How to raise capital without partners - LIVE

And hello, Multifamily Strategy. My name is Christian. I'm your channel host coming to you live today, uh, talking about a topic that, uh, has come up a couple times for me this week. I just got off a call with this. I was like, you know what, I'm gonna switch the topic totally because I want to talk about what I just had an opportunity to talk to someone, uh, about just a few minutes ago, uh, who has, uh, just joined Multifamily Strategy's mentorship. Uh, but his, his question was fantastic, and I think this applies to a ton of people. So I wanted to share it today with you here. By the way, this is going to go over some plays that do exist in the book on creative real estate. You can pick this up on Amazon. It is back in stock, the book on creative real estate. I'm holding it upside down, but my name is Christian Osgood. I wrote the book on creative real estate, and we're talking about some creative plays. A concern that some people have: I don't have the money to buy the deals. I do want to put together good deals. I see people in multifamily strategy put together good deals all the time. I also don't want to partner with anyone. Is it possible? And the answer is yes. And there's several plays in this book that actually go through exactly how you do that. Of the 15 or so common real estate plays to make deals work unconventionally, only like 3 of them have long-term partners attached to them at all. So that's great news for you. However, one of the most popular plays does actually involve partners. So I'm going to talk about the other plays that you can do and the plays that I've done and people that $1,000 mentees have done that allow you to buy these deals. So should be a super fun episode. As always, ask questions in the chat as we go. But yeah, we're off to the races. So structures that work. I'm going to frame this in our normal framing of deal first, then debt, then equity. We're always engineering a deal. And so let's break down really quickly what a deal is. A deal means that you get everything that you want and need in your deal, which is Long-term cash-flowing fixed-rate debt, and the ability to hold the deal forever without having to sell it to make money. Those are the general multifamily strategy rules. In this iteration, for today's episode, we're going to add one more rule. I don't want to have long-term partners attached to my deal. I don't want to have to build a huge network of people. I just want to close the deals and own the deals myself. Now, Cody Davis, who I do not do business with currently, is the original partner that I started the channel with. He is on a mission right now to de-partner and to only own his own buildings. And right now he has very, very few partners throughout his entire portfolio. So there are ways to partner up, partner down, but I'm going to talk about the plays that you can do to buy these deals sans the partners. So let's start simple and we'll get progressively more complicated. There are none of these that are actually that groundbreaking as far as the difficulty, but you may not have heard of every single one or may not know they're all available. First one, no surprise, seller financing. You can get 100% financed seller finance deals. I've done them. Students have done them. Cael Hommel's done them. I have. They're not every deal. Not every deal is in a position where you could do that, but we see several done every year in Multifamily Strategy. You have a deal, seller has a specific price. You don't have a major problem with the price. They don't need a down payment for whatever reason. They already have liquidity. They have a successful business. They don't want the cash right now for tax purposes. There's actually several reasons why this would come up. Super common play. I can get 100% financing from the existing seller. I name my price, name my terms. We come to an agreement, deal closed. Not that groundbreaking. However, a more common one, you absolutely kill the deal on price. And so, example, I bought an RV park for $300,000. The lender gave me $600,000 to buy the property. That was $300,000 to close it, and that was $300,000 to fix the septic and the clubhouse. We had some evictions to do, we had some management to do. This was not a work-free project, but 25 units on the water in a town I already operate in. 200% financing. I'm not super good at math, but if I was, I'm going to say that is in budget for literally everyone. That deal was available this Seller had no money to do the septic tank and did not know how to raise capital, which in this case would've been just finding a lender, fixing it, and they would've fixed all their problems. Their problems were like stupidly easy to fix, but they didn't know how to do it. So when the deal came up, we came up with a business plan that made perfect sense. We pitched it to a lender. This was a hard money lender. I'm not an RV park operator. It's all long-term rentals. It's not my main business. I also have it in Washington around the time I was moving to Texas. I'm not a huge fan of selling buildings, but in this case, I could have held it forever. We bought it, a $300,000 property for $600,000, and I sold it for $1.1 million a year later. The appraisal that the guy who just bought it, who took the project the rest of the way, just got was a lot higher than $1.1 million. I made a ton of money on the project. Half a million dollars on a 25-unit project in one year. Amazing return, more