How will Tariffs and Insurance Increases Effect Multifamily ? Christian Osgood Live

All right. Welcome back to Multifamily Strategy. We are live. We are on time. We are back on schedule, guys. Super excited to see everyone today. We are going to talk about some of the economic factors that we are seeing coming down the pike. I'm going to cover stuff over the next 4 years, but I'm really, really focused on what I expect to happen over the next 2. We're going to be talking about the tariffs that just got pushed on Canada, on Mexico, on China, the backlash from that. How is that going to affect real estate? Another major thing, we've had fires in California, we've had floods in the Carolinas. Insurance rates are going crazy. This is going to have a major impact and is having a major impact on a lot of owners. I know, especially in Washington State, most major insurance providers, they left. My insurance went up 250% in that state. That is a major effect. How does this affect long-term real estate, short-term real estate? We're covering it all on today's episode. Uh, by the way, I'm also going to be doing a webinar later tonight, uh, in an hour. You You guys are welcome to register for that below. In fact, I encourage it. I'm going to talk about how I went from a couple duplexes to hundreds of units. Simple little mindset shift there. How we find deals without spending a lot of time or marketing spend. In fact, no marketing spend. And how we fund the deals even when I have no money in the bank account. If you want to learn how to build the same portfolio the same way that I did, go ahead and check that out. That will be in about an hour. 6 Central, 7 Eastern, or 4 o'clock Pacific. For you Mountain Time people, you're gonna fall right in the middle there. All right, let's dive right in. By the way, you guys can always ask questions in the chat. We'll bring them up on the screen. Uh, we always do a little, little topic of the day, and we'll open it up for Q&A if you are all down. I'll be checking both Instagram and YouTube in particular for this. All right, tariffs. This is the big one, and this is what I've been asked to cover. I'll also probably launch a YouTube video on this later in the week. But let's talk tariffs. So we've passed tariffs officially against Canada, who has retaliated against Mexico, is going to be matching against China. We're ramping those up and they are going to get slapped right back at us. Now, without getting political, because I don't care about your politics, this will affect your real estate. Money does not care about your political leanings. It does care about supply and demand. So on an economic level, what is going to happen here with tariffs? I think insurance is going to be actually more damaging. Tariffs are interesting. Right now we have an undersupply of multifamily units. We need more housing, especially affordable housing. Huge need for affordable housing. This was actually a big topic in the election. So we are undersupplied for housing for our existing people. Now, when you push through tariffs, you're going to increase the cost of a lot of the exports that are needed to go into building. Now, if you remember, uh, there's a little thing that happened in 2019 and 2020 that shut down most of the country. What happened there? Prices for building supplies skyrocketed. The cost of wood tripled. It never came all the way back down. Actually didn't come close to all the way back down. Building supplies went way up in value, especially lumber. As we're continuing to slap tariffs and other things that we are implementing, Anything that we import that goes in the building, cost is going to go up. It is already prohibitive. We've seen a huge slow in building. We're under supply. What this is going to do is continue to push supply down. Now, if you're investing in an area where population is going up, which I always encourage, you're going to have more people and you're not going to have more housing. It is very expensive to build right now. It's unbelievably expensive and inconvenient to build. This means prices will be going up. If you own real estate today, or you buy real estate this year and likely into next year, this is going to have some artificial appreciation in the market. Government policy is going to cause things to be more expensive because the need is still there and the need is still growing. That being said, doesn't really help if you can't afford or make sense of building. So what happens to adjust? Prices start to go up. When they hit a certain level, it starts to make sense to build again. We reduce supply. The direct effect on the real estate market and housing market is houses are going to get less affordable, which will create more renters. Unfortunately, rent will start to get more expensive because the cost to build and maintain rentals is going to continue to go up. So as you run through this, it is going to massively, I believe, increase the value of real estate because it's going to increase scarcity in relation to demand. Now let's talk about insurance really quick. Insurance is a major problem in the US right now, and this is what's hitting landlord pocketbooks today. I had a 250% increase— there we go, sorry, I had to shut off my phone there really quick— I had a 250% increase in insurance all across Washington State. Uh, your major brands like, you know, Progressive, American Family, all of your major shops, your big insurance companies, have abandoned most of the West Coast, California, California, Oregon, Washington, they're all pulling out. It no longer makes any sense. Claims are too expensive. Any property that is not a brand new property, they don't want anything to do with it, which means you're stuck with third-party providers. What does this do? This increases your expenses today. Now, what do we know happens when expenses go up? Landlords take the brunt of it. Well, you bought a deal with certain numbers. To add value to the property, you either have to increase income or reduce expenses. If you can't reduce expenses, what ends up happening? Eventually it gets passed through to the tenant. That is ultimately what happens is you get— the rent will go up. Is this a value add for the property? No, this is going to offset the brand new expenses. That's all it's going to do. That is the only thing that's going to happen. So if your expenses go up and your income goes up to offset, it's going to make housing less affordable. It's a net negative. However, this is what I see happening in the future. Go a couple years in, yes, the actual expenses have now been passed through. It usually takes about 3.5 years to be fully realized. Expenses are now passed through to the tenants. Income is offsetting the brand new expense. Insurance is so ludicrously expensive. What we are going to find is that there's going to be either a new competitor or there's going to be new legislation. If it's legislated, there's going to be caps on insurance, there's going to be changes to what's insured, but the expense will actually come down and banks will have to change what they actually accept as