's say, $10,000 a month, you're setting your baseline at a steady $15,000 a month. And you have to have the liquidity to put on that new roof to keep up with one-time payments. And you have to have enough money in equity. Because over time, that's what actually makes you very wealthy. That's what grows over time. That's what your family inherits. You need to keep all of those in balance. You can trade those for each other to get 'em in balance. But if your goal, you're going in saying, hey, I want to make $10,000 a month, you really want to make $15,000 a month, have a couple hundred thousand dollars in reserve at all times, and keep your LTVs probably stabilized around 60%. Realistically, you can do it. It's not as cut and dry as I need more cash flow, let's go buy some deals. And I think every investor who's gone after this journey, myself included, has found it's not get rich quick. It's, you can make a lot of money relatively quickly, but there is a lot of work that goes in. How many hours do you think that you work now compared to the beginning? Is it still the same? Are you just holding that 72-hour thing? You have 2 kids now, you have a lot going on.

Yeah, no, I mean, you can't, you, you've gotta balance it. So, you know, now with kids and older, and that's really early on in brokerage that you, you need to put in the hours, you know, call it 80-hour weeks, really. You just have to, or else you're not gonna make any money. Um, but now it's, you know, call it, I'll get into the office between 8 and 9 and I'll head out, maybe pick up my son most days from school at 4 o'clock. So, you know, you get more efficient as you get older and, you know, longer in this business. You've got steady client flow, you got more people calling you versus having to go, you know, scrounge and get those deals, right?

That is a great place to be.

And the cash flow from the investment properties, of course it does help. Unfortunately, you know, it's It's not enough to go sit on that beach and chill all day long, but you know, it's, it's always very helpful.

The beach is fun for about 10 days.

Exactly.

I think that's the max. I actually peak around 8 and then my wife can do a couple more. So I, I call it 10. Whenever we've tried to relax for 2 weeks, back end of that, after day 8, I'm like, I'm just ready to like, let's just go back to work. Let's go build something.

The nail. Yep. I start freaking out after about day 4. I need to get back to work and do something.

Oh, that's amazing. What, uh, I, I, I have 2 more questions and we'll, we'll wrap here. What is it about you that has been the most helpful in building your business as a broker? Like what, what thing is unique to Eric, or at least most helpful about yourself that has driven you to the level of success you had? Because there's a I know a lot of brokers who make no money, who have all the, all the same motivations. They have a family, they're somewhat hungry to make money. What's the difference between Eric and your off-the-street anyone else?

Yeah. And I think it's, I think you can wrap this into your group too, of people looking and making calls themselves, but it's really easy for brokers to get sidetracked and kind of look at, other, other ways to try and get deals done. And I respect that, right? Maybe different marketing approaches, whatever, but plain and simple, you need to call the person directly and you need to get in touch with them. And that's all you need to do all day long, because not only will you, you know, build long-term relationships and have them in your database and just touch base with them, that can come to fruition in a couple years or maybe even 6 years down the road. But you'll also get the low-hanging fruit where you call that one person, they're like, you know, shit, I'm glad you did. I'm glad you did call me. I actually been thinking about selling. So, you know, do you want to make me an offer? Or in my case, you know, do you have a client that would buy this? Here are the numbers. And then that's, but staying on track is the biggest one. And talking with the person directly is all you need to focus on, especially— it doesn't matter if you're residential or you're commercial. Pick up the phone, get in touch with that owner of that property, and talk with them about selling and what it looks like.

I love that. And the question that I ask in every podcast, the stupid tax. Whenever you're new to something and you're 12 years into something, whenever you're new, there's always a cost. It could be opportunity cost, it could be a relationship, it could be straight up monetary. What has been the most expensive lesson to Eric that you have learned over your 12-year career?

Man, it's a really good question. I think I've learned it from other people, and especially in the last 3 years on people buying properties. And you can't always bank on the property appreciating in value. If you're going to buy an asset, you have to look and you have to buy a deal that still has some cash flow in the beginning or can get to a cash flow standpoint very quickly. Too many groups bought with low interest rates, really low cap rates, had unrealistic projections on rents, and they got hit really hard, either themselves or losing investors' money. So I think that for sure, most valuable lesson.

That I can agree with. The only deals that I have wished that I hadn't bought were the ones that didn't cashflow day one. I started a whole community around Buy deals that cash flow and you'll never lose them. Every time it's like, man, there's so much upside. We can't not do this. It's lowered my cash flow. It's slowed me down. I could have just kept going faster and adding to my income. Every time there's an exciting project, it's the only times where I'm like, man, maybe that's not the project I should have done. I could have done 15 base hits in the time it took me to do 2 of these value-add projects.

Yeah. And with the value add too, it's, if you can get there real quick, tenants are month to month, you can implement increases. They're there within, you know, 6 months and you gotta plan for vacancy. You know, I've got self-storage facilities. That's a much faster, more dynamic pricing, really quick.

Mm-hmm.

So, but you can, you can do it. You can buy a deal that doesn't cashflow day one, but just know you need to have a very short, quick plan to get there, or else you're banking on just appreciation. And that's a bit scary. That's more, that's a little bit more risky.

That I definitely agree with, but excellent lesson and a core principle of the owner meeting and multifamily strategy as a whole. Everyone, this has been The Owner Meeting. The goal here is to meet with as many people as possible so that you Don't have to, you can listen to this from your car, meet as many awesome people who are excelling at business. If you are an investor and you are looking to work with elite brokers, my takeaway here is don't make it about hitting a home run. Be specific on what you are looking for. Communicate clearly. Don't blow them up, but follow up regularly. Just clearly know what you are looking for and find the brokers or agents who are actively selling the properties that fit that box. That's all you're looking for. If you wanted to find the right broker for you, look on LoopNet or CREXi at who is listing the property that looks exactly like what you want. Don't worry about the price. You don't have to buy that deal. You want the relationship with the guy or gal who represents those properties. Communicate what you're trying to do. Even if that deal doesn't work, Great way to find the people who are transacting in the stuff that you want to transact in. You guys want to meet people like Eric and you guys want to expand your portfolio. Keep it that simple. Eric, for someone who doesn't want to just call you and say, hey, do you have any zero-down creative finance deals? For someone who legitimately is ready to buy real estate in Washington, how would they best get in contact with you?

With you? Yeah, I mean, you know, my cell phone's easy, 206-399-3285. Call me direct. I always pick up my phone. I'm happy to have an initial conversation. You know, you can't get anywhere if you don't make yourself known. So, and then my email, eric@investmentsalesgrp.com. So love to help you out. Give me a call.

There we go. Contact info in the show notes. We will see you guys on the next episode.