How to start investing with no money - Creative Finance Live

Well, now we don't need that. So you can cross that off and now you just have equity. But if you're starting out and you don't have any money and you make the decision that you consciously want to go out and buy real estate, now you need to figure out where's the debt coming from? And that's how I played the game with no money. It was 100% leverage from day one. I had a 90% first mortgage, and a 10% second mortgage. And I had 2 mortgages, it still cash flowed $800 a month, and I was able to buy the real estate with zero money out of the First National Bank of Cody.

So for those who said— I was looking through the chat, looks like we had an audio connection issue. So quick recap, we're talking about how to start with no money in real estate.

I gotta do that all over.

I know, and it was— I felt like we were on a roll. So good news, we have spent the first 5 minutes practicing exactly what we want to say for this. Welcome to Creative Finance Live.

Okay, back to the whole zero money down thing because that's what we're talking about today.

Don't do it on a credit card.

Don't do it on a credit card. That would just— that would be foolish. I had $3,000 starting out. I didn't spend my money. You don't have to spend any money to buy real estate out of the First National Bank of you. I had 3 grand in my bank and, um, didn't spend it. I just had to figure out, okay, I got a deal, now I figure out the debt and And that came from 2 mortgages. One was from a seller-financor, and then I had a private money lender who went in second lien position. If you get 100% debt, you can buy a deal with no money down. The trick is how do you make that cash flow? If you bring in a partner, you get debt for the big part, you get a little bit of equity for the small part, which is down payment. Now you can buy it with no money down. We don't recommend just jumping into partnerships though, as we've both been burned pretty bad. So we prefer the first option. If you're going to play the game and you don't have any money, you find an opportunity and then you structure the debt stacks. That's what we call it, is you stack your debt. You know, you have first position, second position, you could do third if you get adventurous, but you stack your debt so that you can actually buy it with a signature and you just got to make sure cash flows.

Now the mindset is really what's different here. When you reach out and you're like, how do I invest without using money? It's usually just because that's not a piece that you have, and that's the right way to look at it. I've talked to people of hundreds of thousands of dollars and they're still scared to invest. Like, well, I don't want to touch this money.

It's ridiculous.

If you have money, money loses value really fast.

It's just a tool.

Yep, exactly. I started with $100,000, so a little bit more than Cody. It also cost me 8 years of my life to save that up.

Yeah, and that—

I had a house, a wife, I had other things, but that's a slower way to start. Once I had money I invested it in a duplex and then another duplex, and then I was out of money, and then I had to figure out how to operate without money. The goal here and what we want to teach and encourage is use the pieces you have and the pieces that the other owners have to figure out how to generate opportunity. If you have money, I recommend investing your money. If you're out of money, now you need to get creative. If you're reaching out and you have the capacity to touch money and you're, you're worried about money It's the wrong mindset. How do I invest without money? Wrong question. How do I invest with the pieces I have today is the right way to think about that.

And some people are going to say you don't have money, now's not the right time to invest. Well, reality is if you owned the real estate, you would have money. That's just how it is. And so when people say, oh, you don't have any more money, and we just heard this from a bank today, you probably saw it on our Instagram post, we got fully approved. I was feeling pretty lucky. Right? I mean, we got fully approved, everything, the underwriter all got checked off. And then the lender said, oh, you're scaling too quickly, we're going to deny your loan.

The vice president of the company at 55% LTV, they basically said you guys are having too much early success, you're due for a loss, and we don't want to lend.

Yeah, the main thing that I want to put out there, you can keep scaling if you get creative. The lender may not want to give you a conventional loan, you may not fit that box. However, you can just keep scaling if you play this game, but you've got to be able to figure out the debt piece and you have to out the cash flow. That's it.

A question from the chat this week from Scotty. What are the reasons you buy for cash flow? I assume so in case the market crashes, you can lower your rents.

Okay, why buy for cash flow? Well, cash flow is the holy grail of all of finance.

Cash flow is all I care about.

It's all that matters. If you don't have money coming in on the first, you will go broke at some point in the future. If you don't have money coming in every single month you will run out of money. Now, that could be a dividend from a stock. Some people are going to say, well, I have stocks, I don't have tenants. Well, that's fine as long as it's paying you a dividend. But if you're not getting paid every month, there will be a point where your money gets devalued or you just run out. And so cash flow matters. It doesn't matter if your assets are appreciating by $1 million a month. We've had like the last 12 months, our net worth has individually gone up 6 figures every single month since we partnered. And it's been wonderful. If we didn't have cash flow, that wouldn't matter. We would then become the story of all those cool guys that, uh, at least I think we're cool, but we, you know, they scaled to 105 units and lost everything in one year.

Would be another Dave Ramsey story. I leveraged up and then I lost it all.

If you don't have cash flow and long-term debt, you're gonna, you're gonna go broke. It's just a reality of the situation. It's one reason that we want to pay stuff off. Tired of using banks right now because of what they're putting us through. In this situation, if you just have more cash flow, it's harder to lose everything. But if you just buy for appreciation, your net worth is going to look really great.

Really?

Yeah, it works until it doesn't. It's the reason developers and builders are the richest people till they're not. If they don't reinvest all of their profits and they make tons of money, typically if they don't reinvest it into cash flowing assets, they will go broke. It's not a matter of if, it's a matter of when. If it's not them, It'll be their descendants. That's how the game works.

And the last thing I'm going to say on cash flow: if you're trading your time for money, you're going to be stuck in the rat race forever. If you are using your money to buy back your time, you can only do that with cash flow because your money will run out. If you're just trying to stack cash or stack appreciation, that's not going to work. You need money to regenerate. It goes out, it comes back in, and you just manage those flows, and that's how you stay in the game and don't lose everything.

That's one reason that my old past mentor is losing stuff right now. It didn't go so well. He bought a bunch of stuff where he could make millions on each deal, but there was no cash flow. Turns out it's going away. It just seems to be how that happens.

It is a trend. From Still Boomin: What are your opinions on construction loans for first-time real estate investing? Oh, I have an opening thought on this.

Okay, go for it.