viable insurance for property, which means income has gone up and now expenses pull back. Good news, rent doesn't go down when inspections go down. If you look at any market at any time Rent goes up when expenses go up. When expenses go down, properties trade based on their new income, which means the new owner can't afford to just reduce expenses. The property traded usually for a higher price because it now has more income. So what realistically happens in a market is this is going to drive rents up. It's going to be short-term pain for landlords. In the midterm and the long term, it will eventually get absorbed by the tenants, which is negative for tenants.. But then prices will come down, markets stabilize, rent stays a little bit higher. Overall win for landlords. What I'm doing as an assessment right now, when I'm going through my portfolio, I'm looking at all the economic headwinds. Insurance is paying right now. Tariffs is not going to hurt. Our maintenance cost might go up a little bit, but the cost to build where this really hurts is if you're in construction, if you're in multifamily construction, It just got way more expensive, like unbelievably more expensive. So if we're going through this and I'm looking at, okay, so there's decreased supply in relation to demand with tariffs, there's going to be eventual rent increases because of insurance, and there should be at some point new debt or new insurance products or government legislation that's going to offset the insurance things, the time to buy real estate is actually right now. And this isn't me just being like, hey, I'm always buying real estate. I am not always an optimist, but I do believe that the way the economy is going right now, rates are slowly trending down. It appears that that is going to continue to happen. The general consensus is we do expect a small decrease in rent, so we're expecting that to happen. At the same time, we're having compression on demand where all the external factors are raising rents. Some of them are hitting landlords and expenses. Some of them don't really hit us all that hard. Ultimately, the real estate market at the end of this current administration cycle, so within 4 years, I expect to be unbelievably more expensive and more difficult to enter. If your game plan is, hey, I've been saving, saving, saving, and I want to get in, bad news, probably not going to happen in 4 years. If you want to get in now learn how to do the creative finance stuff. If you understand how to play the creative game, you understand how to buy real estate. Now, regardless of your money, you're going to find better deals, and those deals are going to have some forced appreciation. I absolutely believe that. But I don't think the buy cycle, the best time to buy, is going to be in 4 years. Now, of course, we'll still be doing deals, and you should be too. It's just going to be harder to find. You'll have fewer deals. It's going to be pricier to get in. If you're trying to get in to multiply the money, it's before economic jumps like what I think we're going to see in 2007— or sorry, 2027, 2028. That's when I'm expecting to see the biggest changes. Now we're at the part where if you guys have any questions, you guys can always go ahead and ask here in the, uh, in the chat. I'm looking at both Instagram and, uh, YouTube here. If you guys have any questions, awesome. If you don't have any questions, that's totally acceptable. I do want to invite everyone Link is below if you guys want to join tonight's webinar. I'm going over the actual methodology of how we're buying deals with or without money. So if you're struggling with like, how would I actually get in? I have the answer to your question. If you want to get in, you want to dive into real estate, you want to buy a deal today, and you want to take advantage of all the appreciation that I anticipate we're going to have, stay tuned. Link below. I'll see you guys there. Oscar does have a question for us, which we'll answer here. How do we overcome the expense rising costs? So the big one right now that's going to hit people is that insurance one. That is going to be felt, uh, being felt in real time. That's being hit immediately. Your income doesn't magically go up just because expenses went up. It is going to be absorbed by your tenants over time. Last year nationally, we saw rents actually like pretty much completely stagnant. It was more or less flat. I think we had like some minor, minor, minor rent increases. Some markets pulled down just a slight teeny bit, but generally speaking, very flat rents. The prior years we had massive increases in rent. When you see big increases in expenses, that is exactly what happens. Oh, it costs more to run the property now. Landlords now need to raise prices to make sense of the deal. So the way that you overcome higher expenses, unfortunately, it is raising rent. And that will happen across every market in the US as the insurance companies jack up prices. People either need to self-insure or they need to increase their income. You can't just mitigate the expense of insurance if the bank is— say you have a bank loan, if you have debt on the property, generally speaking, you need to be insured. Self-insurance is not an option. So you're going to overcome it by raising rents specifically. That is the only option. Uh, Nate, I'm looking to buy my first property this year. Do you have any hard money lenders or private lenders you recommend? Uh, it's usually going to be very market specific. I use Flynn Family Lending for a lot of my deals. I've done millions and millions and millions of dollars with them, um, and they have been fantastic to work with. They're based out of Washington, but they'll service a lot of states. I have friends who've used them in Arizona. I have used them on a project in Texas. So they are national. They don't work in every state, but they are a national company. Um, that's Flynn Family Lending. But typically what you're going to be looking for is you're going to be looking for a local private lender. They usually like to put capital out in their own markets where they are the expert. So you're typically looking more regional. Um, but, uh, Flynn Family Lending, uh, they actually— Beth is a great friend of mine. Um, she runs Flynn Family Lending. She wrote the book Lend to Live with BiggerPockets. If you guys want to learn more about their methodology too, you guys can always check out that book. Um, Love Beth. Fantastic, fantastic lenders. Wealth of knowledge. They'll give you some great feedback on your deal as well. But if you're doing anything creative or you're using seller financing, maybe you have a seller second and you're able to cross something else. Not only are they great hard money lenders, they can get very, very creative if you have the ability to articulate how the deal is working. A link for webinar should be in the video description here on YouTube if you go down, um, I'm going out of memory here, but it's multi— www.multifamilystrategy.com/workshop-live. That should be it. I'll put it in the chat here as well. HTTPS. Need to get an assistant