How to Own and Keep any Property - How do I buy it and how do I never lose it?

Hey YouTube, it's Christian, and I'm here this week without Cody. Cody is on vacation in Hawaii this week, and so you're gonna have just me all week for our Rules of Real Estate, Whiteboard Wednesday, and our Freeform Friday. So today we're talking about rule 5 in investing. It is the most common question that Cody and I ask when investing in real estate, which is how do we own it, how do we never lose it? We've covered this in some depth on this channel, And we mention it all the time, but we're going to go deep dive today into this rule. How is it applied? If you have not yet bought your first piece of real estate or you're looking to scale, this will simplify everything for you. Now, if you haven't yet, like and subscribe. If you want a deeper dive on this, themultifamilystrategy.com, you can take our course. This rule is going to help you move forward. So the first thing you need to do Before we even get to this question is you need to know what market you're investing in. You have to have made that decision because location matters. Once we have a location, all we have to figure out is how do we own it and how do we never lose it. Now, the how do you own it is widely dependent on your relationships with owners in that market. What you're going to do is you're going to network. You're going to meet the people who already own where you want to own. Very simple conversations. It's non-transactional when you're trying to build these relationships. From the relationships, the deals will flow automatically. It will be a passive deal flow that comes into you. Your only goal is to meet the people who own the type of real estate that you want to own. Once you have these relationships and you get to know the different owners in your market, you get to put together some pieces your next step, you're going to have some deals flowing to you. When you find the right property, say you're looking for a 12-plex and the right one comes up right in your market. Well, the first thing is, how do I own it? Now, conventionally, you can go to the bank and get a loan, buy the property at the price that the owner wants. However, we can also get creative, and that is why we have more tools in our toolbox. We know how to use hard money, seller financing, other pieces to buy the deal. And you need to think about that before you ask all the questions of what is the cash flow going to look like? How are we structuring this? Who are my equity partners? Don't worry about that piece yet because question 1 is how do I own it? For this, you want to know what are the owner's objectives? Do they want cash flow? Are they invested in your story and moving you forward? Or they just want to offload a troubled property? Figure out the why that the owners have and figure out the deal structures that are going to work to get this done. Once you have a deal put together where you know the price, you know the terms, say it's seller financing, all the terms are going to be made up anyway, but you know, the interest rate, when are the balloon payments, is it interest only on an amortization schedule? You figure out the pieces of the deal. What is the actual deal in place? That is how. You own it. Now you figure out, what do I need to do to make sure I never lose it? And the answer to that is always going to be cash flow. If you buy cash flowing real estate that has enough cash flow to service your debt, give you a little margin, cover all the expenses, you can technically buy infinite amounts of deals because you can just keep buying real estate if every time you close a transaction, your income goes up. So how do we never lose it? That is going to be a question of cash flow. We're going to do two analyses. We're going to do a day one, which is the deal as it stands the day that we are buying it. What does it look like? What is the price? What are the terms, the cash flow expenses? And ultimately, we're looking for the net operating income. From that, you can go to our Math 101 video to see how we calculate all of it. But from that, you want to see how much cash flow you have. The next thing you want to do is figure out what you have going on at the exit. So at that point, that's going to be— the exit is either you're selling the property or you're refinancing the property. If you have a balloon payment in year 5, for example, you're going to want to refinance the property unless you go and sell it. But we need to know what it's worth at that point. We're going to use really conservative numbers and we're going to figure out, okay, I'm going to buy it in this condition and I know my math and I like the deal day one. At exit, whether it's year 5 or if you're on a 30-year amortization, it could be year 30. I seem to know where's the property at the end of this transaction. Let's see how much room we have to increase rents. What is our plan for expenses? Where do we think vacancy is going to be? We want all these to be conservative. So if you think the market's going to keep going up for 5 years, Don't forecast for that. Just say, okay, current market conditions, let's say I can get close to market rent on this property within the 5-year window, because then everything else is bonus. You put all the pieces together and you know, okay, I can execute Plan A. Our day 1 is a doable deal, and I know how I'm going to keep the property all the way through. I have enough cash reserves, cash flow. Know-how, property management, everything is in place where I know that I'm never going to have to lose this property. I'm not going to be in a position where I have to fire sale it. That's how you start to buy real estate. Now, it's easy to add pieces to this, and this is where stuff starts to get complicated. Common questions: do I need a property manager? Well, you probably do if you're doing your first deal. I love the idea of self-managing it if it's in driving distance from you. But at some point, you're going to scale to a point where you need them. Do I need a great lawyer? Well, not before you have a deal. But once you have the deal, sure. You can add all these different pieces, the financing, the partners, all this stuff. It doesn't matter until you have the deal. The deal has to come first. And that is why, how do I Buy it. How do I own it is question number 1. How do I never lose it is question number 2. Recap: how do I have enough cash flow where I know I can cover this? And if I have to refinance, do I have enough equity in the property? Now, if you're going to refinance into bank debt, most banks are going to want 20 to 30% down. Be conservative and make sure that if you're refinancing year 5, You're very comfortable that you have 30% equity in the building. That means your debt is only 70% of the building, because when you refinance, you want to make sure that you don't have to inject more money. Because what happens if 5 years down the road something happens and you're broke? Now, you bought a cash-flowing property, so the property is fine. But if you have a balloon payment and it turns out you need to put more money down to make it happen, you could be in trouble. So you need to have one, the cash reserves that you know you have set aside to meet that obligation. Or even better, you know that there is enough equity in the property at the time of refinance where you don't have to sell it. Now, this doesn't mean that we never sell anything. There might be a time where you just have a lot of equity in a property and you want to roll it into something bigger. You want to do something else. How do we never lose it? Means we never have to lose it. You never have to fire sell it. It is your choice when you go and sell a building. There may be a time, and probably will be, when you have so much equity in that building that it makes sense to sell it and roll into something larger. We'll go into 1031s in other videos. But you can roll all of your proceeds into a whole nother deal and roll up into, you know, say you have $100,000 of capital gains, you can defer those into the future and you can buy way bigger buildings. But you don't want to be in a position where you have to do that. And that's why we ask the two questions that we ask: how we own it, how do we never lose it? If you can answer those two questions and you are confident that you can execute on it, then you're good to go. You're ready to buy your first deal. You've answered the two questions. Go out, buy real estate, become an investor, and move yourself forward. Hope this was helpful. You guys have a great week. Happy Monday. Again, Cody will be back next week, but I'll see you in two days for Whiteboard Wednesday.