Multifamily Strategy Creative finance live!

Hello and welcome to another episode of Multifamily Strategy Live. I am Christian Osgood, your channel host. We are streaming everywhere that we can stream, so we're on YouTube, Instagram, Facebook. LinkedIn, you name it, wherever you're watching, welcome to the channel. Today, as usual, we're talking creative finance. We're actually going to dive into the markets a little bit. We're going to actually talk about some bank debt. Now, in my portfolio, I've bought— if you're new to the channel, by the way, welcome— I've bought hundreds of multifamily properties, done dozens of transactions, many of them seller finance, the vast majority of them, few of them commercial financing. But I specialize in units that are honestly duplexes all the way up to 100-unit buildings. We have a lot of 25s, 40-unit type buildings in the portfolio, as well as some smaller stuff, collections of duplexes, 5-plexes, 7-plexes, you name it. When purchasing, this is the biggest headwind I think we're coming up to this year, and there's opportunity in it. Talking about bank debts, banks are reactive when you are buying real estate. Banks look at the market from where it was at just a little while ago, so they're looking back over the last couple years. They're starting to see, okay, We had some serious headwinds. Interest rates increased, more people started defaulting on their notes, and they're starting to call more of these things due. So what we are now starting to see, uh, and this is nationwide, if you were playing the multifamily game and you're trying to refinance the bank debt, you have a balloon coming due, banks are going to get a lot tighter very quickly. You need to be ready for this. Here is the opportunity that I'm finding. Uh, there's two types of debt products that are working extremely well right now., and I think for the next 18 to 24 months are going to continue to work extremely well. Type number 1, agency debt. Now, if you're going through conventional bank finance, that's usually going to be a portfolio loan with a lender, uh, so you have a bank that actually wants to finance it themselves and hold on to that note. A lot of those are 7.5% interest. That's pretty standard right now. You're looking low to mid-7s depending on where you're going. Also, they're getting a little tighter on loan-to-value. Agency— this is Fannie Freddie debt— it's coming in in high 5s or low 6s. We're seeing anywhere from 5.81% all the way up to 6.5%. They are trying to place money. I actually just got off the phone with the lender today. They are really pushing to place capital, especially in midsize multifamily. They have a mandate of how much they need to put out, and there are not enough deals to service that. So if you're looking to refinance or you're doing acquisition, agency can work. There's also some HUD loans, but those are like 6 months of due diligence and underwriting. There, there is a process with those. But some of those government loans, that everything that works can get picked up on these. It's lower interest, long-term debt, 30-year AMM. They're looking for a debt service coverage ratio of 1.2. The other thing that's going to work amazingly in this next market I think there's gonna be the best seller financing, just straight up normal seller financing. Interest rates have stayed high. There are sellers that need to get out of their debts. They cannot refinance with the bank now for whatever reason. Maybe they're not operating well enough, maybe they don't have enough time, maybe the banks have just tightened too much. They're having trouble refinancing. Some of them are going to sell out of their debt stack on seller finance. Now, if they don't owe too much on the property you can actually just do conventional seller finance. You can go ahead and cash them out. So whatever debt they do have, you can pay off as part of your down payment. That is an option. We can actually do that. However, some of these people have higher debt than they can just traditionally seller finance. There's been several banks that are open to this at a lower loan-to-value, so we're talking 50-60% LTV. You can come in on some of these bank loans and you can actually do a a blended product where you go bank does say 50% or maybe bank does 70% loan to value, but the sellers finance the delta. Banks have shown an openness to this more than they have in past years. So we're actually seeing deals where you can come in with the bank, they'll give you 60%, the seller will give you 40%, you'll get in $0 down. And as long as they have some equity in the property, you can start knocking a bunch of these out. We're starting to do this in Texas. We're doing this in Washington. If you are looking to buy deals zero down, this is a seller financing thing with the banks. The way the markets are right now, that can work for you, which I think is going to be super exciting. Uh, what commercial loan programs allow for subordinate debt? Usually it's going to be local and regional banks and credit unions are going to be more likely to allow there to be subordinate debt on the loan. And boy, the sun is blinding me. I'm not used to this in Washington. They'll allow you to subordinate debt. And so what they're going to be more concerned about is the blended DSCR. They want to make sure that you have the money to cover all of the debts. They're still looking at the 1.2% to 1.25% DSCR, debt service coverage ratio, to know that you are going to be able to meet your obligations, hold the property, and service all the debts. So they're looking at a global debt stack before they let you subordinate.. But if you went on price, which is easier to do now than it has been in the past few years, this is an opportunity that we very specifically have. So, Vikslav, thank you for that question here. I'll throw it up here on the chat window. But yeah, commercial programs for