If you're talking about a construction loan for new builds, you're going to go buy land and build, I would not start there. Don't start with a whole bunch of unknowns. Cody knows this about me as our operations person. I hate every unknown. You have enough of them in business, they'll cause you enough headache. If you don't know everything about what you're doing, I wouldn't do it. Now, if you're a professional builder and you've done this 100 times for other people, that's different. For the average person, ground up, probably not the play. However, if you're talking about, hey, I found a deal that cash flows day one, however, I want to do some heavy reno projects, construction loan is going to be a part of my story of how do I never lose it. Now I'm much more interested.

I'd use them as an addition to a cash flowing asset, not, "Hey, I'm relying on this to fix the asset." Now I'd like to note that assets that typically don't cash flow day one usually have the most upside because less buyers can actually go put it together. The trick for us and our goal is let's get enough cash flow so that we can buy those non-cash flowing assets that have huge upside potential. And the main thing is, yeah, you make $1 million, cool. If it's over 50 years, not as cool. And when you buy— there's some non-cash flowing assets that sit there because they need a lot of work. The 38-unit we bought, on the market for 13 years, negative cash flow, $15,000 a month. Today, our appraisal was actually $3.41, not $3.1. We bought it for $2. I misheard. I didn't hear the 4. So we had an extra $300,000 in equity. We created $1 million for an equity on an asset that we bought that negative cash flowed, but we could afford to do that from the other real estate that we had bought. And so if you're looking at it like that, if you want to do ground up, you could probably make a lot more money. That's why there's a huge spread for developers and builders. Just know that if you don't have the cash flow to support it, you're going to become another story and you're going to build on your story. It's just going to be a little bit painful because if you can't hold it, it's going to cost you a lot of money.

Yeah. So verdict for me, because you asked about construction loans for first-time investing, build up your cash flow to the point that it can support 100% of the negative. If it didn't make a dime, you can support that out of cash flow. Now you can afford to take a little bit of a risk. And don't violate that principle. As long as you have more money coming in than going out, you're usually in a better place. I would not start with your first project relying on the construction loan.

Yep.

And I'll do one more from the comments, and then let's pull over to our chat.

And if you have questions you want to drop in the chat, I see some are coming in. We're about to get to those, but if you have more, put them there.

Uh, this from, uh, Daylon Harris: How can you tell through meeting private money lenders on Facebook if they're scammers or not?

Meet them in person every time. Now, that's not going to be your telltale sign. There are people that will scam you, but most people that are scammers aren't going to spend the time to actually go meet with you in person. And usually you can just feel out the situation. If people aren't professional or they actually don't know their stuff. Like, I get calls from brokers all the time, and I'm not saying they're scammers, but just you can tell when people aren't professional. And the people that are actually really good know their stuff. Scammers aren't going to know the little intricacies. And so if you are curious about the lending piece, you should go meet with the professionals in this space, and then you're instantly going to get red flags when you meet with people that aren't. You're just going to know the difference. It happens through enough practice.

Yeah, and it doesn't mean there's not great lenders out there that do market on Facebook and other social media platforms. It's just there's a lot of scams on those platforms. If you want to get around the online scams, turns out most online people aren't going to meet with you in person to begin with. So if it's someone local, they're a private lender, I would set up that meeting, get to know them personally, and see if they'll work. And still doesn't guarantee they're the right person, but, um, that is your first step to make sure they're not a scammer is don't send them money before you meet them.

Oh yeah. And don't pay upfront application fees ever. That's dumb.

Yeah.

All right. Uh, from 911 Roy Man, could I use creative financing in the Los Angeles County area? Yes. Yeah, you do it anywhere. We were originally buying— so Christian bought in Bremerton, which is a hot market, and I started buying in Moses Lake, which was not a super popular market at the time. And then I put it all over the internet and it got super popular and cap rates went way down, which is great.

Thank you for that, Cody.

Yes. I put it everywhere. However, a whole bunch of people were saying that, oh, you can't do this in an expensive area. I was like, well, I made this area expensive, but I'll go do it somewhere else. And so Christian and I bought a 7-plex in Tukwila, which is a suburb of Seattle, which just so happens to be pretty dang expensive, right off the light rail, tons of development going around it.

Excellent, excellent location. You can do this absolutely anywhere.

Now, the main piece you have to think about if you're buying an expensive area is the way you make money in real estate. If you're not paying cash, which I'm talking about that today, is on margin, and you have to borrow cheaper than your cap rate, your cash-on-cash return, if you paid cash. So if you're borrowing at 6% and your deal pays you 6%, well, you're actually going to lose money because you're also paying down the debt every month. So you have to be able to borrow cheaper than the return you'd get if you paid cash because you're paying cash for every deal. It's just not going to be your money typically, unless you're going to Ramsey this thing and actually write a check, which is where we want to get to someday, but we don't have the luxury of that yet. So in your situation, you can do it anywhere, but you're going to have to get some pretty cheap debt. And in the debt market today, that's probably going to have to be seller finance, which back to the creative piece. How do you buy? How do you never lose it? You got to meet with people that own in the market you want to own in, learn their story, connect over yours, And then ask for help on how would they recommend you go do something similar? Because if you can get that piece and get them bought into your story, you're going to get deals. You're going to get terms that no one else can get.

And if you've heard those lines before, how do you own it? And how do you never lose it and go out and meet with owners? If you've heard that in every call, there's a reason for that. That is all we do at the core of everything we do. That's 99% of the process. Figure out how the deal is going to come together and just go meet more people. More people, more opportunity. Next question out of Lancaster, PA area in Pennsylvania. It seems to be decreasing in population. We recommend venturing out into a neighboring state in search for a better location as a first property.