to do these so I can keep talking while going. But the webinar will be on how to buy real estate, how to find deals, how to fund them, how to negotiate. I'm actually going to do a little masterclass. A short little segment on how we make millions of dollars a year using Section 8 in our existing portfolio, and you can copy and paste the same thing. There we go. If you're on YouTube, that link is posted here, posted there. If you are on Instagram, jump over to YouTube if you want that link. Oscar, just to be clear, uh, on an interest-only note, you're only paying down the interest on the, uh, for the agreed-upon number of years, say 7, not the principal? Yes, interest only is exactly what it sounds like. It is the interest only. You're not paying down principal. So on a deal that has a lot of forced depreciation, you actually do want interest only because you're going to be in a great equity position and your actual payments to service the property are lower, which means you get to bank more. You have more security and stability in the property. And if you want to pay down the loan, you still can out of all that cash flow that you saved. Interest only is technically safer than any other way of doing this. Unless you're irresponsible and you spend the money on something stupid like a car, by the way, as long as you don't spend it. You control the cache, far superior. Send a quick message to my team. Had a question about the webinar that I'm going to definitely answer. The joys of being live on YouTube. Don't ditch me. Don't ditch me. I have a couple more questions here. I'm going to go through them. I'm going to answer this question. And we're back to our scheduled programming. The joys of going live. Perfect. Okay, Oscar, what's the script for asking for interest only, and, uh, what are the details on interest only notes? Uh, there's not really much of a script. I always ask for interest only because if you guys have watched my last few videos on the debt hammer as opposed to the debt snowball. Pay off all the debt in one solid stroke out of the cash flow from your portfolio. If you guys have watched these videos, you want to bank as much cash as humanly possible. You want to have the largest reserve possible and the most cash flow. You do that through interest only. With the bank, they'll usually offer on most notes, they'll offer a year or two of IO when you buy a building. That's usually just in their normal offering. I always ask for as long as I can get. When I'm meeting with the seller, um, it's just always what I put in my offer. So they say seller finance, I'm like, awesome. We negotiate interest rate, 5%, awesome. And we write it as 5% interest only for an extended period of time. That's the— that's what we work with. Not really too much of a script for it, just— that's just what I ask for. What percentage of NOI should the debt be? So in DSCR, that is your debt service coverage ratio, that is, hey, how much income of the debt do you cover? Usually banks are going to be looking at 1.25 as their standard. Someone will do 1.2. I have a bank that will do 1.1 if there's substantial reason to believe there's upside in the deal. But what percentage of NOI should the debt be? Generally starting a minimum, you want to be able to service your debt plus at least a quarter of the debt payment to pay yourself. And a wise DSCR is an awesome metric, debt service coverage ratio, because it includes all of your expenses including the debt, net operating income including the debt. Like, how well can you service the debt out of the actual operating income of the property? Now, where do you want it to stabilize? Between 1.5% and 2%. I run my portfolio just under 2% DSCR. That is my global portfolio. When I buy a highly levered asset, I'm usually coming in closer to the 1.25, which lowers that average. But then as I increase rents and operate the property better, that NOI increases, the debt stays the same, and we float back closer to 2. But I always try to get every individual property above 1.5, and if I can keep my portfolio between 1.5 and 2, I am appropriately levered during build, during build phase. Then as you start to pay down the debt, if you opt to pay off all your debt, that number obviously goes up and up and up because you have less and less debt. Oscar, on the interest-only note, uh, what percentage are you negotiating for? 6% and under? Oh, um, it can be anything. I've borrowed at 2%, I've borrowed at 18%. It completely depends on the deal. If I have a deal that is cash flowing day one, 30% cash on cash, which I've done before, borrowing an 18%, but getting— I got it 150% financed. I got paid to buy a deal that covered its own expenses and paid me. And then when I refinanced it, I refinanced it down to 7%, but I was able to get through my project, pull money to do my project, and I pulled all of it at 18% interest. Does that sound insane? Yes., but it made a ton of money on a deal that is cash flowing, say, 10%. I'm probably going to be borrowing it somewhere around 5%. I just need to have spread between what I'm paying and what the property is paying me. That is really what it is. So it's not about 6% or under. If a property was cash flowing 200%, which is obviously insane, but for like a ridiculous example, if a property is cash flowing twice what I put in, So say it's a, uh, it's a million dollar property. I'm buying 10% down. I put in $100,000 and the property spits out in net income $200,000 a year. Of course I'll borrow at 100% interest to make 200%. I'm still getting 100% return on my investment every single year. Now that's exaggerated math, but what I want to show is the percentage doesn't actually matter. The ratio between what you're paying and what you're bringing in is what matters when you're negotiating interest rate. When you get an interest-only deal, what is the payment schedule typically like? Are you making payments monthly, annually? It's almost always monthly. Mortgages are almost always monthly payments. Um, I'm sure you can negotiate something else. I do have deals that do have a principal aspect, but on— I have a hospitality project, Robin Hood Village Resort, beautiful resort, foothills of the Olympic Mountains. On the Hood Canal. That awesome property, that specific property, because it's a resort, income goes up and down through the year. I don't want to have fixed principal payments and fixed interest payments. It's interest only through the year, and the principal paydown is at the very end of the year after summer, which is our biggest months. So when we have the highest liquidity, we pay down all the principal for the year. So it's an amortized note. The principal's custom But the interest is monthly payments. Generally speaking, it's going to be even monthly payments on every single deal unless you negotiate something else. Nate, would I be able to borrow a down payment? Most lenders only do 85% LTV. Absolutely. And if you can't, because sometimes there's something called a no further encumbrance, which means it is in your loan docs that you cannot lever the property with a second position against