than a lot of people make in their career, and didn't take that much time. The current owner made a ton of money on it and now has a cash-flowing RE park that makes perfect sense in his portfolio, and he lives right down the street from the darn thing. Everyone won. No money traded hands from me for the acquisition at all. Did not need partners, did not contribute capital. Those deals do exist. I've done the same thing on a hotel conversion. I actually closed it on the same day as the RV park with the same lender in a totally different city. So those plays are available. You can't get above 100% financing only when you absolutely dominate on price. But if you just absolutely kill it on price, you can buy literally anything. Let's assume that we have a closer-to-market price deal. A structure that can work, and I know this is bending the rules a little bit. I don't think it's breaking it. And JD, I see you in the comments there. You're late, but you're here, and that's what matters. Technically, I was 3 minutes late as well, so we're all a little late today. This structure works. The temporary partners that are structured very similarly to debt. So a problem that a lot of people run into is called a no further encumbrance. I will get a bank to, uh, they love the property, they want to gimme the debt. They'll go up to 80% LTV. So 80% of my money's already spoken for. However, they have a clause in here that says there is no further encumbrance. You cannot put additional debt on this property. Equity can look like debt. A preferred return means the first X percent of capital or fixed amount, depending on how you structure it, goes to the investor. If you've ever heard of the BRRRR method in single-family, you can also do a refinance and buy out the investor, which is what's called an option contract. So in a note, if you're buying with debt, you have an interest rate and then you have a balloon when that debt is due. You've bought yourself time for a fixed price. With a partnership where they're giving a preferred return and a buyout option, you have a set amount of payments to them that's pre-negotiated, and you have a specific timeline where a specific amount is due. To own all the equity of your property. It mimics debt, except it's not debt, and you're not further encumbering the property, and you're not partnering with them forever. You are bringing on temporary partners who are coming on as an active partner to help you finish the project. They are taking the upside from phase 1 of your project, where you get it from where it's worth when you bought it to where it's going to be worth. You walk away with the building, without putting capital into the building. You are responsible for the opportunity and signing for the bank debt and navigating the project and buying them out at the refinance with the cash from the real estate. The magic trick here though is that the real estate buys the real estate. If you don't have the money but you are willing to earn the portfolio, congratulations, this model works fantastically. Now, I do recognize you do have partners in here. However, you're gonna insulate yourself by being the managing member, By making sure that you have the decision-making power through the entire deal. My deals are not run as a democracy, though I absolutely appreciate feedback from the active partners I have in my portfolio. And some of them I work with very closely. When I am doing a deal that is a joint venture with a buyout option, so the design is that they will not stay on the deal forever, I make sure that I have full decision-making power so that no one can get in my way. of me making everyone money, because that is the only way that I get the property is if we actually make it through. If the partners screw it up halfway through, well, now you were right with your partnership hesitations, and I've seen it happen before. A quick story where I am literally not allowed to share names because I signed a document that I won't. There was a property in a market that happened to be 12 units where we went in 33-33-33. 3 partners, Cody Davis, Christian Osgood, and other partners. I'm still not giving away what the deal is because Cody and I have partnered on a ton of things and many 12-plexes. So in this particular deal, we're 33-33-33. We all have equal voting rights. So Cody and I figure, okay, well, we're really the ones controlling the deal. We have the buyout option. We control 66% of the voting. This is a good OA, right? And it's a good operating agreement. We have operational power. Cody ran into some cash flow problems and sold his equity to the other partner. So we collectively, Cody and Christian, went from 66% to now they can outvote me. They actually held a meeting, they being a husband and wife, a wife who I had not met, by the way. Just surprise bonus partner. They held a meeting without me there saying, hey, I'm sorry you couldn't meet the meeting. We announced it 2 seconds before it started. We met and decided that we are voting you out of managing member and we're going to try to turn your Class C property into Class A. They lost a bunch of the tenants. They spent a bunch of unauthorized money. They messed up our bank accounts. They commingled accounts with their personal account. And they did it all in the course of about 2 and a half weeks. Very impressive amount of damage to the LLC. Our OA, our operating agreement, allowed them to do that because of the structure we had. So When you do this, put