Don't compromise on location at all. I just wouldn't, uh, I wouldn't buy somewhere where people are leaving. If they don't want to live there, who are you going to rent to? Right now, granted, if there's a million people and it goes down to 999,000, 50, you know, whatever. But if you're investing in a place that has 30,000, 50,000 and you can see a noticeable decrease, I mean, eventually there's not going to be anybody there because people will die. And if no one's moving there, well, yeah, it's cool. You own a bunch of real estate that nobody wants to live in. So don't compromise on that. I would find a place, even if it's only got 10,000 people. First place I ever bought in had 7,600 people. Today it's closer to 9,000. It's going up, but I've got solid employers in the area. I'm confident that people are going to be living there in 50 years from now. So just make sure that if you're investing somewhere, you're confident people are going to live there because you're not buying real estate to hold till tomorrow. You're probably going to have it for a long period of time unless you're flipping, which we also don't recommend. So you got to figure out your strategy, but Don't buy where people are leaving. There's a reason for that. Yeah.

Now, if you were already a sizable landlord there and you have a game plan of, hey, this is how I'm restoring the city, that's one thing. Uh, in answer to your question, for a first property, I wouldn't do a first property in a market that has indicators that it may be a losing market. That's, um, excellent question.

All right, Adam, multifamily versus single family for cash flow. We buy multifamily, hence the company name Multifamily Strategy. Single family is cool. You can buy a bunch of them. You could buy blocks of single family housing. But the difference is if you buy 12 single families and I buy one 12-plex, you're going to have a heck of a lot more roofs. That's going to cost a lot more money.

Now, mathematically, too. Yeah, you can't have a bigger bottom line income without a bigger top line income. There are not a lot. I'm sure there's some castles out there, but there's not a lot of single family that can rent at $26,000 a month.

There are some.

Yeah, there are certainly some, especially going back to our LA investor. I'm sure there's more there. However, there's a lot of 25, 30, 40-unit buildings that have that income. If you can get more income, there's a greater chance to get a higher top line. There's just no way a little single-family house out in, we'll say, Grant County where we invest, it's not going to outpace our 38-unit. You can't get enough cash flow to cash flow $5,000, $10,000 a month. It's just not going to happen.

Now, could you do the Airbnb thing? Sure. However, that's not our preferred method. We do the multifamily game. You can do Airbnb. There's a lot of people crushing it until they're not. And the strategy works until the goalposts shift. And that's one of the first lessons I learned from my old mentor. You can play as long as the goalposts are stagnant. Multifamily, the goalposts stay pretty stagnant because people need a place to live. That's not necessarily the case with the short-term game. Could be, but you don't know that for a fact. What I do know for a fact is people need a place to live long-term. And so that's why we do the multifamily thing. You can make a ton of money. I've got friends making $80,000, $100,000 a month in Airbnb, but, uh, it works until it doesn't.

Yeah, as I said earlier in the call, as a business owner, I hate unknowns. You have more unknowns with variable income where it's going to go up some months, it's going to go down other months. I like long-term income as much as I like long-term debt. If I have a contract for a year, that is much easier to forecast. You can run your business better. Our two cents, if you want to get into the short-term rental game, a lot of people make money there, buy enough multifamily on long-term leases to where if your property doesn't make any money, you can still cover it. Now everything's gravy.

All right. From Jackson Davey, it's difficult to find anything that rents for at or above 1% of the purchase price in SoCal right now, but I'm sure there's workarounds. There's always workarounds. 1% rule is bogus. That got promoted, I think, primarily by BiggerPockets, which is great.

Uh, we like them a lot.

Yeah, it's a good, you know, start, but the 1% rule doesn't tell you anything about the expenses. Yeah, you could be bringing in 1% a month, but if the expenses are 60% a month, that's probably not as good as a deal that You know, we can just move around the margins. I'm not going to do it because I'll, you know, I, I'll understand it, no one else will because it's in my head. But you get the point. You're looking at top line. You need top line to have bottom line. But 1% of the purchase price doesn't tell you anything about the expenses, because if you're only netting 40% of your income because you're doing some hospitality biz, or 30% of your income, all of a sudden that may suck. It may be a terrible deal. So you got to know, okay, what's your actual NOI? What's your net operating income? Because that's the money you have to service your debt. And if you can't service your debt, you're not going to own a lot of real estate for very long.

And the 1% rule is an indicator. I mean, 1% rule is clickbaity. It's easy to write. So sure, it's a good name for it, but really it's just an indicator of, hey, if the, the rents are 1% of the purchase price, there's a good chance it will cash flow, which is generally true. That has a lot of assumptions, though. Conventional financing, traditional purchase. If you lower expenses, say you just get a much, much, much lower cost of debt, all of a sudden cash flow goes up. I'll bet you if you are borrowing at 1%, which is totally possible, if you borrow 1%, your cash flow looks better regardless of where your total rent to purchase price lands. Price is only one factor of many terms.

Trying to buy my first house in a duplex, thoughts on FHA loan for financing? Well, if you want to buy a duplex, you might as well just go find a house with an ADU and then do conventional 5% down because then you can save your FHA for a fourplex. Now there's some rules with FHA on fourplex. 3 of the units are going to have to be able to pay for the mortgage on their own. There's, there is, there's some actual requirements for that that make it more difficult and more expensive. Cost of living areas, something to chat with your lender about. Not all of them know about it. But if you're going to do the duplex route, go find a house with an ADU, do conventional 5% down and save your FHA. It's not a first-time homebuyer program. It's not. I mean, people think the F stands for first time. It doesn't. Federal Housing Administration. It's a program to help people get into housing. So save that for bigger deals if you can. If you're in a more expensive area, maybe the rents don't allow for that, then you have to do it on a duplex., but try and use your conventional 5% down. That's actually what Christian did to buy his first duplex. It was a home with an ADU.

Yep. That was my start in multifamily. So different ways to, uh, to make it happen. But if you can, and you're using FHA, I would use it for as many units as you can possibly get, which is up to 4. Triplex, 4-plex would be the preference, just a little easier with more units to make a little bit more money.

All righty. So we have CK, we haven't gone over CK's, right?

I don't think so.

