LumberJack and Christian Osgood talk Million Dollar Apartment Disasters

All right, and we are back, guys. I took a little break from going live the last few weeks. I've been traveling around, and I'm still traveling around. I'm here with Lumberjack Landlord Matt Hawkins, the one and only dude. I'm in his house. That is the house that could eat my house twice, exactly, to the square foot. And I have a big house. Uh, this is really cool. I'm up here in New Hampshire. I'm getting to see his portfolio, some of his projects. Um, I'll also include some of that here on, uh, on YouTube channel as well, so keep an eye out for that. We'll do a little bit of portfolio tourage. But today we're talking about the fun stuff, uh, what's going on in the markets, how to actually run your portfolio, since that's actually how Matt and I make money. Uh, yes, we buy these. Also pretty easy to lose money if you, uh, if you buy a bunch of real estate. Uh, goes both ways. So we'll talk a little bit about operations, and we'll talk about biggest mistakes. Uh, I know for both, both he and I, uh, with doing new projects, even with a wealth of experience, uh, there's still a lot of learning that happens. So yeah, sadly, yeah. Uh, Matt's been on the channel a ton of times, but for those not familiar, uh, Matt has, uh, No Partners. You have 150-ish units right now? Yep, 150-ish units. He does like amazing renovation work.

Thanks, Bill.

Oh yeah, you do a fantastic job, fantastic job. Uh, great manager. Uh, and we're gonna talk about a project that I think is actually— it's my favorite project that you've done and also, uh, why it was harder than he thought.

It—

we're gonna talk about Matt's Robin Hood today. Unfortunately, I think you have about a— you have about a zero off of the, uh, the, the learning price, uh, penalties for Robin Hood. I think Robin Hood still has it, has it beat pretty well. But, uh, fun to see. It's encouraging coming up here. I came up here primarily to learn from Matt. It's always encouraging to see like, hey, uh, even people who've been doing this a lot longer still sometimes struggle on new things. Oh yeah, which I, I appreciate a lot. That made me feel better last night.

Yeah, I mean, that was the whole goal. Like, come over, stay at my house, let me tell you a story that'll make you feel better about yourself because I was horrible at it. Um, but yeah, I mean, I think the, the real challenge was, you know, this specifically about our jail project is, you know, we originally projected 12 to 18 months.

Yeah.

Um, and, you know, I think we're gonna hit probably, uh, we're probably gonna hit 30 months instead of 18, uh, 30 to 32 months. Um, we're just about wrapped up, uh, finally. Um, but yeah, lots of trial and error, you know, it being, uh, I departed from— and just like anything that you do new, you know, I departed from using my smaller crews, guys I had relationships with. Excuse me, guys, I knew the quality of their work, guys that actually got the job done. I departed from those guys because the job was so big that, you know, a 2-, 3-person, 4-person crew couldn't handle all the work. Oh, yeah.

Yeah.

So that was really the biggest challenge. And then, you know, bringing in fire suppression, that's not something you do a whole lot in residential. Bringing in new, new water mains, not something you do a whole lot in new residential. Usually what you've got was always meant to be there and does the job. So yeah, so the biggest difference is, and then we try, we always try and push ourselves to try and use new products. And so we found a couple new products and the vendor really wasn't ready with those products. I think the design, I think the design overall was pretty good. I think that it will give us our end goal. The only downside is, is that, uh, they were not quality manufacturing it. You know, it was really, quite frankly, it was, uh, their quality assurance was extremely subpar. And instead of instead of, you know, being able to turn that around in 4 weeks, it was, you know, 12 weeks. And then mistakes were made. And so anytime that happens, that's expensive. You know, our carry was close to $10,000 a month. Yep. That is not fun. But our carry is about $10,000 a month. And so when they would make a mistake and it wouldn't be a month, it would like we'd lose 2 months on something like that. And it's, hey, we can't turn heat on in the building that doesn't have windows. I was like, why?

Why?

And they're like, well, because it's zero outside and that won't work. And oh, I guess that's a good point. So with us combating the weather, you know, we need— you need heat to have mud dry, you need heat to have, um, you know, to be able to paint, you need heat to be able to solder pipe, um, things like that. And we couldn't get past, you know, not having, uh, not having windows in. We couldn't, you know, heat wasn't going to make a difference. Um, so yeah, lots of challenges there, lots of pro— lots of problems.