the property. You can bring on equity partners with a buyout agreement, which is kind of similar to debt, but it's saying, hey, you're a partner and I have a buyout option to buy you out at a fixed price in a fixed period of time. In fact, you can even give them a preferred return that says, hey, you can expect to make a minimum of at least this much. So they get monthly payments and they have a fixed end to the partnership. Now you can't make those mandatory, but you can put penalties such as if I don't pay you back, then you get the deal and I surrender my equity. You can do if-then things on this. So basically, you can borrow down payments. And if something in your note says that you can't, you can still— there are multiple equity structures that work very, very similarly to debt where you can bring on people to your LLC as opposed to putting a second lien against the property. So short answer is yes, you can. Matt, just curious, do you have a unit count or income amount that you will stop scaling at? I know you're still young, want to see what long-term looks like for you. I will say this, I don't want to have like a multi-hundred-thousand unit. I'm not someone who needs to conquer the world. That's never been my goal. I found that very comfortably. I like growing my PM team and I like getting systems. I actually do sincerely enjoy building the business. I have financial freedom. I cash flow about, about $50,000 a month. I think it's a little north of that on most months. I have a little bit of vacancy right now as I'm turning over Stephenville, but it averages out about there. So I don't, on a technical level, need more. That being said, I'm under contract for 76 right now. I'll probably buy anywhere from 150 to 300 units a year. I found that's an easy way for me to scale. It means I do 4 or 5 transactions a year, which is very comfortable. It's not a whole lot of volume. And I know that I have enough time and attention on each property to scale slowly, to add the right team members, to make the hiring and firing decisions. To keep fully occupied properties or near full occupancy at market rate. My personal feeling is if I scale past that, I don't have a reason to, like faster than that, and we'll do a less, less adequate job servicing our tenants and managing our incomes. I'd rather service everything at an A-level with an A-team with occupied buildings and awesome employees with awesome tenants than just be the biggest, baddest landlord I can be. I feel like that puts you at a slumber risk. So that's how I'm choosing to run my portfolio. Great question though. The end goal isn't a specific amount of money or a specific unit count. It's about being the best steward of the resources that I have been given is how I am viewing that. So as I have more and we have upped our capacity for more, we scale appropriately in a measured way continuously until such time that I'm like, I'm not having fun anymore. And then I'll retire. Right now I'm having a blast and I still go to my buildings. I was in Stephenville at our 44-unit we bought in January. I still walk into that office and I've been doing real estate for years. I still cannot believe that I own that building. I walk through, I'm like, I cannot believe that I am the owner of this building. That is insane to me. When that feeling goes away, that's probably when it's time to stop buying. Right now I'm having a blast. How many years did Cody negotiate 2% payback, um, of the private investor who lent the money for the down payment on his first deal? That is a great question. Um, all right, I think it's— sorry, I think it was a, uh, 2x pay— I don't remember what the interest rate was on. Uh, good question for Cody. Um, however, I remember Cody had 1 year to pay back the investor, and then he ended up— because he was young and did not have a mentor He bought that deal. The deal was going very well, but he did not have the ability to pay them back. 6 months in, he recognized this. He called them and asked for an extension. They said no problem at all. They extended it to 2 years. He would have figured it out, but he actually, on a technical level, structured the money he borrowed incorrectly. He put too short of a balloon, which is why we talk so much on this channel about long-term cash-flowing fixed-rate debt. Long balloons are extremely important. Time will heal a lot of mistakes. Property values go up, rents go up, you become a better operator. A lot of things happen if you give yourself enough time. Um, I do know on that deal, though I don't have every single detail on it, that Cody needed an extension on that. He got the extension, he negotiated, and he, uh, he paid them back in 2 years, uh, plus the interest. Joe, do you ever do one-on-one tutoring for free? I'm interested in hiring you, or for a fee. I was like, for free? That How would you hire me for free? I need to learn how to read. Um, I will not be teaching reading lessons. Um, I can't teach real estate. Um, I don't typically do one-on-one. Um, Multifamily Strategy, I do have a mentorship group where I do include one-on-one. So if you needed a one-on-one, we'll hop on. I have found two things. One, with an on-demand course where all the knowledge is always at your fingertips, but most of my time spent on one-to-many, you get connected with more people, more deals happen. You have other people who can fund your deals. We all get to share resources. And my time can be allocated towards answering the best questions in the best format possible. I used to do one-on-ones. We had way less deal volume among our mentees as we opened up the community. Well, and again, I still do one-on-ones for people within the community, but as we opened it up to weekly calls with a community of people, someone would be successful. They buy a deal, it clicks for everyone else. Like, oh, I see how they did this. I learned something watching it actually happen. When you teach one-on-one, I'm teaching in theory. I'm saying, I've done this so you can do this. Here's what— here's the steps you need to take. In a group, I'm doing the same thing except you're watching other people actually bring their deals and you're watching everyone at every stage execute. And what ends up happening is, yes, you have a bunch of people who can fund your deal. Yes, you have a bunch of people who can refer you to lenders and what have you. But more importantly, the learning part is It is just different looking at a hypothetical deal or looking at a deal that someone's done before and actually walking step by step every single week through a deal, watching it come together, understanding the struggles, watching people get through it and learning as a group. So that is the, that is the method that we have done. I absolutely appreciate that, by the way. Thank you. Um, I cannot do one-on-ones. Our mentorship group is about the size I want. I have 3 positions open for this month. Month, but I like to keep it right around the 50 people that it is because that is how many I can do an excellent job servicing. Um, so would love to discuss. If you want to join Multifamily Strategy, you