All right. From Houston, your future multifamily partner. Howdy. How do you guys handle large repairs? Example, parking lot, roofing, structural. Do you do bridge loans or hard money? Oh, you do both. And hard money loan could be a bridge, right? It's a bridge from where you're at to where you want to go. And so we've done that on a big roofing project. The very first— second 12plex, it was my first fixer-upper I bought for $680,000 back in June of 2020. It was ugly, had the UGLYs. It did. Christian actually just partnered with me on that deal earlier this year because I needed to get liquid for other stuff, so I let him buy into some of my deals. And, um, we just leveraged that with a short-term bridge loan. It was a 12-month loan, and we're about to put into permanent financing. We put on a pitch roof. It was one of those roofs that went into a valley. It's called a butterfly roof. You look it up, it's the worst thing that's ever been invented. And we got the building painted, we're redoing all the rock outside. We're going to do nice river rock and potentially a couple other amenities, which will be a lot of fun. But we did that out of— we increased the cash flow and then we were able to borrow new money. If you make more money, you can borrow more money and then you can improve it and get the rents up even more and potentially reduce expenses. And then your NOI goes up, you can service more debt and Your property's pretty. I mean, that's, that's about it. So, um, you can also do that a cash flow. We've done a lot of repairs out of cash flow. You can also do that earned income. We've got our consulting company, themultifamilystrategy.com. Money comes in, we reinvest it back into real estate. We don't pay ourselves anything out of that, like next to nothing. So all the money that comes in from that, our earned income, because we don't have a real job We take that and we throw it at the buildings to make them nicer so that community is going up. You can do that earned income, you can do that cash flow, you can do it out of borrowed money. Just make sure if you do the borrowed money route, you don't over-leverage on short-term debt. It's the main piece. Absolutely.

By the way, got a text in from Dion. He said, hey, don't forget to remind everyone, every time you hit the like button, an angel gets its wings. Oh, Dion, I appreciate you, Dion. If everyone can test that for us, I appreciate that very much. So the more people can ask questions. Uh, the next question that I see here, uh, have we considered a stipulation, um, with balloon payments? Property doesn't appraise at or above ARV, then the balloon payment is extended?

No, we haven't done that because that's not their problem. That is not the seller's problem. That's your problem. So if you're worried about balloons, get longer balloons, or don't buy the property, or, you know, that's, that's basically it. Or find a way to pay pay it off because it's really not the lender's problem if you can't pay them off. They'll just take it back. So you need to, number one, have a good relationship with them. A lot of our lenders, they'll just extend just because, because we're not getting it appraised. I mean, we're— if we go and get a refi, yeah, the 38, we got it appraised because we wanted to refinance it. But typically, if you start paying down your loans low enough, you may not need an appraisal if you're low enough loan to value.

So a lot of times what we do is, uh, we coined it a seller refinance. You essentially get to the end of the loan and you go, hey, uh, we can pay this off and we can figure this out today, or if you want to just keep rolling, uh, we can just extend or renegotiate. Maybe interest rates have changed a little bit in the last 5 years and they want to adjust a thing or two, but an option to extend is something that we put in lots of terms where parties get together and decide what we want to do at balloon time. Um, however, I wouldn't put the responsibility off of yourself to meet the balloon. If I was a seller, that would be a huge turnoff to me.

It's like, oh, that's on you.

Yeah, that 100%.

All right. Do you recommend having your own agent before trying to contact sellers on a deal, making relationships? Well, no, you don't need a— you don't need an agent. Now, if it's listed, you're gonna have to go through their agent because they contracted that person to deal with everything. However, if it's not listed, stop market, No, go build your own relationship. Go make the phone call. And if you're worried about making the phone call, understand that I get that because I used to be afraid of talking to Starbucks baristas. That's how I learned how to communicate. It's scary. And if you're naturally great at communicating, awesome, you don't have to worry about that. But go build your own relationships. Don't work with other people just to build those relationships because then it's not going to have the same level of significance.

Which reminds me, not directly answering the question, but with brokers, uh, we had a question messaged in, uh, somewhere over the last few days. Hey, um, when contacting a seller, how do I cut out the broker? Yeah, the property—

don't ever do that.

That's just terrible.

Yeah, you only saw the deal because of the broker, and now you're trying to cut them out of the money that they earned from doing all the work. Don't do that. That's That's awful.

If a seller contracted a broker, the seller wants the broker to represent the property. In general, respect that relationship. The owner of the property put that relationship into play. So just a, just a reminder for everyone, that's a public service announcement.

Yeah. And then from Jackson Davey, so factor rate needs to be below the cap rate. Yes, that is how you make a spread. It's not just the interest rate. So the cool thing, if you go to a mortgage calculator, you're going to see what the payment is and do it on something with zeros. So if you go to a payment on $1 million, at 4% interest on a 30-year amortization, just off the top of my head, that should be about $4,774 a month. You can fact-check me, but it should be about there. And so if you take the $4,774 and divide it into the million, you get 0.004774. That's what we call the factor rate. Now, the interest rate's 4%, but the monthly payment is 0.004774. So if you know that, you can multiply that out on an annual basis because cap rates are returns which are always looked at on an annual basis. And let's say on a $1 million loan, your payment was, let's see, 0.004774 times 12. Your factor rate is actually 5.72 on an annual basis, meaning that if you are buying at 5.72% interest, then, um, or a 5.72 cap, if you borrow at 4% interest on a 30-year arm— sorry, I butchered that— then you're going to break even on every dollar you borrow. Now, if you can borrow cheaper or you can make a higher return, meaning you buy a 6 cap, now you make a little spread. You make 0.03 on every dollar you borrow. And so the goal is, how do I get my factor rate, which is just a number you multiply by the loan amount to figure out how much your loan is going to cost on an annual or monthly basis? How do I get that number to be lower than the actual cap rate, the cash-on-cash return I get if I paid cash?

If you guys are visual like me and want to see that in deeper depth, we have a math video. We'll link it. Yeah, I think it's called Real Estate Analysis It's either 201 or it's one of the ones. Yeah, I'll, I'll link that below. I'll find the video and I'll make sure you guys all have access to that.

All right. From Michael Gonzalez, can you give Michael— give examples to pay back a 2 to 1 return? Oh, how to pay back a 2 to 1 return? Well, you do it with money, so you got to figure out where the money's coming from.