banks that have less than $1 billion in assets, local and regional banks, credit unions, even better. I've found a bunch in Texas. But if depending on where you're at, look at banks to your like around you in your city, look for things that are actually like named something like this county bank or X-City Community Credit Union. Those exist. So look for the ones that are very specific to that area. They usually have a mandate where they have to invest into those communities. And outside of that, like, look at very specific— I'm looking at those, um, like, markets. Then start looking at, like, all the specific banks and just Google them for how much they have on their balance sheet and where they service. They should say online, pretty easy to find. This is what we do, how we do it, what we want to lend on, uh, the size bank we are, assets that we actually manage. And yeah, again, you're looking for local and regional banks. Uh, they service a very specific area. Uh, Vicks Life also asks, bank obviously has to be in first, seller in second. Yes. On this one, I'm finding that sellers are more open to this typically if there's a little bit of distress, which we're seeing more of in this market, uh, which you can use to your advantage. So we're winning on price on these deals. However, interest rates can still kill these. So we're doing stuff where it's like, okay, we're gonna cash you out of your existing debt, bank's gonna go ahead and cash them out. For the remaining balance, we're doing stuff at like 3% and 4% interest so that our blended cash flow is actually quite high because we're getting a spread on every dollar borrowed. I think that's very important. We're seeing that with the bank. So, um, yeah, bank will require they're in first position, which means we're talking to the seller, they have to be willing to subordinate. Uh, banks will allow you to subordinate, but yeah, you're looking at stuff like, um, I'll answer Steven's questions here because it's a good one, uh, ties right in. Uh, 50/40/10 is a common thing. They want to see a little bit of skin in the game. Uh, you can also do 40/60/0, you can do 50/50. I've seen those get done. The main thing is that you have to keep that debt service coverage ratio high. If the bank can look at it and say you can service all the debt, we don't care as much about the second position. If the bank has less skin in the game, they carry less risk being in first position. If the seller has a pain point that you're solving, they may be willing to subordinate to allow you to go ahead and take it out with bank debt. Dylan's in the chat, which is fantastic. Dylan, good to see you, man. Uh, this means we're going to get some good questions. Dylan always has a couple, and we are always, always ready for them, my friend. Uh, so let them fly in the chat. You guys have any questions? We're just talking about real estate market primarily today. You're looking at seller financing, agency debts. Knock out most of the— I, I think for the next 18 to 24 months, those are your two debt products of choice. Bank loans are going to be hard. They're still going to need to audit the daylights out of them. And what I'm seeing a lot of is they're starting to retrade these terms. So you'll agree on one thing with the bank, they'll underwrite to one thing, they'll give you an interest rate, terms, they'll get you all this stuff, and then you go in and all of a sudden They pull the rug out from underneath you. They change the terms, they change the price, they change the amount of points you pay, they change the interest rate, they kill your deal halfway through the deal. If you don't have a financing contingency in place for that, you can get hosed right there. All right, at what point do you know you're ready to go under contract? This is a great question. We do everything with deal debt equity. So when I have a deal first, so I go, okay, I have an opportunity, something that I want to buy. We have enough financials to at least have an idea of what we're doing now. I don't need to verify every financial. That's for due diligence. That's when you're under contract. When I have a property I know I like to buy, I know I like the price. And if our assumptions that we've been given are correct, we haven't proved this yet. If our assumptions are correct, then this is a fantastic deal that will cash flow on long-term fixed rate debt. If it hits all those litmus tests, it's time to get it under contract. I always make earnest money due after feasibility, or at least a bulk of it. Sometimes I'll do $500 up front to open the transaction. The remainder of the earnest money will be put in escrow after we've done the basic financial due diligence. So I like to see bank statements, leases, and rent roll. This does not take a long time for people to get to you. So this isn't like a, hey, we're delaying it for months by trying to do due diligence. Financial due diligence, if the other party is remotely organized can be done fairly quickly. So we go under contract, we enter feasibility, we go through feasibility, then we do earnest money, and then we do our final process to close. If you guys want a free checklist on that, by the way, it's included in Multifamily Strategies. You can check that out on multifamilystrategy.com. In the course, we actually do— anyone who's signed up for the course, you have access to that checklist for all the things you do before you close: filing your LLC, opening the bank account, how to do each and every step, EIN letter, the whole nine yards. Vicks Life, uh, do banks care about net worth, liquidity, and track record even if it's a home run deal? They do. It has a weighting. Now, the better the deal, the more lenient they're going to be on it. If you have just a fantastic opportunity, just a home run, they're going to be more hungry to lend on it. However, they are going to want to know your track record, and if you