are welcome to multifamilystrategy.com. Um, you're— if you want to learn more about it, I will do a quick, like, miniature presentation at the very, very, very end of tonight's webinar, link below on YouTube. Um, I will do like a speed run of what the program is most of that webinar, the first hour of the hour and, you know, 5 minutes it's going to be, is going to be talking about strategy, how we execute the methodology that we do, and how you can make millions of dollars in real estate. So appreciate the question. I did not plant him, by the way. And Nate, uh, you just mentioned bringing people into my LLC. Does that mean I would get an SBA loan alongside the mortgage? No, um, SBA does not like to mess with real estate unless you like very specifically have a building that's buying an office it's not going to be an SBA loan. If you bring people into your LLC, it's going to be a real estate loan. All commercial real estate, basically all commercial real estate is purchased in an LLC. It's going to be real estate, just standard commercial real estate debt. Now I have used SBA loans, by the way, on property management companies for acquisition, and they're working on SBA loan right now to cash me out of the company that I did a seller finance transaction on when I sold my property management company. So I've bought and sold with SBA. In fact, I bought— I operate this channel now as Cody has retired and only does construction and his portfolio. With Cody's retirement, I bought Cody out of Multifamily Strategy with an SBA loan. Very familiar with the debt product. You wouldn't really use it on real estate unless you are a commercial company buying an office. On Cody's first, uh, deal, what type of partner investor, uh, did he get to lend the money? I know you said it was a debt partner, private investor. So Cody's first deal, he bought it seller financed, 10% down. He brought in a private investor who was a friend of someone at the office that he was working at as a broker, um, their referral. So it was a private individual who lent the money. It was someone who Cody had not met before, but it was one degree of separation from— he knew someone who knew them. So I guess that's 2 degrees. But that is where his first investor came from. And that's usually what happens with me. It's usually not people in my immediate network. It's people who, people I know, know someone who would be interested in doing my deal. Raising capital is unbelievably easy though. If you have a deal and the deal's gonna make money, it is so easy to find people who want to make money. That is, of all the pieces of real estate, it is the scariest for people to wrap their head around raising capital. It is also having an opportunity that has an extremely high chance of making money. If you can articulate why it's going to make money, there's a lot of people who want to make money. That is not the hard part to find. I promise you that is people with money who would like to make more money. Very, very, very easy sale to make. Mike, new to following you. Well, welcome, Mike. Do all of your purchases involve doing significant improvements on the property? No, uh, the 44-unit I just built is— or just built, just bought— is gorgeous. Uh, paved parking, clubhouse, gym on site. It's a 55 and up community, my first one. Um, so it has a bingo hall. They actually have bingo night and Bible study every week. Like, it is a nice, nice, nice building that is decked out. Uh, 2-story clubhouse. All the units are— it's a 55 and up community, so ideally Uh, they're all single story, but they're big units, like 1,000+ square foot units, 2 beds, 3 beds. Beautiful building. I've also done buildings where I've taken like a rundown motel and turned it into beautiful multifamily. So I have done ridiculously hard value add to completely stabilized gorgeous buildings. Uh, the 76 we're under contract for, uh, 2-story, 4-bed units, 76 units, has a pool, clubhouse, gym. Huge park in the middle. It's on 13 acres. I buy all of them. At the end of the day, I want long-term cash-flowing fixed-rate debt. If I can buy it or I can find the money for a deal that pays us every single month from the day we buy it into eternity, and I know how we're going to keep the deal forever— how do I buy it? How do I never lose it? If I can answer those two questions, I'll do it. If it's a value-add project, sometimes it is a heavy lift. Sometimes you just find a great plot, a great price on a stabilized asset. So a little of both. Personal preference on the already stabilized stuff where you just dominate on price is also the hardest one to get. So, you know, out of 10 deals, I'll probably do 6 or 7 that need a little bit of love, and I'll do 2 or 3, maybe 4, that are, you know, just straight nice buildings where we just crushed it on price. Uh, do I have a video showing where the seller cannot finance and you wish you could bank that with a capital partner? Oh yeah, all the time. And I cover that like all the time in Multifamily Strategy. Um, my last two deals were both bank financed. I also bought them both zero down. They had an equity partner, the equity partners covered it. Uh, one of the deals I actually got paid to close. So not only did I buy zero down, it was a ton of work, and I actually got paid for that work when I assigned the contract to my LLC. So I essentially wholesaled the deal to myself and the partners. I got paid for doing all of the groundwork to find the deal, put together the debt products with the bank, navigate it, and eventually manage it. I got a check at closing. I also got a lion's share of the equity of the deal. So you can own the deal. You can bring in partners. Um, essentially not every deal is going to be seller financed. It does not mean that you can't buy it $0 down. In our actual online course. I actually have something called the Toolbox. I share a good bit of this on YouTube too. It's just, you know, YouTube's harder to organize than your own bespoke course. But a place called the Toolbox where I talk, I believe it's 15 or 16 different deal structures for if it has a lot of upside. Here are your options seller financed. Here are your options non-seller financed. If it's high cash flow day one, here are your options seller finance or land contract. Here are your options with the bank, uh, we go through a different— I call it spinning the Rubik's Cube. But it's, if the deal looks like this, these are the available structures, and if it looks like this, these are your available structures. But it's about 16 ways to close a deal even if you have no money in your bank account. Can old mentees reach out for help? Heck yeah, they can. Uh, the program is designed to be like 6 months long. Pretty much everyone buys a deal within 6 months. That is our target. Like if you sign up, the target is that within 6 months you'll have bought an apartment complex. I have had many, many, many mentees who have bought 1, 2, 3 apartment complexes. The goal is that you are not showing up 3 times a week 2 years from now. That is insane. You are spending way too much time learning, not enough time doing. The