What about the stuff that you planned out last night? You're talking about the, uh, we, we talked about the, the, uh, your water plan. I love what you guys did. You're like, hey, 4 people, 4-hour sprint, and we're gonna get a crazy amount of work done in short burst.

Yep.

Uh, so it came in with a strong execution plan. Yep. And your first sprint went really well, didn't it?

First sprint went perfectly. I mean, we had a project manager at the plumber, at the plumbing and heating company. So we, first sprint went awesome. We had 4 guys for 4 days and we got a ton of the rough done. And then the way that we do it is we basically have each person go in phases 'cause they don't like to work around other people. But we would have them start upstairs and then finish downstairs. And so every contractor that came in would come in upstairs and finish downstairs. But you basically have, you know, you're marking things out and you're making sure that you're getting all your measurements and you're doing all your, all your pipe. And then you're basically doing, you know, a good portion of the rough before you actually bring it into the different rooms. And so, yeah, the first sprint, which was 4 guys, 4 days. Awesome. I was like, man, this project is going to fly.

When I was listening to that, I'm like, what a great execution plan.

I thought so. Thank you.

Fantastic. Yeah. Yes.

It was— well, the good news is, is it valid? You know, I'm breaking my arm patting myself on the back going, man, I've reinvented— like, this is awesome, this is phenomenal.

We figured out contractors. Yeah, I'm the one who did it.

Yeah, I figured out the sprint. The sprint is the way you do it. You get them focused, a bunch of them in there, and then you turn it. Um, and then, uh, and then we— and then we eventually, probably 90 days later, got to our— 90 to 120 days later, got to our second sprint. And that didn't go so well.

So what happened between the first sprint and the second sprint?

Between the first sprint and the second sprint was I lost the project manager at the plumber. Oh, I didn't lose him, but they— yeah, they took him off the project. They put him on another bigger one. And all of a sudden— and then I had 4 completely different plumbers.

Oh, that's not helpful.

So, yeah. So it was all of a sudden no PM and all the 4 plumbers were different, same company. But different 4 plumbers. So they spent— I mean, that was just a joke. Like, the first day they didn't even show up. Second day they showed up late. Uh, then they— not only 4 didn't show up, only 2 showed up. Uh, they got nothing done. They basically moved 4 toilets. They didn't even install them. Um, and then the third day, instead of having 4 again after I complained to the CEO, um, because it was a big company, it was, you know, they have around 50 people Um, then the set— then the third day we actually get quality. The quality actually shows up, but we only get 2. Um, they work an 8-hour day. I'm actually like, hey, we got actual, you know, 2 guys, 8 hours worth of work done. That's great. But when you're counting on 4 the first day and you get 0, and 4 the second day and you get 0, and 4 the third day and you get 2, like, all right, well, we should have had 12, but we got 2. And then waiting there on waiting there on a Saturday for them to— for the 4 to show up. He's like, hey, you know, we'll get all 4 of them there tomorrow. We're really— we'll churn and we'll do a long day. Uh, waited for an hour, no one showed up. And then finally at 10 o'clock, I finally get an answer to my many phone calls and text messages. Hey, sorry, couldn't get anybody to show up today. So zero. So out of 16 man days, I got 2. Um, and so at that point, I just was like, we have to do everything we can to get around these people. And just give them another shot. Maybe they're in the middle of another project. And I made an excuse and I shouldn't have for them. I should have just said, you know, I usually, I fire fast, I hire fast, but I fire faster. And I just didn't do it with these guys and I should have. And then the next sprint was scheduled to happen within, within about a month of that. And no one showed up again. And then they were just like, oh yeah, we're moving it in the calendar. What are we, what are we doing?

Like, why am I not a customer and I'm not important at a $10,000 a month holding cost?

Apparently, yeah. I mean, apparently they had no problem burning through that money. Um, but, uh, yeah. And then in that last billing, I should have fought it harder, uh, because I probably cost myself $6,000 or $7,000 that I didn't need to. Forget about the carry, actual real money, writing a check. Um, I wrote them a check for that 2-day sprint because he's like, well, it's still a gate in the in, you know, that this was our second sprint. We still need another chunk of money. And sadly, I was dumb enough to pay it. And so I paid it, and I wished I never— I wished I hadn't paid it. I would have— should have just said, you know, you're gonna have to grab it on my cold dead hands.