have no track record, you have to be able to communicate like, okay, here's the things that I have done and why I will be a good operator. You just have to tell a compelling story. That's always going to be a piece of it though. And sometimes is where you bring in an equity partner just for the experience. You don't even bring them in for the capital. They do care about net worth. They want all of the combined members, everyone who owns above 19% of the deal, should have a net worth, combined net worth of the purchase— or sorry, not the purchase price, of the loan amount. So if I'm borrowing $5 million, you— I better have a $5 million net worth. Right now in Texas, I'm looking at doing a $17 million deal. Well, I currently have a net worth of about $5 million. I would not qualify for that loan because I am not worth enough to take out that loan. Now, I may have more leniency on agency because most agency is non-recourse, so they wouldn't go after me anyway. But I still— so I wouldn't be personally on the hook. They care less about my net worth. I still think I'm not worth enough for them to be comfortable lending that amount of money to me because the loan's gonna be like $14 million. It's a little bit over twice my net worth, significantly over twice my net worth. I would probably need to bring in another high net worth partner to qualify for that debt product. That would make the bank more comfortable. It'd certainly make me more comfortable, and it allows us to do a larger deal. So your net worth does matter. Uh, the nice thing with real estate is you can— seller financing doesn't care at all. It's a great way to use creative finance to build a portfolio, build a base of net worth, which does happen fairly fast. Your paper net worth that goes up very fast in real estate. If you're running your properties while you're doing some forced appreciation, your net worth requirement becomes easier and easier to hit. Caleb Harris, uh, do you ever talk about how you structure your deals with equity partners? Like if someone invests one-third, do you pay them off quickly, uh, split one-third, left alone? What do you do? So every single— I love this question— every equity partner is custom, just like every single deal is custom. Everything is unique every single time. So, uh, when I structure my deals with equity partners, um, let's use this example. They do a third. Uh, second seller finance deal I did was 10% down, $900,000, 3 side-by-side duplexes. I had someone come in for 1/3 of the equity. They brought 100% of the capital, so they brought in the $90,000 that we needed to close. Their goal, their personal goal, was I want to double my money every 5 years in real estate. So we wrote a note that said, hey— or not a note, sorry, an option agreement that says, uh, in 5 years we will buy you out for $180,000, effectively doubling your money. Or if we fail, we will sign the property over to you. In the meantime, we get 100% of the cash flow because we're going to be operating the property and doing all the work. We will take the cash flow, you will take the upside. Or in 5 years, you will get these properties, we will sign over our equity to you. Now, if you're that owner, you put in $90,000, we do all these repairs to the properties, we increase the income, they're going to pick up a boatload of cash flow at the end of 5 years. If this goes full term, that individual gets full ownership of the LLC that owns the properties. That is a great deal. So their worst case scenario, they get 3 great properties at a great price that cash flow like crazy. Their worst case scenario is they double their money in 5 years. You don't have to match the equity to the contribution. You have to match the equity to the consideration that they're being given. And that depends on the deal and that depends on the partnership. I have partners who are investing for cash flow today. Cash flow partners don't care as much about the equity multiple, so I'm multiplying their money by the smaller buyout in the future. Always have a fixed buyout, but they're getting part of the cash flow. If I'm paying someone like, say, like 12% preferred return on their cash flow, which is the most I'll ever do, if they're getting a whole bunch of cash flow, their buyout— I have a right to buy them out at like year 3 or year 5 at principal value, and that's really important. So I reserve the right to do that on all my contracts. If you are entering with partners and your goal is to own real estate yourself, partners are variables, just like variable rate debt. Be very, very, very careful with the partners that you choose and always have an exit plan so that you can leave. There's a way where when the property performs, the real estate buys the real estate, the partner gets the return they came for, you get to keep the real estate. That is the end goal of every real estate transaction for me, is do I get to keep the real estate by myself at the end of this transaction? Love seeing this, tons of people connected in the chat. Steven, Dylan, Caleb, love seeing you guys all here. Thank you for joining. Is an agency up to $7.5 million? There are some agency products that will actually go higher, but they do like to stay in that, that kind of midsize range. This is why I love midsize multifamily. $7.5 million buys you a lot of multifamily, but not enough to go out and compete with the giant, uh, like your giant hedge funds, your giant institutional, uh, operators. You're not competing with them on the agency debt. You have this amazingly priced product, and they're actually trying very hard to place money into midsize multifamily. Family. If you're trying to build your portfolio, you're not a titanic institution buying multi-hundred unit properties. This debt product is here so you can get out of duplex land and start buying the 25 units, the 50-unit buildings, the 75-unit buildings. You can buy larger