And it's easier when you borrow, say, on a deal where it's a lower down payment that you're raising. Turns out it's easier to multiply money when there's less of it to multiply. So for a really simple example, say you had a deal that has— you have a clear path to $200,000 of upside. You borrow $50,000 as a down payment on said deal. A 2-to-1 would mean you have to pay back another investor $100,000. At the point that you reach that $200,000 in value, you either get a new loan You could pay it off out of earned income, or you refinance the property, take that refinance and use that to pay the 2-to-1. But in that scenario, you create $200,000 of new worth on the property. Half of that goes to the person who gave you the $50,000, giving them their 2-to-1. They put in $50,000, they walked away with $100,000, and you made $100,000 without any money in the deal.

And if you get pinched, you sell the property, You give them the $100,000 after closing costs, depending on what your actual price is, you'll probably keep $70,000, $80,000 out of that $100,000 that you have extra. And then you use that money to go buy the next deal.

Yep. Don't— and I've seen this proposed before— don't offer a 2-to-1 if the property doesn't support a 2-to-1. Otherwise, the only way you're getting that back is to go earn all the money to pay them back. You need to make sure there's enough upside to comfortably cover that much. Otherwise, you're going to have to offer a lower return, and you're going to have to have the right investor for that.

All right, Adam said give a like. Appreciate that, Adam. And we got thumbs up. And what do you think of Washington coast and the Oregon coast? I'm moving that way in a few weeks. Well, come say hi. We live here. I mean, it's great. Well, some, some parts.

Um, yeah, mixed reviews on Washington. I am not a big clouds guy, and there's a lot of clouds in Washington, Oregon. So if you need sunlight, um, have many vacations planned.

It's hard to get a tan. However, as far as the investment stuff goes, there's going to be deals everywhere. Now the landlord-tenant laws here are not in favor of us. They kind of suck. However, you could do deals everywhere as long as you're buying great principles and you have to build out your solid foundation. If you're buying for appreciation, cool. A lot of appreciation here. You're buying for cash flow, now you need to get a little creative because there's appreciation markets and cash flow markets, and it's a little more geared towards appreciation here, which is not how you should build a business. We talked about building off of cash flow earlier today, so you're gonna have to get a little more creative. Hence how we do what we do, we just focus on the creative side.

If you're looking for the market analytics though, most cities on the Washington and Oregon coast, most of them you're going to see population growth. We have a lot of fairly high-paying, very, very stable jobs and a beautiful climate— lots of mountain, lots of water. So you have a lot of amenities, a lot of income, uh, generally a lot of good investment markets within those two areas.

All right, from Jackson Davey: what are your goals for the upcoming year? So if you're talking about 2022, we are looking to close out on a resort, which will share a lot of on the channel as soon as we get that thing locked up. That's seller financed.

Yep, working on that, uh, speaking of, of, uh, Washington, uh, coastline.

Yeah. And then, uh, on top of that, for next year, we want to build out our systems a lot. We did a lot of building. This is what we called build year. Now build year actually ended up being over 12 months because build year started a year ago when we first partnered. So it's going to go all the way through end of this year. We've done a lot. We just focused and we sacrificed everything to build something no one's ever built before, do epic stuff with epic people, stuff I'm replacing to be politically correct on this call. However, that was our goal. Let's go do something no one's ever done before and let's share it with the world, which is what we're doing. And so we've got a few more months of that, keep building, building, building, and then we'll build out our systems. Christian had a podcast with BiggerPockets saying find new problems. Well, we, we found some new problems, I can tell you that. However, we don't have a real estate problem anymore. We figured out how to buy real estate and how not to lose it. That was the most important piece. Now we have to build out systems for management, for accounting, hiring people on. Christian's doing a lot of that stuff because that's not my job.

Yeah, we want to take our property management company— we're a team of 3, we're expanding to 5, and we're looking for adding 6 to 7 is probably the team size that I want to have throughout the next year. So a few more hires a little bit more stability and pay ourselves.

That's another goal.

Oh yeah, that's a huge goal. We have done 100% reinvestment. Part of our 17-month build year— I know that, uh, terrible math, but I called it build year and Cody's the math guy, so 17 months is 1 year for build year. Putting this together required everything. We've paid ourselves probably a few thousand bucks to live on Uh, throughout this season, very difficult to do. Next year, I am really looking forward to actually having some sort of recurring income through our businesses.

Yeah, that, that is very exciting. All right. And then from Evan, have you come across sellers who don't want you to refi out of their seller financing period? Yeah. A lot of them. Your first one in particular, my first deal, they put a fat prepayment penalty on it, meaning if I pay them off early, they're gonna find me $150,000.

How many years do they put on that prepay?

10 years. They don't want me to pay them out at all. And so I'm like, okay, well, that— it's a 30-year fully amortized note. There's no balloon, so I'm not worried about it. It's very hard to get that note. And sometimes in order to get what you want, long-term note— my first deal, how do I buy, how do I never lose it? Well, how do I never lose it? I never have to refi. It'll just pay itself off like a house. Ta-da! In order to get that They wanted to know that I wasn't actually just going to go pay them off, and so they put a prepayment penalty on it for a decade.

From Micah: Would y'all be interested in partnering up on a deal if the deal makes sense? Well, by the y'all, it's possible that you're from Texas, which makes me more interested, but I am much more interested— we don't partner a lot. It doesn't mean we never partner. Um, I don't partner with people that I don't know. So if the deal makes sense That's a great step. That's really necessary. But who I'm investing with and who we're building out, whether it be a company, a piece of real estate, any project, the players are more important to me than the deal. So yes, the deal is important. That is not the most important thing to me when we're partnering.

And if you followed some of our principles, we have the real estate principles every Monday. Those are some of our least watched videos. We still still get a few hundred views per video. Can't do a good deal with a bad partner. And if you know your principles, you never violate those, your odds of success go up. So if, uh, you're thinking about it like this, just think about who are you as a partner. Are you the partner you'd want to be for someone else, you want to see in someone else? And if you're a great partner, then your odds of finding another great partner go up. That doesn't say that you won't find bad ones. We've been through our fair share. Yeah. So, um, if you're a good partner, then your odds of doing a deal like that with someone like us, whether it's us or not, go up. Okey-dokey, uh, we appreciate that, Jackson. Too kind. All right, Mr. Artis Call— I hope I pronounced that right— is there a difference between how you underwrite small multifamily, 10 to 30, midsize, 30 to 100, and large multifamily, 100 plus? No, everything's the same. We want to look at the market conditions, and I, I don't want to like talk too much on this one, so I don't want to take it from you, but I love the numbers. Um, how do you buy how you never lose it?