Well, it happens all the time. I mean, it's so easy to do. And it—

I—

my favorite saying for my business is, we're always kind, we're never nice. Uh, yeah. And as soon as— that's one of those things like, they did the work, I like these guys, I'm gonna be nice. And then every time you pay for it, every No exceptions ever. So you can't do too much without water to the building. Uh, and then in addition to that, didn't they— didn't they cut your, uh, someone cut your gas line when they turned off the— like, you had everything that could feasibly, reasonably go wrong.

Yeah, we— I mean, the, you know, the, the winners of this one were the floor installation guys. They were awesome. Um, but those are crews that I use all the time. I know those guys well. Um, they banged out the building in literally 8,000 square feet. They banged out in 3 days.

Oh, that's amazing.

Yeah, so they were awesome. Um, what's your cost per square foot floor on that? So we were— and this was for commercial heavy-grade LVP with a silent mat underneath it. We were just over $5 a foot. Oh, that's really good. So we were strong. Yeah, we were probably like— retail's probably $7, $7.50. And so we were about $5, a little over $5.

Yeah, that's great.

Yeah, plenty, plenty happy with that. So flooring went fantastic. The carpeting downstairs for the kids' indoor play area went great. The heating guys, they were fantastic. They did a great job. The plumber was abysmal. The painter, the painter was fantastic. He did really, really well for us. He was pretty quick. And again, it was a crew of, I think, 4 or 5 guys that we got in there and they just like, they were there for 2 weeks and basically banged out the entire building in 2 weeks.

Oh, that's amazing.

So they were great. So yeah, we just, where we really struggled was, you know, new relationships. So it was the fire suppression guys, it was the plumbing guys, it was definitely the utility. The utility is the one who actually cut their own line to our building.

Idiots.

I just— I mean, they cost themselves literally $50,000 to $75,000 a year in billable, in billable gas, and we'll never go back. And so they cost themselves that for as long as we don't go back to natural gas. So yeah, it would be forever. Yeah, I mean, certainly based on my promise, uh, you know, they were like, oh, in 4 or 5 years you can, you can convert. And I was like, you have zero chance of ever seeing my name on this building with gas, natural gas coming to it. I was like, you guys are idiots. Um, so yeah, so that was kind of, that was kind of that. But yeah, it was a lot of lessons learned. Um, it was hard.

What was the original timeline for the project when you first set out?

12 to 18 months. So we originally thought that we were going to get started in the first month and we needed 5 months worth of approvals. Um, the town approving this, the town approving that, and then the way they do it, a little bit of a weird way, which is, let's say, you know, so we prep everything for the first 30 to 45 days.

Yeah.

Then we get on the schedule. Well, that's not for that next meeting, that's for the next meeting. So now you've just burned 3 months. We get heard in that third meeting, and then they will give you the answer then, and they'll approve you. However, they have a weird rule that it goes to the next month to see if anybody objects over the next 30 days to then where you finally then get that approval. So we were 4 months into something we thought was going to take us 30 days. And what we were told, because we actually bought the building from the city.

So which is so frustrating when they're your obstacle after they sell it to you.

Yeah. I mean, and so lesson be learned, you know, if you buy something from a city, what you really need to do is when you buy it, actually have all of those things already hammered out. In the P&S if you can. I know that we tried that and they were like, well, it's really kind of a different process, so we really can't do that, but we can kind of write you this letter so they know that we know what your intent with the asset is or what the building is. And so when we finally got heard that fourth month, and then it was for that, that third month, then that fourth month for people to say no, but then you— then only after that can you make application.

For all the work.

Um, and so then we made application, and thankfully that went through the process in about 4 weeks. But that puts us at a little over month 5 before we're doing anything, because we know that the entire town's watching. We know all the council members are watching. Um, and so that's what— that's what we did. That's what we did. So yeah, 5 months before we started. So that was a 4-month delay. Um, after that, it was, uh, we had many months delay with, uh, heat not being able to get on because of the window issue. Um, then we had heat not being able to get on because of the gas issue. Um, and then we couldn't get water on in the building because fire suppression and because the plumber just couldn't figure it out. And so they had required us to change the outside valve setup based on the new requirement of the building.

Yeah.

Um, so they made us change that. And that was— we got that news in December. Uh, you can't dig in December in New England. It's, it's under moratorium.