buildings that move you forward faster with a great debt product. These are long-term debt products, usually a 30-year AMM. They're looking for a debt service coverage ratio of 1.2, which just means after you pay all expenses— so income minus expenses there's enough money left over to service your debt 1.2 times. Is there a way to not pay property taxes? There are. Usually it's on a LIHTC or HUD thing. So there are low-income tax credits that are available depending on how you've structured your entity. It's usually when you come in as a nonprofit, so you're a salaried member of a nonprofit, the nonprofit owns the property, there are ways to not pay property taxes. The other way not to pay property taxes is to just not pay them, but then you lose the property. There are ways to do it, but most of them involve having a low-income aspect to your property and having something specifically tied to your loan product. That is, 9 out of 10 ways to do it is going to be based on the type of housing and the program that you are associated with. Fix this. Thumbs up for the live. Well, thank you so much. I appreciate you guys joining here. I think we're Fourth of July tomorrow, so, uh, for those who aren't traveling right now, who aren't just taking the day off, I appreciate that. Those who are taking their day off, uh, thanks for joining us here. I appreciate it. Blast me with questions. I absolutely fire away. Look, Divine, what are your experiences with doing, um, a half bath or full bath in a unit? Uh, what are things I don't know what I don't know? I love that question. So half bath, uh, generally speaking. So like a half bath, you're gonna have, um, I think half bath doesn't have a shower. Three-quarter bath has a shower but no tub, if I recall the, uh, the things. You're gonna need at least, uh, you're gonna need to have a shower in a bathroom. So you have to make sure you have that, uh, you have a toilet, sink, and somewhere to shower. If you have that in the unit, you're gonna be good. If you have a full bath, you open yourself up to having families. Families, generally speaking, tubs are going to be used for kids. So you're bathing kids. A majority, not all, but a majority of adults don't need to take a bath. They usually take a shower. So if you have the full bath, tub, shower, sink, toilet, you're more able to rent to families. Families typically will stay in a location longer. Now, a 4-person or 5-person family is probably not staying in the 1 bed for a long time, so you still battle that. But if you have a decent size unit, say you have 2, 3 bedrooms, you have a full bath, you are likely to get a family there that will stay for a long time, as opposed to someone who's going to be a little bit more transient, maybe someone younger or older who comes into that unit and stays there for 1 to 2 years. So, uh, the one thing that you will add by having a full bath in a unit is typically you have a higher chance of having a longer-term tenant. If a building with all full baths, you're going to have less turnover as a general rule of thumb. Exceptions, of course, do apply. Can you get an appraiser to lower a cap rate? Kind of. I'll explain. Can I get an appraiser to lower a cap rate if you just own one property in one town? Probably not. They're gonna go off comps. They're gonna— they have a license that they have to be able to justify everything. Occasionally they will call you and be like, hey, are you seeing something that I'm not? Because I'm having trouble reaching this price. And I have had that happen before. Um, I do a heck of a lot of influence in cap rate though, because I own all the buildings around my buildings. We invest in specific towns, we expand in those towns, buy again and again and again and again in one area, getting to know all the players. When you do that, I often have appraisers call and say, hey, uh, can you give me, uh, like, what is the income that this building's getting? Or this— they actually use my own buildings as comps. When you do that or you keep buying at great, uh, at lower cap rates around buildings that you bought at a higher cap rate, you can actually compress the cap rate of the building that you bought, increasing your value. So things that Cody and I do to increase cap rates or just increase value in general: you increase rent, you get more income on a property. Even if cap rate doesn't move, if market rent moves, I can influence that. I increase the value. If an appraiser calls and says, hey, um, can I have some comps for market rent, I can show them my best leases from properties on the same street. I just did this for a client. They reached out, they were buying an 8-plex. I managed 2 4-plexes on their street. The appraiser said, I don't think you can get the rent that you're targeting. They called me and I sent them 5 leases that were above their target rent showing, yes, you absolutely can hit this. This is 100% doable. They changed it. They closed on that loan because we influenced it with actual data. That's from self-managing, and that's from having some amount of market dominance. When you're newer, you have a lot less power over that. When reaching out to out-of-state owners, how do you have a successful conversation without flying out there for a coffee chat? So if you're reaching out to an out-of-state owner— I do this fairly frequently— you have to be really good at the phone call. Not everyone is. A ton of the phone call is about tonality. If you haven't mastered this yet, this may sound corny, this is the way to do it though. You need to practice in the mirror. You need to straight up just Have that conversation again and again and again. And then when you go into practice, remember, it's a real person on the other end. You have to practice listening. I see a lot of these mirror training people way, way, way, way overload the words because they've only been practicing with themselves. So know that