Yeah, that's it. That, that's really it. Um, you just have a little bit more math to do. Like if it's a 100-unit complex with 5 pools on it, you're going to have different expenses, so you're just going to have more to account for. All of it should be laid out pretty simply on the same financial docs. You can have your T12, you're trailing 12 months. So you look through the history of the property and you want to see a profit and loss. What does it make? What does it lose? At the end of the day, you're just looking at bottom line numbers and making a decision. Very, very simple.

All right, we got a question for you, Christian. Okay. I bought a fourplex in December. That was a slam dunk, but since then I've been struggling to find a way to buy more. I found the two of you on BiggerPockets and was fascinated. How do I start doing what you do? I love that.

So you bought a fourplex in December. I started with a duplex in December of 2020, um, then I bought another duplex. So I got stuck at 4 units as far as the money goes. I invested what I had to invest, um, I had a tiny, tiny bit in reserve which I was maintaining my house on, and that was it. I had this crazy goal of, hey, I want to get to 30 units by the age of 30. At this point, I was 5 or 6 months into being 29. So 6 months to pick up 26 units. I was already starting to work with Cody on some other projects. He had his 6-plex across the street from my duplex. So we're already property neighbors. We worked at the same company and Cody came into my office one day. He's like, I have an idea. I can't get you to 30 units, but I'm working on a 38 and that would put you at 42. All we did on that deal, by the way, it was listed for 13 years on market. It'd pop off and on occasionally, but price never changed. Opportunity's been there forever. Cody needed another partner to take that out, not just for the capital piece, but mostly that's just a huge project to take on by yourself, and it's not fun to do by yourself.

Not at all. That would have been lame.

So we found someone who we wanted to go on the adventure with, someone who we had trust with. Cody had helped me a lot with my duplex project. He actually brought it to me originally. I helped him a little bit with his—

I thought I was going to broker it, which is why I brought it to him, and then I got a $500 referral.

Yes, and a partner. Yep, so that worked. And later hundreds of thousands of my dollars. However, as we scaled together, we had trust. We knew we could work together. We knew we had the same vision. So for me, I found the right partner. I established the right goal for myself.

Yeah, quick question. What city area in Washington do you guys do your business? Those are two questions. Okay, uh, well, we invest in Tukwila. Christian's in Bremerton, and I'm in Quincy by myself. I want him to join someday. And then we're in Moses Lake primarily. Grant County, King County, Kittap County.

Yep, working on some projects in Mason County. Yep.

But we'll disclose more on that later. Yep. That'll be its own subsection on Saturday videos when that's done. Okay. Meaning what's the first actionable step? Okay. First actionable step for you, Vlad, is to go out and meet with owners in your market who own the type of real estate you want to own. They know it better than anybody else. So you want to buy in L.A.? Go meet with people that own in L.A. And if you don't know people there, Reach out to people who might, and that could be me. I know people that own 900 units in LA and they own it very low loan-to-value, under 20%. There's some big players out there, but you'd never know until you ask. So go find people that own a piece of real estate, call them up. It's a little hard to find contact info as far as owners go in LA County is what I found. You got to actually pay for it. So you might have to get a little bit more creative, but there's ways around that. Mm-hmm.

From Mason de Pablo, how do you decide which financing you're going to go with, whether it's private seller finance or conventional? I'll start with conventional.

Generally don't like conventional because I have nothing conventional.

Banks suck. I've done 4 conventional loans: my first condo, my house, my first duplex, and the refi for my second duplex. So I've played a little bit conventional. It's arduous and you rely on a lot of other people's opinions, often people who don't know your market nearly as well as you do. Um, it's frustrating. I like working with people I know and trust who don't report to other people who I don't know and don't trust. So that's why we do so much seller-financed, is we get to meet the other owners. We actually have a relationship with them. And so we're just working— it's all in-house. It's people who know each other, it's people who like each other, people who understand each party's goal. There's not a whole lot of red tape. So that's why we do so much seller financing. The private capital— a lot of seller financing isn't 100% seller finance. So if you need to figure out that last piece and you don't have money of your own, you can do a mix of seller finance and private capital. And that's what we've done almost exclusively. We've done a conventional purchase with— or more conventional— with private capital. We didn't use seller financing for one deal.

And Little 6-plex. Yep.

Then everything else has been seller financed with a little mix of private capital.

And there were still 2 mortgages on that. We did it to be creative, but yeah, no conventional loans. We have one last question for today. So if you have anything else you want addressed on this whiteboard Wednesday, drop it in the comments. If not, we'll end on this from Jackson Davey. Do you guys ever go direct— oh, direct to seller marketing, or is all your deal flow through relationships and connections you've built? Over time? Well, today it's throughout all the relationships that I started building 3 years ago. Christian and I partnered a year ago as of this month, and we've been working the majority of our deals off of those relationships. Some of them though, we bought a 7-plex and we're working on a resort right now, which will be the single coolest asset we may ever buy. 10 out of 10. We're very excited. Class A waterfront. And anybody on the call is welcome to go stay there when we close it out. But, um, we got those through YouTube. So not all of the deals come through direct marketing to sellers. However, most of them did, and the ones that didn't either came from YouTube or from brokers. And so you can get your deals from social media, you can get it direct to the seller, or you can get it from a broker. Originally we thought it was just seller or broker, but it actually can come from friends, from social media. Which is how we've done some of the cooler deals that we've done.

Yeah, the only direct-to-marketing, like direct marketing we do to sellers is we call people who own real estate in our market and get coffee with them. And we do that, you know, a call a day. It's not a whole lot of volume. A lot of it comes from actually telling your story. That was one of the little Cardone-isms we got from Grant Cardone really early, as he mentioned in a video. No one tells their story from the beginning. So we made the decision on this channel to tell it before we did anything.