You can't touch it until April 15th. Yep.

So we were— so that we were like, okay, well, we got to figure out what we're going to do for 4 months while we wait for the moratorium. You can't get exceptions, nothing. None of it's an option. Um, so we had to basically— we were put on hold for another 4 months.

So how long has the project been so far?

How long is it? So we are at, we are right at 30, we're at 31 months, we're at 31 months now. So I think we're going to finish at 32. Okay, we're that close to done.

So almost, almost twice as long as—

yes. Yep.

All right, you said using 12 to 18, so yeah, right, right in the place along.

Yeah, exactly. We're definitely in that zone. And yeah, the contributing factors were, I mean, if you look at you know, we had a 4-month delay because of, you know, requirements needed for the town to be met in order for us to start the work. So that was 4, and then 4 for the heat, and then 4 for the plumbing and the moratorium. So out of your, you know, call it, uh, 15-month or probably 13-month overage, you've got 12 months right there. So it was really 3 main missteps that cost massive amounts of money and basically, you know, put the project much further behind. The cool thing is, as you know, and when you do some of these construction projects, you can get an interest-only period. Yes. So the cost on a monthly basis is very, very small. So as opposed to, you know, that $10,000 a month burn, you're more like $3,000. So you don't feel it nearly as badly. And thankfully, we worked with a great bank They were absolutely phenomenal to work with. We originally had 18 months and then they gave me, I think they gave me like a 5-month extension. So we got to 23 months. So we've been paying for it for basically the last, you know, 9 months. We've been paying full boat, but 23 months, they gave me a nice running start with, you know, interest only being paid.

Yeah.

Yeah. I mean, that's where it matters. You know, it matters where you do your projects, it matters who you bank with, and it matters who your contractors are.

Yes, it does. My, my most similar project to this one I did while you We were converting a jail. I converted a hotel.

Yeah, I love that.

And the second one that I've done— and hotels make some amount of sense. It's a lot better than people who go like, hey, I'm going to convert an office building because they're not designed for it. There's always— you get into the wall and there's a million problems. I've— they almost never work. Uh, hotel conversions, it— you have to go into it knowing, hey, this is affordable housing, like very affordable housing. They're small studios, but at least the building's designed for humans to live in it. Yeah, so there's that. We go into the project, do a new roof. We got hard money, but 100 and something percent. I got, I got 2— they gave me $250,000 cash to start my project and finance 100% of the acquisition. So I—

phenomenal.

So I'm like, okay, uh, buy, buy 30 units for $1.6 million, uh, okay, note balance of $1.8 million. Uh, however, the building's a little less than half occupied when we buy it, and it's at like piss poor rents. And so I'm like, okay, we're gonna renovate it with people in there, we're gonna try to stem bleed a little bit. But 13.5% interest, and the goal is like, hey, let's turn and burn. We're— yeah, at this time in Moses Lake, we were leasing like crazy.

Yeah.

And so I'm like, okay, I've done buildings like this, I, I know this market, I have the construction crews, this should be a slam dunk. Awesome price per unit, should appraise between 2.8 and 3.1, somewhere in that range.

Yeah.

And so I'm like, okay, Let's go take this thing out. Great location. Uh, we get the project done for once. Contractors rocked. Things got in, installed, building turned, painted, new lighting, exterior. We had a few things. I told you that one, the one like our most expensive unit flooded right after we finished renovating it.

Of course.

And it was like hot water tank, steam bath, like it ruined the whole year. So we had— we took our, you know, our, our normal within margin shit happens while doing construction. Mm-hmm. Mm-hmm. Moses Lake stops leasing as a market. All buildings just slow down as I finish.

Of course.

And what was going to be a 6-month project, we got stuck with that debt product at 13— almost $2 million at 13.5% interest for a year and a half.

A year and a half longer, a year and a half total.

Yeah, a year and a half total. So an extra year of $20,000, $21,000 a month. Leasing, we— I had a— my biggest problem was the property manager, so we ended up, we ended up bypassing them. Our solution was I had to start reaching out to other entities. Yeah, uh, Department of Corrections needed transitional housing, and I was like, I'm like, how much do you have right now in Moses Lake? They're like, right now, zero. Like, you have, you have none.

That's shit.