it's 80/20 rule. You're doing 20% of talking there and 80% of the listening, if that. You probably want to do— it's like a 90/10 is probably more appropriate as a rule there. You're gonna do most of the listening. Your tonality, pace, pace, lead works really well. Match how they answer you, match their next tonality, bring the tonality to where you want the conversation to be, which to me is energetic, curious, but professional. So when I call, it's very calm and I'm just asking a lot of open-ended questions until we can get more specific. Phone call should be faster than the in-person meeting. So phone call, If you're doing an actual owner meeting, so you called, you scheduled a time, you guys are on a scheduled phone call, 10-15 minutes should be just fine. Have some good questions prepared, be ready to listen, and then pivot to ask some supporting questions. And then if the energy is still high, it's a good time to end the call because the next time you call, they're gonna be like, oh, I had a positive experience with this. Too many people forget this. If you end a meeting when it's like, oh, this feels like it's time to end, we did everything we need to do, the ending feeling on that meeting is they leave going like, okay, I will— I have I've talked to them about everything I need to talk to them about. If you have an energetic meeting on the phone and it's going well and you're the one to end the meeting, you go, hey, this has been fantastic. I do have to run. I really appreciate this. Here's what I'm going to apply. Last question for you, based on what you told me, and reference something else in the conversation that shows that you listen and also is going to give you a takeaway. Based on what you told me earlier in the conversation, in my current position, how would you apply this? This question does 3 things. First thing it does, it reinforces— like I said, it reinforces you were listening. Number 2, it forces them to anchor to the beginning of the conversation and remember what your position is. When they have to give you advice based on your position, they have to remember, okay, uh, you have 3 duplexes, you're starting with no money, uh, you're trying to get into 25-unit buildings based on what I told you. They actually have to make those brain connections which means they're going to remember who you are, your financial position, which if a deal comes up, all of a sudden they're thinking of you and going like, oh, this is perfect for that guy I talked to or gal I talked to who doesn't have any money, who's trying to get into real estate. So that question, that does a lot. The third thing it does is they might actually give you a gem of advice where you're like, oh, I'm going to apply this. You also get to take that gem. If you actually apply that knowledge, you get to call them and that's your next call. Hey, I did what you said. Here are my results. Thank you for setting me up for success. Massively, and I mean massively helpful question that goes in every in-person meeting, that goes in every phone meeting. End it when the energy's high and end it with a question along the lines of, based on a specific thing that they told you and where I'm at today, what would you recommend I do next? Some iteration of that question. Gold, absolute gold. Are you throwing some of your larger deals into an LLC? I buy a lot of my deals with partners. I have all of my deals in LLCs. If you are buying individually or you're buying smaller multifamily, you do not need to put it in your own name. The debt products on single family through fourplex are traditionally better outside of LLCs. So if you're going to own those, own them yourself. Get the best debt product, 30-year fixed rate cash flowing debt. Fully amortized. That is a stellar debt product. And the only reason really to buy smaller multifamily is you have these super, super fantastic debt products that you can use. So highly recommend that. Highly recommend, um, conventionally financing smaller stuff, 30-year. Outside of that, LLC is where most of these belong. If there's a partnership, has to be an LLC. If you're raising capital, I'd put it in an LLC. If you're getting commercial debt, probably going to be in an LLC. You speak about refi calculations with IRR. I will keep it even simpler than IRR because the refi doesn't care about your IRR. They're going to look at primarily DSCR, debt service coverage ratio. That ratio is basically— and I covered this briefly earlier— but it's your income minus your expenses. So whatever your net operating income is, now you subtract out your monthly cost of debt. So that's principal plus interest on your mortgage. If you have multiple mortgages It's all of your debt. So all of your principal, all of your interest, subtract that out. The remaining number is divided. So that's your cash after servicing debt is divided by the total debt amount that you are— the monthly debt you have. You're looking at the ratio of how much money is left at the end of every month to pay your debt in proportion to your debt. So if I have 1.2 or 1.5 times my mortgage amount, say saved at the end of all expenses at the end of the month, a bank's gonna love that. Most banks look at 1.2. I— they will go lower. I have some banks that will go lower, but generally speaking, you're looking between 1.2 and 1.3. It's a target for a bank. My personal target on all of my deals, 1.5 debt service coverage ratio. That is the number that you are looking for. You also need to know your market cap rate because they're going to do a certain amount of loan to value, LTV. You just want to know, uh, this is how I underwrite. I'm getting a lot of stuff still at 80% loan to value being offered. I prefer lower debt stack. Uh, my blended debt right now, my portfolio is about 65 to 70. I underwrite to 70. I go, if I only get 70% of this value at cash-out refi, how much money is the bank going to give me on