goal is that you actually are able to graduate and replicate the business that I have built exactly the way that I have built it, or ideally even better than I have, because you actually had a mentor to walk you through it. That's the goal. That being said, you're welcome back anytime. There's not an actual expiry date. It just has a target of you've done everything that you need to do in 6 months. Uh, you can move on and do your thing. I have a lot of mentees who haven't showed up for months. They graduated from the program and they come back all the time because they have a deal they want to show, they have a technical question, so they'll hop on the Q&A call or hop on Deal Deep Dive. Very, very common. Does personal debt inhibit your style of investing? No, because most of my deals, 17 of the last 21, have been seller financed. And seller financing doesn't care about my credit score. It doesn't care about the amount of debt I have. It doesn't look at my personal financial statement. It doesn't matter. I negotiate my deal and we close on the deal. The deal stands by itself. Now, if you're going to do some of the bank transactions I did, it— the answer is it can. If you're bringing in equity partners, you just have to have the combined team that you built needs to have the experience, the credit rating, the financial backing for the debt product. So if you're going into bank debt, you're going to need to have the— build the right team, which is usually built out of your investors. Very, very, very common. So it can a little bit if you're trying to buy a deal by yourself and you have to use the bank a little bit. 99 times out of 100, no. The way I invest doesn't matter. I'm just going to again spin the Rubik's Cube. Oh shoot, I don't qualify this. I had a deal where I needed to have a net worth of $5 million when my net worth was about $3 million. I just found someone else who had a net worth of $3 million as well. Who also had the money for the deal. Now we have a combined net worth of 6. We both had high credit scores, we both qualified, we just needed to up the net worth requirement. So I built the team to do that. We've now overcome the obstacle. When I say creative finance, that's what getting creative is. Even when you're buying conventionally with the bank, it's like, oh, I don't qualify for this deal. A lot of people would say, okay, I'm not doing the deal. Or you can take one step back and go, how would I qualify for the deal? What is missing? And then you fill in the piece and you move forward. That's honestly, that's why I bought as much real estate as I did. When someone's like, oh, this deal doesn't cash flow, I'm like, well, it does 3% interest. Let's ask. And then sometimes they say yes. And I'm like, haha, it's seller financed. We bought it 3% interest. It worked. I just had to ask. Uh, that is the key to real estate. Like a lot of what I teach, it boils down to, it's not, is it a good deal or is it a bad deal? Deal. It is what are the pieces of this deal and what would make it a good deal. If you learn to view a deal like that, you'll buy a ton of real estate. I promise you, guarantee you, you'll absolutely do it. Uh, Oscar, you teach to negotiate on terms, uh, to get deals on long-term fixed rate debt, 7 years plus. Is it okay to do 5-year owner finance deals if it makes sense? Yes, but you have to answer number 2. Question number 1 is, how do I buy it? Which you've done with this 5-year debt product. How do I never lose it? I would do 5-year debt if I had a game plan of how I'm going to refinance this property into long-term debt by year 3, which means if I miss, I have another 24 months to course correct. That is extremely helpful. So I'd absolutely recommend, recommend doing that. That is what I teach. If you want to, if you want to use midterm debt, it doesn't mean it's off the table. It means you need to have a plan of how am I going to convert this into long-term fixed rate debt? What is the long-term plan for this property? And can I conservatively hit it? The only time that you wouldn't do 5-year debt is if you've already done like 4 other deals that all have the same balloon. You do not want everything to balloon at the same time. Stagger your balloons. And if you're using midterm debt, have a solid game plan of way before I hit this balloon, how am I going to get this into long-term debt? If you can do that, good to go. What is the time frame for the interest-only note, 7 to 10 years? Uh, typically for commercial, that's what you're looking at, uh, 5 to 15 years, with the most common ones being 7 to 10. Very common. Uh, the interest-only period though on most notes right now in today's market. And this does change. I'm getting a lot of quotes for, uh, deals like on 7-year debt, I'm getting 2 years of IO and 5 years of 30-year AMM. That's been really common for me on a lot of deals. Levi, do you have a contact who can, uh, lend on rental value? They keep acting like I have 3 heads when I ask. Um, lend on rental value. That's pretty much how everyone lends. Um, it's based on, you know, it's based on NOI. So the value that the rentals generate, that's going to be what they, what they would lend on. Now that won't work in residential. So if you're buying something small like a duplex, no. Um, but if you're doing a, you know, you're doing anything 5 units and up apartment buildings It's based on NOI. It's, it's literally based on the rental income of the property. And there's also a loan product called a DSCR loan. Even for, uh, you can do in commercial, you can also do it for residential, or a DSCR loan literally only looks at the income of the property, which may be what you're asking for. Uh, you may be looking for a DSCR loan, in which case the answer is yes. Jens asked, uh, what is another term for seller finance, uh, to keep owners from shying away? I don't actually use the word seller finance at all when I talk to owners. I'll actually negotiate like this. We're talking about the deal, and that's what we're talking about. We're not talking about the financing, we're talking about the deal. So we'll talk about the property, the incomes, what they're expecting, what they're seeing for rent, if there's any problems with the property. Before you get to how we're buying it, I need to understand what we're buying. Also, if you just jump into seller financing, you sound broke. If you start with what is the opportunity, it can make sense on why you're asking for seller financing in context. So That's the first thing I do. The second thing I do is when it's time to propose terms, I would say it like this. Say I wanted seller financing, 10% down at 5% interest. I would say, all right, here's what I'm thinking. Um, with a bank loan, the bank's probably going to look at this closer to $850,000. The million-dollar price, I personally don't have a problem with. At a million, I'm thinking if I can put 10% down, so I— if I can give you $100,000 to close and we do payments of whatever 5% is on the rest of it. If we can do monthly payments for 5% on the other $900,000, I would be very comfortable moving forward on this