They're like, yeah, there's an Oxford House and it's full, and they also suck. I'm like, Okay, well, what does this look like? And basically we get to screen whoever we want. We put all our restrictions on it. So no sex offenders, because we do have some families that actually live in the building. So I'm like, okay, we have some kids, of course, not many, but we have some, of course. Totally. I'm like, so no sex offenders. And, um, yeah, that's pretty much it. This is pretty much it.

I mean, good enough.

State pays for them. Um, filled a lot of the building with them. We've had no problems with them so far at all.

Not go back to jail. That's smart. Yeah, like that's Very often people misunderstand that strategy, and I think it's a brilliant one. When it's like, when it's sober house, yep, when it's recovery, when it's any of these things, very often it's all about how the program is run through the house. Yes. And so when you have good oversight and when you have invested individuals, you will have a very good outcome. When you don't have that, you will see quickly that you'll have a very bad outcome.

And this is, this is something that you see very consistently, particularly in blue states, but you see this everywhere. Uh, apparently the entire program is headed up by one individual.

Amazing.

For the state of Washington.

That's amazing.

Um, also, if you ask him any questions, he's like, well, I work part-time and I don't work on Fridays, and I also have no communication with any of the people who get placed. That's going to be between them and their parole officer. And so I will just, when it comes up, I will just I will send the lead to you, but I have no advice on how to run this. I don't know how the program works and I don't know who the people are. I'm like, you are that, that is your, is there anyone else I can work with? He's like, no, I'm the only one in the department. I'm like, okay, well Washington's cooked.

And apparently if this guy goes anywhere, like you're in deep trouble.

Yeah. And he's been, and he's been the guy for like 23 years. That's awesome. So it's like, oh, so you guys have just always been bad. He's like, you think we're bad though? He's like, you should check out Idaho's system, apparently it's worse. I don't know how that would be possible, but maybe it's not a police state. Maybe it's just, uh, maybe just a—

yeah, we can't even call it a police state if you got one guy for the entire state.

Yeah, wild.

That's crazy.

But we— and the problem, the— we did fine on appraisal, but when we came through our original, we were leasing this at $950 per unit in annual leases. We had to go down to $700 state-sponsored 6-month contract, which is way weaker than annual contracts at $950,000.

Of course.

Uh, that being said, all of that happened. We appraised at, uh, $2.55 million.

Unreal.

So $900,000 more than we bought it for.

Yeah.

Uh, my holding cost ate a huge chunk into that profit.

I can imagine.

But we survived it, and with the refinance, uh, 6.5% interest phenomenal from a random bank out of Texas that only lends in Texas and Washington, which is super weird.

And why wouldn't you only rent in Texas and Washington?

Because there's so much alike. Like, how did this happen?

He's like, why don't we pick polar opposite states?

Yeah, the way it happened, it's a bank that does a ton of lending in Texas. It's a big bank.

Crazy.

And the, uh, their like most senior lender moved his family to Washington State to be closer to family and He's like, can I open up shop here? I'm like, okay. Wow. And apparently he can do Portland, Oregon. So if anyone needs, uh, they'll allow seconds up to 100% LTV, uh, so you can do seller seconds. You just can't blow the DSCR. So if you have a high cash flow deal, he's like, yeah, we'll fund 70%, seller does 30, you can get 100%. They're an awesome bank to work with, but really sounds awesome only if you're in Washington, Portland, Oregon. Or the state of Texas. No, no, best lender I've ever worked with. They get, they get stuff done too.

Yeah, clearly. I mean, that's awesome. But yeah, I mean, you see it and it's like, you know, one of the things I think you said that, that most people miss— when we finish a project or when we're about to finish a project, yeah, we go looking for tenants. Like, we don't just post an ad. Like, we go looking for tenants. Like, hey, is there a program? Is there— is this— is there that? Like, we know that we have, uh, we have veterans.

Yeah.

And so we've reached out to them. They're like, when's the project going to be done? We were like, we really don't— will not give a date at this point. We refuse.

Yeah.