that loan? And does that cover my existing debt? And is there any cash that I can take out at 70% loan to value? Those are the two things you're looking for though. DSCR and loan-to-value. IRR, not as important. That is more— that is more something if you are investing in like a syndication or you're looking at, um, that's a metric for you as the investor. The bank is much less concerned with IRR. Luke, do you need, uh, or sorry, what do you need to look out for when it comes to renovating a space for a bathroom that has never been a bathroom before? I actually did that at my house, uh, the room right back there. I took a closet out and turned it into a shower, so it was never a full bath I moved walls around. So the things that you need to look out for: where the plumbing is running. I found when I tried to move a wall, there was a huge steel pipe that went through that wall. We had no idea when we first tore out the walls. Oh, that's, uh, that's very in the way. We had to get a little bit creative. We ended up getting it, uh, coming up with a little trail for it basically in the roof where it still flows correctly, but it's out of the way. Goes through the new wall. That was something that we had to figure out. We took it from steel to PEX, which is highly preferable, and away we went. So, um, you're looking for like where plumbing is currently running, what walls can move where, what is the ideal bathroom layout, and what is the room that you are affecting. So I took a closet out of a kitchen and expanded a wall from one of my bathrooms into the other one, so I had more bathroom on one side than I needed, and I had less bathroom on the other side needed. My actual master bathroom was a skinny little room, like it was probably, I'm gonna guess, like 3.5 feet wide, like tiny little long room, the toilet in the end, the sink. It was terrible. So when I bought this house, the first thing we did, like a weekend, was rip out the walls, rip out all the bathrooms, and start renovating. But yeah, when you're renovating a bathroom, you're just looking, depending on the type class. If it's Class C, you're gonna probably want to put just inexpensive appliances in but look nice. So get a nice vanity, they're not that expensive, even Lowe's has great ones. Uh, get a nice toilet, get a simple tub shower. I always do the plastic shower surrounds because one, they're easy to replace, they're cheap to replace. Two, they're easy to put up. And three, they don't get nasty as fast as tile does. Tile needs some love, grout gets really gross. The plastic shower surrounds, easy to install, easy to replace, easy to repair and stay nicer longer. For entry-level multifamily, looking for that. For a more elevated— we're talking Class B+ and A— you do want to get into nicer tiles. They have higher maintenance costs, but you're going to attract a nicer tenant. So it depends on what you're trying to do with the bathroom, but renovation standards should be uniform across your portfolio for that asset class. Do you always refi as quickly as you can? Absolutely not. Um, you refi when it is best for your property. So, uh, great example, Robinhood Builder Resort. I have 8 years of 4.5% interest. I do not want to refi that resort into 7.5% interest right now. Possibly the hospitality might be 8%. Uh, do I want to double my cost of debt? No. Especially in creative finance, when the value is in the terms, you want the terms for as long as humanly possible. I want to go as long as possible without refinancing. Now, if, uh, your refinance rate comes lower— so let's say I, I have a note that's at 5.5%. I'm not predicting this anytime soon, by the way, so no one isolate this audio and be like, Christian's predictions— this is not what I think is going to happen. But if next year we were surprised and rates came down to 4.5% again— I, I promise you it's not going to happen— but if that happened, I would take my 5% and put them to 4.5%. Longer-term debt and put them in bank debt, cash out the seller if they wanted to be cashed out. That could be good for the relationship. That puts me in a long-term, a long-term stable product. I'm fine to do that. That would be great. I'd actually pull most of my portfolio if we got back to 5s. I'm basically refinancing everything I have into 5. Make a ton of money doing that. But if the value is in your terms and you have good terms, don't re-roll the terms. If you have a 10-year note and you're hitting like year 8, you really got to start working on that refinance. But if you have a few years left in your note and you like your debt, don't touch it. It's expensive, it's pain, it's a lot of paperwork, and it may tank your cash flow. Fixed, you will be missed. You've probably already left, but, uh, I'll drop as many gems as I can for you guys. Keep asking and I'll keep answering. Could you explain to me supply and demand of apartments? Yes, like anything, prices, determined by supply and demand. Most recently, relating it to our current market— son of my ass— in our current market, here's what I'm saying. Um, we overbuilt a lot when money was cheap, which is what you do if you're a developer and debt cost is low. You build as much as you can. So we overbuilt. Then, uh, we had 2019 through 2022 happen where we basically shut down everything. Building more or less stopped. We had a supply issue. And so now We have population growth in a lot of areas. We have less new builds delivered than we would like, and so we're seeing pricing skyrocket. Rent is going up like crazy, inflation's going up like crazy, and it's making it really hard for affordability because the economy is down but prices are up. This is because there's less housing available than there are new builds to be absorbed. Now, there's a lot of new builds going online again. It always goes in development cycles, so, uh, this is what happens. We build, build, build, build, build to meet demand. We