Christian Osgood covers five real estate investing questions, emphasizing cash-on-cash return as the key metric and targeting 8%+ returns. When picking a market, focus on population growth and job stability, which drive 85-90% of his decision. To close your first deal, build relationships with owners and commit to execution over perfection.
Chapters
Hey YouTube, it's Christian Osgood and we are back for Whiteboard Wednesday. If you're new to the channel, we answer 5 questions from the comments every week on seller financing, creative finance, real estate, or other business questions. If you haven't yet, like and subscribe below. We are going to get started. This week I have one of my favorite questions, which is how do we choose a market? What are we looking for in a market before we invest? Now like everything, we keep it ridiculously simple. I think you're going to be blown away by how simple this is, but we're going to get to that soon. First, we have a question. What do you ask people who've done the thing you want to do to book a first meeting? Excellent question. If you're new to the channel, we don't do real estate by trying to find deals. We're not searching for transactions, we're searching for relationships. We do this by calling owners who've done something we've never done before. If you own a duplex, we're going to go call the people with a 12-plex, because they've done something bigger than what we've done. I'm going to tell them, "Hey, this is where I'm at, this is where you are, I'm trying to learn how to get to where you are. Where did you start?" Essentially, the question is you're going to work in, after a very, very brief description of who you are and why you're calling, you're going to ask, "How did you get started?" You're going to listen to their story. There's one more critical question as you wrap up the phone call. You're going to ask them, repeat back some of what they've told you, and ask, what do you recommend I do next? Or how do you recommend I get started with the pieces I have? You start with how they started and you end with, okay, what would you do in my position? Now, if you want a deeper dive on this, we do include this in our coursework on themultifamilystrategy.com. However, That is the question that we ask to get the ball rolling. How did you get started? Question number 2: We mentioned factor rates as a great metric. What is the number 1 metric that you use to find the right deal? That's an excellent question. We try to keep everything very simple. I don't like the alphabet soup of things that people look at. However, there is one thing that we look at above all others, and that is cash-on-cash return. It is the actual metric of your cash flow day 1. Very, very simple math, but essentially what you're doing is you're going to take all of your income and subtract out all expenses, even your cost of debt. What is left is your monthly cash flow. So we're doing this on a monthly basis. Take all the monthly income minus all the monthly expenses, you're left with monthly cash flow. We're now going to multiply that by 12 to find our annual cash flow, because all returns are calculated on an annual basis. To find your cash-on-cash return, we have how much cash it generates in cash flow in the first year. We're now going to divide that by the total cash we have in the deal. If you put $50,000 down, that's your down payment plus your closing cost. You're going to take that cash flow and divide it by $50,000. What is left is a percentage. We like to see 8 percent or greater. Now, if you have more partners or you have different debt, you need to make sure that that is a higher number. As long as your cash flow is high enough, it is extremely hard to lose a property, which answers our two questions: how do we buy it and how do we never lose it? If there is enough cash flow, you can weather any storm. Cash on cash return. Number 3, this is from Davron, our friend from Florida. What do you do when you have a great deal but you have 24 hours to respond and you haven't created an LLC yet? It's a really good question. That was actually one of my first questions when I got started. Well, we write most of our deals, first name Christian Osgood, and/or assigns. Now, some people will do this to try to wholesale a deal. We believe that any deal worth wholesaling was a deal worth buying. We're always going to purchase it. I let the broker or the owner, depending on how we're negotiating this, but I let them know, hey, I'm going to put this as myself and/or assigned so I can put it into an LLC to be created. It's that simple. The first thing you do before you worry about the debt structure, the partnerships, the LLC docs, all the things that go into closing your deal, is you're going to look at getting the deal under contract. That is it. Your focus is deal. Then you work on legal, debt, and equity. We do that for every single deal. We have created the LLC after we created the actual original, um, contract. We get the deal under contract and then we quickly form an LLC and move it right into that. Excellent question. That's how we've always done it. If you're worried about it though, I always recommend consulting with a real estate lawyer in your market who owns real estate. Question number 4: How do we pick a market? Unbelievably simple. Look at real estate holistically. When you are buying multifamily properties, what you're doing is you're providing housing for human beings. That's essentially it, and you want to provide the best housing you can. You want to be an excellent landlord. Don't be a slumlord. Well, if we're providing housing for humans, then demand is dictated by how many humans and how many houses, assuming that we're not just massively expanding construction. I'm looking for somewhere where humans want to live. Where do people want to go? It's that simple. So I'll go to a website. My favorite is worldpopulationreview.com. I'll put a link below here for you. Uh, but World Population Review, put in the city and there'll be a graph that shows population over time. I want that graph to be going up. If people are consistently moving to the area, that means you have a consistent growing demand for housing. Housing needs to be continued to be built. Housing is a current demand. Now, if housing is going— or sorry, population is going down, that is a huge red flag because that means less and less people want to rent our spaces. That can affect pricing. That can affect your vacancy. Simple as that. There are other metrics that you can look at. But that is 85 to 90% of my weighting for importance on investment market. Do people want to live there? After that, we'll look at what type of jobs are there. Are they stable? Are they blue collar, white collar? We'll do some analysis there. But at its core, the main thing is it somewhere where people want to live. People want to live there. I want to own there. And finally, question 5. How do I get a first deal? What does it look like to get started? Well, I have great news for you. Friday, 2 days from now, we will be doing a full video on this, so I will share exactly what it looks like in 5 simple steps. But essentially, it's going to look like this. First, you need to make a commitment. You have to set a goal, and it goes beyond learning. Application is more important then the information. You're gonna take the information you've gathered, you're gonna commit to a goal. Whether that's buy your first duplex or it's, hey, I'm gonna scale to 30 units this year. Set that goal, set a timeline to it, and absolutely commit. Next, you're gonna form relationships. Instead of trying to track down the deal or look on Zillow, CREXi, LoopNet, you're just gonna meet owners of properties in your area. Simple as that. Meet the owners and network. Does not take too long for a deal to suddenly appear, and it's so much easier to buy a deal when you're not competing with everyone else. All you do, set your goal, commit to it, find an owner. Once you find that opportunity, the last thing, and this is the most important, you have to pull the trigger. Doing your first deal will be your hardest deal. It is your scariest deal. There will be things on the inspection report that you didn't expect. Maybe there's a minor problem with the roof or plumbing problem. Go through with that deal. Obviously, if the property is just an absolute, absolute mess, probably don't do it, but commit to doing that deal. If you found the right deal and you know it's the right deal, stick with it. Don't give up on it. Don't back out. Definitely don't wholesale it when you get scared. Close that deal and now you've purchased real estate. You are a real estate investor and you can move forward much, much faster. Michael Blank, The Law of the First Deal. Once you buy that first deal, within 5 years people have a habit of becoming financially free through real estate investing. Highly recommend. I hope these were helpful. If you have more questions, post below in the comments. We will answer them next week.