deal. So what you've just said to them, instead of would you give me seller financing, you said, can I give you $100,000 and then I can— can I continue to pay you X amount of money in perpetuity until I pay you the other $900,000? It's basically, can I give you something, give you something, and then later give you a lot of something, as opposed to, can you give me seller financing? The psychology of it is a lot better if you can structure it that way. Um, that being said, like, a gentler way to say it, if you guys are just talking general terms, are you open to carrying a contract can land a little bit lighter than are you open to seller finance. Like, not saying the word finance, you know, if an owner's skittish, sometimes it makes them more comfortable, but it's Yeah, I think the most correct way to answer your question is if you can avoid calling it any sort of creative finance, it's my favorite way to do it. Nate, if I can get a deal financed but they want 10 to 20% down payment, would I be able to cover that with hard money or I need some kind of equity partner? Yeah, you could cover that with hard money. I do that all the time. As long as the seller doesn't have a no further encumbrance on their note, which they might or they might not. But the seller, um, you know, as long as they don't have any specific restrictions with the bank, they almost always have that restriction. With the seller, you can probably get away with that. I do that often. Um, it's all— if it's a high cash flow deal and we can sustain the hard money, I'd much rather have debt than have a partner if the property can pay for it. Uh, what return metrics would you consider attractive for capital partners in a deal? Uh, what time frames are you observing for capital holdings? Uh, totally depends on the partnership, but general— like, I'm gonna go like super, super general on this. Uh, here's where the goalposts usually are. If it's mostly based on cash flow, 10 to 12% per year paid monthly, you know, in the monthly payments with a 10-12% return, people are usually quite happy with. Uh, and you'll— they'll usually hold for 5 to 10 years because they're just getting paid on their money. They're usually pretty happy with that return. On the equity multiple, so say you're getting paid less cash flow but it's based on a value-add project, if they double their money in about 5 years, people are usually very, very happy. So let's say like this side, all cash flow, 12%, multiply their money by double in 5 years, they're happy there. Anywhere between that, so say it's a 50% return on investment in 3 years, you might be able to get away with that. And it's a 50% investment to 2 years, people are obviously thrilled. Um, so it'll depend on the deal, depend on what the capital partner's goals are. But generally speaking, you know, most deals are going to be a 3 to 5 year hold for the investor is very, very common. Uh, cash flow returns of 12% and, you know, equity multiples double. If you have more cash flow, the equity multiple goes down. If you have a higher multiple, the cash flow goes down. So you can kind of play with those two inputs. High cash flow deal, Focus on the preferred return. Low cash flow deal with lots of upside, focus on the future equity multiple. At the end of the day, the deal has to buy the deal. That's the goal. Is it only the most recent T12 that is used to value an asset, or older T12s part of the equation? So the most recent T12 is really what's going to matter. And they're going to look at, I mean, as much as even a T3, like I want to see what is the property actually doing today. That's going to be the largest driver. Many lenders will look at the performance over 2 years and take some sort of weighting on how it has been. If you're doing a huge value-add project, they don't really care when you bought the dumpy building, how it was performing, because you bought the project. How is it doing today? They really care. So like on a hotel conversion, they don't care that the hotel was failing when I bought it. That's why I bought it. That's, you explain that to the lender. They're like, okay, let's look at the real numbers. Where did you get it today? So they're really looking at the most recent T12 is going to be probably 90% of your weighting. The other 10% is going to be a mix of what do they believe is market. And so they're going to say like, hey, what do we think is reasonable? And do we think this performance is realistic? And so on. Older T12s, they might look at them. Especially on a project that you've owned for a while, but there's a lot less waiting on where it was than where it is. Uh, Levi, thank you by the way for leaving a little tip here. I will bump your question to the top. Um, it's a 4-unit, uh, for, uh, to cash out, uh, refi. DSCR lender will only lend against the resale value, uh, who they claim— I can just— ghost me, getting different. Okay, so On a 4-unit on a cash-out refi, DSCR lender only lending against the resale value. That is— see, that's the hard thing with the smaller, the smaller multifamily. The duplex, triplex, and fourplex, you are just more restricted. They're, they're not going to increase their loan to value. Like, loan to value is always going to be a restriction. Like, DSCR, generally speaking, you can get more creative with it, and the income that you're generating really does matter. But there is going to still be some sort of LTV limit where resale value is going to be factored. Now, in multifamily, 5 units and up, your resale value is heavily determined on the income of the property, which is why it's so valuable. On this one, I, I understand the frustration getting a cash-out refi for a 4-unit if the market— like, if your neighbors aren't selling the properties at where you need to see them It can be very frustrating and very painful. I get it. Also, looks like Cody Davis might be here. Cody's joined the chat. If you guys have questions for Cody, I'm on for another, uh, 5 minutes and then we gotta dive into webinar time. So, uh, if you guys have questions for Cody, you gotta drop it in the chat as well. Also, Check out Cody's channel. He's actually following— I've been following his adventures. He calls it Cody's Business Adventures. Cody's YouTube channel is really cool. He actually films from a duplex that I own. Funny enough, the way that we traded around entities, Cody is now my tenant, which is hilarious. But Cody, living in my building, talks a ton about his business adventures, his best practices. He moved to the market where he owns the most rentals He is doing a strategy that is awesome where he is buying a lot of the equity of his building. So he's taking on less partners, more equity. He went from about 150 units to closer to, I think, don't quote me on this, he closed on a 7-unit today, but he's somewhere probably closer to 90 or 100 units today. He sold down in quantity to move up in total equity, which I think is a baller move. Uh, follow Cody's adventure here at Cody Davis Adventures. I just pinned it here on the chat for a second, but Cody's joined the channel. Give him a, give him a follow. Still