overbuild. Some of those developers get wiped out. This is why I don't like development. And top of the market, if you're the last one, if you're the last one at the table, you lose musical chairs and you go ahead and, uh, bummer for you. You have an oversupply. Now prices come down and concessions are given, so effective rent is dropped in a market. You usually don't see rent actually go down, but you see a bunch of concessions in multifamily. So you're getting less actual money in every year trying to fill fill up your buildings. There's less development, then no one's building, then you have more demand and buildings behind by a few years. Because the lag of buildings don't go up instantly, supply and demand has a massive impact. Right now we are undersupplied in most markets, and so we have an economic pullback but a major shortage of housing, which is causing prices to actually go up. With inflation, landlord expenses are going up And with interest rates going up, landlord expenses are going up. So this is one of the hardest economies if you're a tenant. You're just getting screwed. Your dollar's worth less. You probably haven't got a raise. Your expenses are going up for food, for gas, for housing, and landlords are still struggling to keep up, so they can't lower the rent if they wanted to. That's what supply and demand does in a market. It's based on, uh, where is capital at and, uh, how much units are actually available for the amount of people who want to do that. So pricing is still pretty high, single family, multi-family, uh, we're seeing that because of today's supply and demand. Dividend Dave, it is good to see you, my friend. Dividend Dave, I've seen him in person, by the way. He's, uh, he is real and he is a baller. Uh, Dave is not the same live without you, my friend. We're really glad to see you here. Welcome. Chris, do you always do long-term rental, or have you ever considered lease options, um, to midterm or other exits. I am— I will die on this hill. You can do midterm, you can do short-term, you can do long-term. I think long-term is the most stable, but you can do what you want to do. Just do that thing. Be really good at your core. We call it the white-hot center. Be super, super good at the one thing. I have a resort. It's ran off of Airbnb, uh, Booking.com, Expedia, VRBO. Uh, we have 19 cabins on the water. I thought that'd be an amazing adventure. It turns out it's a lot of work, it's a lot of employees, it's a pain. It's too small of a resort to hire a full-time management, so you always kind of have to have a job. But it's too big to, um, to run like a traditional Airbnb. So it's hard to run, it's hard to staff, makes a lot of money, but it's like, it's a pain. I should not have done short-term rental. I should have stayed with my long-term rental entry-level housing. I do a lot of housing for people in need. So I'm really good at working with housing authorities. We're really good at that type of renovation. And I am very, very talented at doing deals with horrible slumlords to fix the properties, make them a wonderful place to live, and keep them below market rent, which means I stay fully occupied. I get to do a good thing for my communities. Our tenants are grateful that we bought the building and manage it. And we make a bunch of money doing it. I will always do long-term rentals because that is my core business. Um, I have friends who do amazing midterm rentals. If you want to be amazing at that, be amazing at midterm rentals, but then don't do a bunch of long-term, short-term. Do you guys ever wholesale? Uh, no. Um, I have a— this is one of our core things too. Um, when I was in the office with Cody and we came up with multifamily strategy, when we started buying all these things, we, we set our principles together. Uh, one of the big things was for all these deals that come up, I had a boss who's like, well, you can't buy them all. And I was like, but what if we could? Which is why we started a property management company. It's like, well, if we did that, we'd have to manage it, so we're going to need infrastructure. Um, so we did that. Um, how do you buy it? How do you never lose it? That's the questions that we ask. So when I come up to a deal, if there's a way to take it out, is there anything that anyone can do that I can't. And I think every— everyone watching this, ask yourself this: are there people buying hundreds of rentals in your market? The answer is yes. Is there anything unique about them that makes them better than you in any way, knowing that you can buy these with or without money? Is there anything about them that makes them better than you? No. So if your options are be the seller or be the owner, my option is always going to be I'm going to be the owner. I don't want a cut of a deal. I don't want, you know, a $20,000 commission, even a $100,000 commission. I'd rather have a building that has a chance to make me millions of dollars and stack those again and again and again, hold them for the long term, increase my cash flow, and add stability. Um, that is what I believe is the best thing to do, and I'll continue doing that till the day I die. Um, so I don't wholesale unless I'm wholesaling to myself. I know I have a video on that somewhere buried in, uh, on our YouTube channel here. Uh, check it out, by the way, Multifamily Strategy on YouTube. Um, if you guys are watching on any other platform— but do we ever wholesale? Generally speaking, no, unless I'm putting together a deal where I've done the deal, the debt, I've lined up all the pieces, I'm going to be managing it. It's like, hey, this deal is a ton of work, this is my job. Uh, the capital partner on that, if it's a great deal, I'm gonna say, hey, there's going to be an acquisition fee, this is how I make money. This is my job, is lining up this deal for you. It will usually be very nominal, 1 or 2% of the transaction. It's a