For obvious reasons, even though we expect— we have— we actually have bank inspections on Tuesday and then final inspections the end of next week. But when that happens, we already have all the right contacts. We can reach out to them. We can say, hey, what is— you know, what's that list of people? Or here's the offering. Let's have them come and see it. Really just put us in a very strong position to lease it up very quickly. And frankly speaking, with the first— with the 4 units upstairs and the 2 ADA units that we will also have in the building, with us— with those 6 units, the, the building will make, you know, a 30% return on capital. That's not even counting the, the, the, uh, the 2 commercial spaces. So it's going to be a cash cow. But based on that, you know, we'll actually look to probably refinance it because that's awesome. As long ago as I bought it, I think my rate— I want to say my rate's probably in the high 6s, low 7s. So if I can pay down and get into like 5.5, it's going to save a ton of money. But I'll probably do a cash pull because I think all into the project, kind of like what you were talking about, I think all in I'll be maybe 1.2 or 1.3.

Oh, that's fantastic.

Yeah. And so it should be worth, I don't know, 2.2, something like that. Hopefully anyway.

Perfect, perfect. Well, on these projects, the biggest lesson for me, and I, I've adopted this, that's what I teach everyone to do. So if you guys are watching the channel for the first time, welcome. Uh, buy deals that cash flow and then your income goes up, and then buy them with long-term debt and your income goes up forever.

Yep, it's true. Cash flows— cash flow is king. And too many people buy deals that don't make any money, um, or their first deal and they're like, well yeah, it's a value-add, dude. Your first deal should not be this massive value-add. No, it should not be. And it certainly shouldn't be like we— when we bought this building, we were buying a shell. That's what we bought. Yeah. And it was a great shell. It was a great, great deal. We saw who our competition was that was trying to buy it, um, and quite frankly, we made a strong offer. We paid over what they were asking because the price per square foot we thought was just absolutely crazy. The price that building was bought for $23 a foot. Wow. Yeah, it was bought for nothing, but because it was basically a shell. But so we just spent a little bit more money there, stuff that we wouldn't normally do, um, like re-sheeting all the floors and making sure that everything was super strong. But man, what a fun project. The cool thing is, is that even though it took, you know, let's say 16 months longer than it was supposed to— yeah, or 14 months longer it was supposed to— even though that happened Um, the exciting thing about it is I'm still getting exactly what I envisioned, and so the vision still came true. It's tough to reconcile if you go that long and it doesn't end up being what you wanted it to be.

That, that would be tough. And those can be— because there is a point on some of these projects, you obviously weren't there on this project, but there's a point where it's like, okay, I mean, the best thing to do is just pull the plug and just say, hey, the project's not gonna work. That's actually what I got to the Robinhood, which I share all the time. So you guys already— if you guys haven't seen that, all my videos on how that was a disaster, uh, go back any 10 videos, it will come up. Um, the, uh, but cost me over a million dollars personally, which was terrible, um, because I, I didn't have a million dollars when it cost me that. So that was bummer. Uh, I had to borrow my way to pay for my own mistakes, which is, uh, sure. Get more debts and 2 more years to figure it out. Uh, very difficult. However, if you look at the end project, uh, the Robin Hood's turned into a music venue. We run concerts, uh, 2 a week.

Yep.

In the main building all year round. We have 8 days of 200+ people with a farmer's market and live musicians a month, uh, all summer. I know there's 8 straight days. We have 2 4-day concerts. Unreal. Um, and they are all day that we coordinate, we shut down the whole city. There's parking— like, we have nowhere near enough parking for that. Uh, you park in different places all over the city, the fire department shuttles people in for you. And so they literally shut down the city for the Robin Hood 8 days a year.

That's awesome.

It's become this amazing project.

And you never—

I mean, obviously, and I'll probably break even on it. Yeah, amazing.

But the crazy thing is, like, you didn't ever see what that was going to be.

No.

And you could never have guessed that. That's— I mean, and too many people just give up.

And imagine had you given up and walked away, I would have just lost $1 million at least, and it would have tanked a lot of my investors.

Yeah, I mean, that's—

I would have been able— I had bought enough multifamily where I would have been able to sell out of stuff, but I would have had to— I would have had to sack the Robinhood and probably about 150 units.