together your deals where you specifically are in the driver's seat and no one can take you out of the driver's seat. I tell this story anytime partners have any reservations about this. I'm like, hey, this is literally what's happened before. But at the end of the day, I am the one who's doing the buyout. I need everyone to get out of my way for making us money. I have a business plan. If you are investing in this deal, you're an active partner. You're going to have roles. Your voice is going to be heard. But I need to know at the end of the day, this is a dictatorship, not a democracy. This is my deal. Uh, I will be the end owner of it. You guys are not gonna hijack the deal halfway through. Again, it usually doesn't happen, but I've done a lot of transactions and this was the most brutal of all of them. Um, at the end of the day, we filed a basic lawsuit, uh, settled it in the course of like a week and a half, uh, by having other partners buy them out. That was the entire process. We just rerolled with a new set of partners and wrote a better OA and fixed it. Partnerships aren't as scary as people think they are, but they can go wrong. And if you want to avoid it, it's all done in the paperwork and the deal structure. I did want to give context to this though, because this keeps coming up. I get this question more and more frequently of like, okay, well, I love your thing of no variable rate debt, but what about partners? Because partners are variables. You do not have to partner. To make the deals work. You may use equity, but equity can be structured very similarly to debt. The big thing here is that you don't need to have a bundle of cash sitting under your desk to close a deal. You need to have a deal that makes money. A deal that makes money attracts investors who want to put money into the deal, and this is how we close everything. I'm going to give one more example. Banks can transfer their debt to you if there is a structural problem. With a current partnership, you can, in today's market, many times buy the property at or near the existing debt amount. The 200-unit we just closed, we closed for $371,000 down. For context, that's less than the average house price in that area. So for less than the cost of one single unit in that market in cash, we bought a $12.2 million transaction for 200 units. Worth close to $20 million stabilized. There's about $7.5, $8 million of equity to be made in the deal. The partnership was not operating. They were not putting money into the property, which did not need a whole lot of money. It turns out we budgeted a lot more than we needed because we're way ahead of schedule and way under budget. We needed to get units available and online. They were underleased and the bank was foreclosing on the property. Because of performance issues. They actually have requirements for where you have to keep the occupancy of the building. They were in default for a sustained period of time. Their options were lose the deal and have a foreclosure on your record, or have the bank transfer the note to someone who knows what the heck they're doing. Enter us. Now, $371,000, that's basically what, 3.5%? No, no, no. That's like 2.5% down. It's a really low down payment. We did not spend a lot of money. Oh, actually, no, it was closer to 3%. Call it 3% down. That's like an FHA loan on a $12 million property. That's crazy. On a property that's going to make $8 million, do you believe that there's a structure in which we might be able to raise $371,000 and relatively quickly refinance from the property and buy them out of the property? The answer is yes. And the model on that particular deal to secure the operational ability to run it happened to be syndication, where there's general partners and there's limited partners and there's a clear delineation. I'm not advocating for joint ventures or 506 syndication or 506 syndication or all the other Hoopla that you get into. It's just choosing the right structure for the amount of control that you need. But there are options for you to retain the control without having partners interfering or causing additional anxiety, and you can have a clear path to buy said partners out through the real estate itself. If you didn't know that, congratulations, welcome to Multifamily Strategy. You now know this. If you guys have questions, always feel free to ask in the chat, but today is a relatively short conversation, and I did a horrible job of advertising this before we went live, uh, because my wife is due with our daughter, uh, tomorrow. Uh, so I've been a little bit more focused on, uh, that as far as the marketing goes, uh, not advertising the live as hard as I should. I apologize, but I found this really relevant to the questions that I've been getting for last week, so I decided to share this here. If you guys have any questions, let me know. If you guys want to see a bunch of other plays that you guys can do to buy real estate regardless of the amount of capital that you have, The book on creative finance, literally what it's called, The Book on Creative Finance. It's on Amazon. You can purchase that right now. You can go there and read the book and understand the plays, and it is relatively inexpensive. And you just get the book, go through it. Tons of resources in there. Um, as always, I appreciate you guys. So leave a like and comment, and you guys want to see more of this, subscribe to Multifamily Strategy. We're live every Wednesday. Appreciate y'all. Have a fantastic week.