a great friend, not doing the daily coaching like I am. Jeff, everyone hit the like button. Well, that's kind of you, Jeff. And yes, that will boost the algorithm. Everyone appreciates this. Hit, slap that like button. Christian Osgood, strong name. Uh, now that seller finance is becoming more popular in the real estate community, do you find sellers are more comfortable with it? I'm finding it about as frequently as I was finding it before. Seller financing, especially in multifamily— multifamily investors usually understand the financing options. These usually aren't newbies in the space. If you're buying an apartment complex, you're usually not buying from like a completely unsophisticated mom-and-pop owner. Sometimes you are, but usually it's generally accepted. I am finding it more popular now in the smaller asset process. So even that little duplex owner down the street, since prices— I don't know, since interest rate went way up and prices pretty much stayed the same, it's been harder to move properties. So seller financing is more popular just because of market conditions right now. So we are seeing more of it, um, but it's always been around, it always will be around. It's a great option. I prefer seller financing over bank, even if it was the same terms. It is so much easier to close a deal Flavio coming in from Grandview, Washington. Great area of Washington, by the way. What is hard money? Hard money is also known as private money. Typically, when you say hard money, you think of a hard money lender. It's also— some people may call them loan sharks, but it's typically high-interest, shorter-term debt. They're used on projects where you're doing heavy value-add, where you're going to be refinancing out of the capital, or they're typically used for flips where you— your intention and your exit of the deal is to sell the deal for a profit to an end buyer. It's usually expensive money. It's usually very easy to get. So hard money is easy money. Hard money is expensive money. Hard money is short-term money. The uses for it are limited, but it's typically going to be, I am doing a refi in, you know, the first 12 to 18 months, hard money may be an option on a high cash flow deal, or I'm going to flip the property. That is the desired exit. Here's how we're going to execute. I don't do a ton of hard money because I typically do like to buy on larger debt, longer-term debt products, and I typically do negotiate my own debt product cheaper than hard money. There's— yeah, 3 spots left. I'd like to take one of them. Please let me know how to sign up. Joey, I am so excited to have you join. Um, multifamilystrategy.com. Uh, the mentorship is on there. You are absolutely invited. Um, if you get signed up today, um, I will absolutely look for that and I will give you a call today. I reach out to everyone one by one and you have my cell number as soon as you're signed up, as well as the course and the mentorship and the community and all the cool stuff. Um, huge privilege to work with you, Joey. I am really looking forward to that. Uh, multifamilystrategy.com. Levi, I only wanted 75%. It's just so low of valuation for the appraisal, not 1%, 91% of the rent. 75% LTV should be possible. I believe there's going to be a lender out there that'll do a 75% LTV DSCR loan if you have the income. You should be able to find a lender. I think that based on the inputs I'm given, without knowing the situation any deeper than that, I am going to guess that you are going to be able to find— I'm going to guess they're going to be able to find a lender. I, I think you may need to look for another mortgage broker and explain the situation. 75% LTV, that should be doable. Where can I see the webinar? Link should be below in the description, but you can register here for the next, uh, Next 5 minutes, then it cuts off. It is multifamilystrategy.com. I put it way up in the chat too, but multifamilystrategy.com/workshop-live. I wish I had funds to get into the mentorship. I still want people to join. There is actually a number that you can text. Uh, tell you what, if you're able to make it to the webinar, I do have a— and I, I have it on like the last slide. The webinar, by the way, is not a pitch to join Multifamily Strategy. It is an actual— I am actually coaching. It's a lesson. At the very end of it, I have a, I have a slide if you would like to join. There is a finance payment option on there that we can work with you. You can text the number on that last slide. I forget what the code is. I think it's MFSNOW. If you lack the funds to get into the mentorship today, I do not want that to stop you because lacking funds is something that I happen to be an expert in. If you guys have noticed, I am a creative finance guy. I can get creative. Feel free to reach out to my team. If you have an easy way to reach me, just message me on Instagram @ChristianOsgood. I'll hit you back. That's an easy, easy way to do it. And maybe I even earned a follow on Instagram. Who knows? Uh, but, uh, yeah, message me on Instagram if you guys would like to sign up. If, if the money is the only problem, I can work with you. Also, do you plan on writing and publishing a real estate, uh, book? I do. It is not high on my priority list right now. I am trying to buy the 76-unit, and I am trying to be the best possible real estate mentor of all time. Uh, I am putting my hours into the deals that our community is doing. At some point I will hire someone to help me write a book. Not a today project, maybe next year. I am working on a multifamily strategy app, by the way, which will be available to the public and will have all sorts of cool owner search features and calculations, uh, that is incoming this year. So stay tuned for that. Uh, Levi, I appreciate you a ton. If I can help you with anything, let me know. Um, I, I do believe there's a debt product for you if your inputs in there are correct. If it's 75% LTV, DSCR, there is a lender out there who can do do that. If you don't rely on cash-out refis and instead use the debt hammer, I'm assuming you use the combo of interest-only notes. Yep, I basically try to bank as much cash flow as I can and use that income to pay down my notes. Cash-out refis I typically will use to pay out investors, but I don't want to just keep pulling cash out of my properties. I do actually want to delever. So I would say 80% of my deals have some point where there's a cash-out refi where I'm eliminating partners. After the partners are gone, Or I've limited my partners to just a few select people I'm doing business with. We progress from there. I have to prep for a webinar which starts in about a minute and a half. You guys have been awesome. This has been a fun live with lots of questions. I appreciate a lot. Uh, Joey, you can also DM me on Instagram if you want to reach out, but I do want to connect with you. And for anyone who wants to join the webinar, link should be in the description here on YouTube. It's somewhere up here in the chat, but multifamilystrategy.com/workshop dash live. I will see you guys there, and I have to change my outfit. I'll be back.