And largely start over. Yeah, for the most part, largely start over. And then largely start over, like, for guys that do what we do, largely start over with the Scarlet Letter. Like, pretty much you have a project that goes like that and somebody finds out about it. And for us, we would always disclose that up front, be like, hey, listen, of course, here's all the stuff that I did that was really awesome. Here's the stuff over here that I did that did not work well at all. And so what's really funny is, is I've, you know, stayed in active contact with my bank I've not hid anything from them. I've been like, I just had a huge problem with this plumbing and heating company. Here are— here's the timeline of how everything happened and how it impacted things. Please know that this is not an excuse. I want to make sure to keep you in the loop so you understand exactly what challenges I've seen and how we've then overcome it. And what that does is it creates this— they're definitely— they become invested in the project. They also see how you work through problems. Um, and that's something that's very important to them because the bank knows that it's not always going to be smooth sailing. They recognize you're going to run into the projects. Are you going to run away from the project? Are you not going to finish the project? So that stuff, that's the stuff that's really powerful, um, that means a lot when you get to the other side of it. Because that relationship, like you and I always talk about, those relationships from lenders, whether private or, or, or public, you need to make sure that you're maintaining those. Otherwise, you know, what are you doing? Like, where's your— where's your business going to go if you can't get capital? Because our business is capital intensive.

Yes. So the— I think the big lesson for me, even when these projects are finished and they are rewarding, like that— even the hotel conversion, it's like, wow, we actually— I never would have known that when I bought the building. But as far as like use to that community, that is definitely highest and best use for that building. It is desperately needed in that community. It's— the location is perfect walking distance from everything. Yeah, it's perfect use. Yep, you feel good about them. If I could go back in time and have not bought a Robinhood and not bought that, I would have had way less stress. I would have had way more cash flow. Yeah, I, I still look at those and I love both projects. If I could have gone back in time and not done them, it would have been so much better. It would have been so much better.

Interesting.

So my push for everyone is like If you have— if you can easily and comfortably float 100% of the mortgage on a heavy value-add project, yeah, by all means.

They're super fun, super rewarding.

The risk-reward ratio to people who are starting, yeah, of, hey, this is high risk, high reward, not worth it.

No one can DQ you. You can take you out of the game altogether, and then for a long time, or a very long time. I mean, even before the Great Financial Crisis, you know, I had gotten a model, I'd gotten a market, and I was buying and I was investing into it and then investing through it. Um, and then the market took a hard turn and I was like, all right, now I'm in trouble because I bought too much, bought too fast. When I was at the One Rental at a Time event and I was running their podcast for them, you know, I did 13 interviews and I think 7 of the 13 said the biggest mistake that they made was buying too much too fast when they started. And I think that that's very true. I think that very often the most fun part of what we do is buying, for sure. And when you then—

I agree.

And then when you see what the numbers and returns can be, you then are like, now I just need to keep on buying. What you need to do is get a building up, going, running, functional, and creating the cash flow that you're projecting. I love when people say for pro forma, and I'm like, so just say fake rent. Don't say pro forma, say fake, because so many people project and like, well, I think it's 18— I think the pro forma is $1,875. Fake, fake. Show me the other units that are rented. That's why we do the rent box in my course and what we talk about. But the rent box saves us every time because we really understand what's the real market for the asset and how much are we actually going to rent this thing for, not just a guesstimate. Yes. And so the other cool thing is that we back into that number and we show the bank And then they're like, well, yeah, but where'd you get that number? Here's all of the data that we analyzed to get that number. And they're like, oh, okay, yeah, then that's the number, isn't it?

What I like to do when we analyze on a larger multifamily deal, I'll go like, okay, I will, I will pro forma to where you have proven the building can rent. If I— if you have a bunch of rents, let's just call it $500.

Sure.

But you have like 4 similar units that you've recently rented at $850.

$950, right?

And their pro forma, their fake rent, is like, oh, you get this to $950. I'm like, I'll underwrite this like we get it to $850 in 4 or 5 years from now, right? I'm gonna say market rent stays the same, no blessings, no luck at all.

That's right.

Probably not going to be true because we invest in areas that the decks stack towards appreciation. But, but I was like, you know what, conservatively, um, market takes a downturn, uh, rents completely flat, you've proven you can do $850. I'll underwrite my future value too. We get this thing to today's market rent for your building. Sure, I'll take a look at the rest of the market to get data, but I don't make decisions based on what the building's never done. Because every time I've done that, half the time you buy it and you actually just exceed expectations. It's awesome. And the other half, you find out after you buy it, oh, this is why this isn't renting for market rent.

Well, that's the other thing too, is like the bankers, or even— and that can be bankers from a bank, or that can be the people financially backing the project.

Yeah.