Go watch my first video. I recorded that over 10 times. It was a minute and something seconds long. Awful. All right. Uh, someone said, I'm holding you to that. Oh, Mason said, I'm holding you to that offer. You're welcome to come stay. There are kayaks. All right. Uh, okay. Wow. A lot of questions came in. Good. Dividend Dave. Are there any great sources like books or YouTube channels that you can really break down how to make seller financing deals? Uh, well, we're trying to be one of those sources. Another source is Deals on Wheels by Lonnie Scruggs, which is like a $500 book for whatever reason. I don't know why it's so expensive.

I know it was odd.

It's very odd. It's like they're missing a decimal. However, we're trying to build that out. So if you have content you want to see, just shoot us a message and we'll record it.

That was actually why we originally made the decision to launch a course, is We had to figure this all out from people who've done it because no one posted this online in one place. No one put it in a book. Brandon Turner lays out the 101 in how to do deals, no to low money down, but it's very 101. The book's this thick.

And then there are other people that have channels on little clauses of creative finance, but we're not here to teach you about a clause. We're here to teach you how to actually buy real estate through money down. We just want to share the strategy of how we did it. And a clause is not a strategy.

Yeah, it's a Santa.

So, uh, if you know, you know.

Um, let's see here.

Um, from Evan.

Uh, Evan, do a majority of the deals you've seen need upfront renovations to cash flow? I know you seller finance at least one with lower payment for the first 6 months. Is that a common structure? Not typically. We will typically find stuff that absolutely cash flows day one without any modifications. Then everything else is gravy. The exception to that was the 38. Why did we do that on the 38? Or at least, why were we able to?

The 38 had the most upside of any deal we've ever bought before, and that put us on the map. It was something big enough. It was our first deal together. It was like, wham, we're here. If that's all we did, we can market the heck out of this.

Yeah, you asked about marketing. That was a reason.

Do epic stuff, and then, uh, share it with people. And that's what we did. So the 38 was cool because we bought it without any money out of pocket. Granted, we put 6 figures into renovation later. There's 5 multiple 5 figures each, which added up to 6 figures. And then out of cash flow, we dumped another 6 figures and we dumped more money and more money. And eventually we ran out of money and then had to go earn it. So voilà. However, it didn't cash flow day one. And so we bought that because of the upside and the marketing story. Today, we're only buying things that cash flow. And 38 cash flows.

And we wouldn't do that if we didn't have sufficient cash flow and income to cover it if it didn't perform. If we, if we missed the mark and we took way longer to raise rents, we had a game plan. We had cash flow from an existing portfolio that was bought on cash flow. If you start investing in your first few investments, like we started on that 38-plex, we would have just drowned.

We would have got buried. We would have lost it. We couldn't have answered the second question. Exactly. How do you never lose it? If you lose it, well, cool, you got a story, but you don't got any real estate.

Yeah. So not a typical structure. Typically they're going to cash flow pretty well day one before we'll really look at them.

Okay. And that was from Evan. So from Vlad, do you do coaching on your method? Yes. I'm convinced your method is amazing. I'm just the type of person that needs to know too much information before starting and need a push. Well, I can give you a push and I give you a bunch of information. I would pick which one you want because there's a time to gather information, there's a time to apply it. And yeah, you can go study a whole bunch. We actually have a box drill. I think we put it on here somewhere on our channel, but a box drill. And you don't know what you don't know. You get a new idea because you read a book and then it moves into a box of, you know, you don't know it, and then you go study it. And that's what you're doing right now. You gather a whole bunch of information, you go study a ton And then it goes to you don't know, but you kind of do. And this is where in theory you're an expert, but you haven't applied it yet. You've probably already studied a lot. Now you need to go apply it to where it goes in the box of, you know, that you know it, you are the expert, you're the professional in the space, and you can just repeat it over and over and over. If you just keep studying, in theory, you're going to be an expert on a lot. Reality, you're not going to be an expert in anything.

Yeah. And if you're looking for help on platforms, we have a course online you can always check out for the information. I mean, feel free to ask us on the channel, we'll share it too.

Yeah. And you can also just text us. I mean, How to Find Any Property Owner Ever, we have our phone numbers in that. So if you want to text us, I had 3 people from this live text me during the call and I don't even have their phone number saved. So, uh, some people know how to do it. So if you don't, watch that video. But If you have questions, just reach out. Yeah.

And if you guys want to get involved with any of our mentorship stuff, just reach out privately. Uh, I'm probably the best one to hit, just @ChristianOsgood. You can hit me up on Instagram and that seems to be the easiest place for me to sort all my messages.

Have you bought any deals on market? A ton.

About half of them.

Bought 38 on the market. My first 12-plex on the market. We bought 2 triplexes on the market.

My second duplex.

His second duplex on the market. Um, There's probably something else. Maybe not. That might be it, but it's over half the portfolio. Well over half. So I caught you on Pace Live.

Oh, good. I was going to say, is it— if so, how do you use seller finance if they are on market?

Same way.

Yep. Same exact way. The only difference is you're going to respect that broker relationship with the owner. You're going to talk to the broker and you're going to be asking them to basically be the interface between you. Is it inconvenient? Yes, I'd rather work with the owner directly. However, if a broker's in place, you're just having them pass back and forth the information.

All right, from CK. Hey guys, top value adds to justify rent increases and move from Class C to Class B? Well, um, grounds. A lot of people don't take care of the grounds. If you can maintain the ground, uh, if you go in and just replace appliances— a lot of people like to fix up appliances, just replace them. Change them out to stainless. Tenants appreciate it a lot when they just get a new stove. I had to do that at my 12-plex recently and just go and replace some appliances— new stove, new refrigerators. Now, could you probably fix it up? Sure, but just go get a new one because it's going to look better. Tenants are going to appreciate it a lot. If you paint the exterior or stain the brick, that can go a long ways. We just did that. Also just did a roofing project. If you go and replace roofs, replace water heaters, We showed up one day, we had contractors coming in. I think they replaced 6 or 7 water heaters in a day at one of our buildings. And tenants talk. You show some— not information, you shove some energy into a property, tenants will talk. They'll know and they'll appreciate it. And the main thing is you want appreciation, because if you're going in trying to bump their rent, well, you better get some appreciation before that. Some people go in and just raise rent. If you can go in there and really clean it up, start shoving some energy, maybe you paint the exteriors or stain the brick, redo the fencing, something like that, typically they're going to be fine with it. And that's how we get 100% retention on a lot of our stuff when we're raising rents.

If you want advice on the first thing to do when you close a property as far as tenant interactions, just go through each unit, or if you have a property manager, have them do this and just get a list, solicit what is wrong with the unit. If there's stuff like, hey, the toilet's super old, the two burners are out of my stove, just coming in and instantly saying, hey, there's a burner out, we're gonna replace the whole thing. Problem with your toilet, we're gonna replace it with a new toilet. There's, you know, your fridge is gone, I'm gonna go ahead and replace it with a nice new fridge. We'll go stainless steel appliances. If you put that energy in right up front, you take the smaller cost and you say, hey, we care, we're gonna go above and beyond, we're gonna gather everything that's wrong. We're just gonna go fix the little day-to-day problems.

Huge buy-in. I just got a text. My grandma's watching. Hi, Grandma.

Hey, Cody's grandma.

I'm Christian Osgood. All right. Next up, I have 4 waterfronts and am maxed with my personal finance. Where do I find the best hard money lenders? I don't quite get the question. However, as far as, uh, the best hard money lenders, You need to find lenders who want to lend on the asset that you want to buy. There's people that only lend on residential. There's people that'll only lend on commercial, mixed-use. You need to find the people that will lend, and then you just got to build a relationship with them. This comes down to relationship-based partnerships.

That's it.

Yeah.

If you're in Washington and looking for a great lender, um, Flynn Family Lending is one that we're really close with. And, um, Beth there actually just came out with a book on BiggerPockets. I'll link it below because it's worth reading if you want to know a lot about lenders and how how they think. That's a phenomenal book.

All right, from Dividend Dave, I'm really liking your stuff, so I'll be coming back to learn. Thanks. Good to see you. All right, from Root, not to be mistaken with Groot, what is your recommended response when talking with the seller's broker if you're getting started investing and the broker asks what your portfolio looks like?

Well, I would start by telling them what your portfolio looks like. And I know that sounds, I know that sounds sarcastic, but just have an honest conversation. Way too many people lie, and we've been dealing with this this week with banks. Don't lie. Yeah, we've had banks— oh yeah, everything's going to be good.

We're totally—

people lying is upsetting. Just be honest. If you're a new investor, you don't have anything, share the story of what you're trying to do. Share a story about how your family or friends got into real estate. Whatever it is, just share your story that's yours. When I got started, I had 2 duplexes when I really started calling owners. Even when it was awkward for me, I didn't know what I was saying. People would go, hey, um, well, what do your holdings look like? Well, I just bought my first duplex in Moses and I'm going to take over the city. Is that likely? Probably not, but that's where I was at and that's what I said. And that gave me opportunities for 5-plexes, for all sorts of other buildings, is just sharing like, this is where I'm at and this is where I'm headed.

All right, from Dennis: purchased my first single-family unit last year, now parents and I are going on our first deal. Off-market motivated seller but needs cash for nursing home. It's $360,000, 30 to 40K rehab, $500,000 ARV. Okay. Are you planning to flip it? I mean, that's the main thing you got to decide. Okay. What would you do if HELOC or private lender doesn't work? Well, how much cash do they need? They may not need all of it right now. And so if they need $200,000, maybe you structure it where you get a hard money loan for $200,000 in first position, you get a commercial lender, small credit union, or a private lender to finance the remainder in. So you get the seller basically to finance in second, you get the private money lender to finance first. That's what I meant to say anyway. That, that is what I would do in that situation if you don't have any money.

Yeah, we don't do a whole lot of single family, but the, the numbers are pretty simple. If you do run into a problem with HELOC or private lenders, because that happens especially when there's uncertainty in the market like there is right now, lenders tend to be a lot more stingy with their money. The one thing you might have to do is you get a great ARV. If you can't get any money lined up for it, uh, on the back end and you have short-term capital to pay off, your last option is sell the property and invest in multifamily.

Yeah. And then our last point here from BVQ Crazy: a little talk about your course. We basically go from point A to point Z, how I did what I did in the last 3 years and how Christian and I have scaled over the last 12 months from him being at 4 units to him being at 95 and me being at 30 in the last 12 months to being at 105. You could play this game without any money, and it is actually a lot simpler than you think it is. It's going to take time, hard work, and it's not easy, but it is simple. And so if you want the clear path, watch our YouTube for one. But if you want a little bit more streamlined, you can check out Multifamily Strategy themultifamilystrategy.com. But it's really just that simple, and keep it that simple.

Don't add steps. Yeah, we share everything for free online. That's why we have This Week. That's why we have our YouTube channel. We put everything on there. We answer all the questions every Wednesday. The only purpose of that course is in YouTube, we share stuff as it happens and as it's important to us. Sometimes an 8-minute video isn't what you need to communicate a point. All we did is we organized it all, like you said, A to Z. Here's how we did each step of how we did. So if you follow these steps, you have the information. Information is great, that's why we recorded it in one spot. What's more important is the application, far more important than the information. So go out and utilize it, and, um, if you guys need help doing that, again, feel free to reach out anytime.

Yeah, so, uh, we're gonna drop some links down below, and if you want to join the Cody Squad, the Cody Doing Cody Things shirt— it's not our shirt, but, uh, we'll drop an Amazon link because it would be funny if we just had a whole bunch of people someday that— I actually ran into someone and I had it on and they're like, I know you. So if you want to join that squad, it's not our shirt, but it is on Amazon. We'll drop a link to that. We'll drop a link to a couple of the videos we referenced earlier. We're gonna have to fish through this video to figure out what the heck we referenced. And, um, we'll see everybody next week.

All right, talk to you soon.

How do I end this?

Screw up.

Boom shakalaka!