What's really interesting is that when you continue to underestimate and, and undervalue what you're creating and you're just transparent in that, every single project becomes a winner. And so then they look at it and they're like, he won again. He won again. Oh my gosh. 4 years later, he won again. Yep. That's what I do. I win. Now the winning is because of where I set the pole. Yes. You know, and so I always joke around with my friends and I say it's, you know, anybody looks awesome dunking on a 6-foot rim. There you go, I got a 6-foot rim. I couldn't hit a 10-foot rim if I tried.

Yep. By the way, uh, right after this, uh, top of the hour, so in like 20 minutes from now, we're gonna run— I have, I have not done the webinar in a hot minute. I'm gonna be running that this week, um, right after this. So I'm gonna go, uh, straight into that. This one only specifically this week is the recording from the last time that I ran it. I brought it back last week. You'll notice I'm not in this studio. The recording might say I'm live because I was live when I recorded it, but it is still a— it is an awesome webinar and me and my team are all going to be in the chat. So it's like pseudo-live. So if you guys have questions, you will have actual people there. But I actually went through in that webinar and I taught how to, uh, we're structuring creative finance, creative deals, how we're using creative equity, which is not something that Matt does. Um, Matt owns his stuff, which has huge advantages, especially when the project goes wrong. It's nice when it's a you problem, not you and everyone else's problem.

It does make a little bit—

a lot better.

The, the upside is that there's fewer people to talk to. The downside is, is the one person you're gonna talk to, it's not a very comfortable conversation.

That is, uh, that is very true. Uh, but we're gonna talk about equity structures that I've used to buy, uh, faster And that made such a good point. Too many people buy too fast. Yes. If you look at my portfolio, and right now it's about 600 units, maybe a little bit north of that, and I put together like 5 years, and it feels fast. But if you actually look at the transaction volume and how we built it, sure, Cody and I bought a little bit too fast in the beginning. First year we bought too fast.

Sure.

Every other year I do 2 or 3 transactions. Yeah. And we stabilize them and we build teams, we implement systems. I could buy another 300 units right now. I have an awesome deal, 4 properties, stellar deal. I'm not done with my stabilization of 2 other projects, so we're just, we're just not doing it. Yeah, having the discipline to not do every good deal is one of the best skills you can possibly learn. Come up with a rhythm that works, stabilize your properties. Yeah, even on smaller midsize deals, you, you do what, 2 to 4 transactions a year?

Yeah, we probably do 2 to 4. Yeah, I mean, it just, it, um Because when you get to the point where you've grown enough, you only do deals where it's just like, if I don't do this deal, I'm going to drive past it for the next 10 years and cry. Like, we already have a list like that. You know, they're usually the ones that Mrs. Lumberjack said no to. I don't want to do that project right now. I was like, and I learned that I made a lot more money when I said, I don't really care because I was like, you don't have to do anything. I'll just do it. Um, and so they're, they're, you know, and she's always been supportive, but it's like she understands that just like, uh, just like your wife, just like Danny understands, it takes a lot more out of us. Like, it's a lot of work when you're doing it.

Oh my gosh, yes.

And managing a portfolio, it takes a lot, uh, but so worth it, you know. Just, there's, you know, anything worth doing is, uh, is hard.

So I would absolutely agree with that. By the way, put that webinar link in the chat here. So that should show up on everything but Instagram. If you're watching on Instagram, by the way, the camera should be like directly between us. So you were probably looking at a picture of a lion in the middle of Matt and I. So if you, if you're, if you've been sitting on Instagram and they're like, wait a second, yeah, this is awful. Yeah, this is terrible. Fix your camera, guy. Just join us on YouTube next time. That's where most people are. But we, we stream to pretty much everything. So if it could be streamed to, I'm pretty sure we end up there.

It's awesome.

Yeah, I don't think anyone's ever watched me on, uh, Kick, but apparently we also go to that, whatever that is. Well, all right, I don't know what it is, but it's a thing. It's a place, and you can watch us there too in full widescreen glory. Uh, but guys, I'm gonna go prep for the webinar here. Uh, we are back on Wednesdays every single week now, so I will be live, uh, same time. Took a little bit of time off to travel and to not do a live every week, uh, but I'm back and, uh, super excited to share the adventure. Matt, thanks for joining. Thanks for housing my wife, me, and my son.

Of course, it's been a blast. You know, we, uh, welcome to the, uh, to the clan.

So it's been awesome. Yeah, good time, but super fun. And we'll see you guys on the next episode.

Bye, guys!