little nominal fee to me for the tons of hours of work that I'll do putting together the deal. Caleb Harris, at this level of the game, do you use realtors or just your own lawyer? Realtors. Well, not specifically realtors, brokers. Realtor is actually a branded thing, and realtors, generally speaking, impress me a lot less than most people. But we will use brokers on deals. I will use them on— I have a good friend Eric in Seattle. He does a lot of our— he writes a lot of the deals for us. A fantastic broker. I'll use him. I've been talking to a guy named Wade in Dallas. He's been sending us deals consistently. We do them, he writes them up. I don't want to do the paperwork, and having a broker on your team who has a good beat on the market is fantastic. I like the two ways I find deals. I network directly with owners and I script very well with brokers, so I get brokers on my team. Uh, I talk about this, I know I've talked about this on the YouTube channel, it's been a while back. Multifamily Strategy, I have a huge section of coursework, I mean huge, on owner and broker scripting. That is the way that I find all my deals for free. I don't skip trace, door knock, email blast, text blast. Download list or make mass cold calls. I make 10 calls a week max, meet with one person a weekend for coffee, and in the course of a year I meet with 52 owners and I talk to probably 2 brokers a week. It is very little work and we find a ton of deals this way. So brokers are a huge piece, huge piece of the strategy. Maybe 50% of our deals, it's owners and it's brokers. Brokers are super easy to network with. You just have to know how to position yourself. If you want more, go to multifamilystrategy.com. Uh, that's all in the course. We talk about mentorship all the time. I'm actually talking about it next Thursday in more detail. Uh, what are the daily things that happen to make a property run like one of yours? Uh, so the daily things, um, I have a property manager who's looking into— like, I have people driving my portfolio. They're on my team. Like, they actually work for me. They drive the properties on a weekly basis. We're checking in with tenants. We're answering maintenance requests as they come in quickly and efficiently. We're always looking for new deals. Um, but when we're, when we're onboarded the property, like, communication with tenants, absolutely key. Maintenance— I know where every contractor is every time, and if I don't, my wife does. Dani runs that part of our business. She knows every unit, every contractor, all the time, exactly what needs to be done. So that is a huge piece of it. So weekly contact— actually, usually a few times a week— contacting all of our contractors, getting updates on all of our projects so we know wherever unit is, what the plan is for bringing on market, how renovation projects are doing. Great communication with tenants daily, weekly driving in the portfolio. And then when you are stable and you have a well-balanced, stabilized portfolio, what do you do next? You buy more real estate, and that's the best thing you can do to feed your portfolio. You continue to take on projects, keep all of your people employed, keep all of your people busy. You're going to have happy, sharp teammates and an ever-growing business. I'm Chris. I am all for Section 8 and affordable housing. You guys ever consider a pad split? Uh, I haven't done it yet, but I do love Section 8 and I love affordable housing so much. Section 8 is pretty simple. The tenants are not horrible since I do entry-level housing. The type of tenants that I get market rate aren't dissimilar from a lot of the Section 8 tenants who need a little bit of assistance. They still go through the same screening as anyone else. They have to have a minimum credit score. They, uh, obviously their income requirements change based on what their voucher says, but outside of that, the income requirements changed. Their, uh, criminal history— they're— well, not in Washington State because you can't discriminate by criminal history anymore, uh, but like in Texas, your criminal history. In Washington, Uh, your credit score, your ability to pay, uh, your income outside of the voucher— those are all taken into consideration. So you have to independently qualify. Um, but yeah, Section 8 is absolutely amazing. Uh, a great way to set your pricing too. If you're doing entry-level housing, call your local housing authority, see how much of a need there is to work with them. And if they have a lot of vouchers that need to be placed, they're looking for landlords, go ahead and just write your base pricing at the housing authority maximums. One beds, two beds, studios, you name it. You market right to them. They're going to fill some of them, the market will fill some of them. You get this nice blended portfolio and you have like a real number to set your pricing off of. That's really helped us. Yeah, I have to find a local broker I get along with. Good luck. A lot of brokers suck. This is, uh, and this is from a past broker. I was a broker for 2 years, did some, uh, did some crazy complicated and creative transactions, but my time. Um, I hate doing paperwork, so I decided I'd rather be on the owning side than the brokering side. That being said, yeah, look for a local broker. Um, the easiest way to find them, I have found, go to crexi.com. It's better than LoopNet. I used to work for LoopNet too. Um, Crexi shows more listings, so go to LoopNet and— oh my gosh, I said that backwards. Let me try again. Go to crexi.com. Look for the brokers who are currently listing the type of properties that you want to buy, then call them specifically on that deal. I don't care if you buy it or not, and it's cool if you do. Like, I've done this before. I called them to get to know a broker and I ended up buying the deal. Look at the types of properties you want to buy that are listed. Ask them intelligent questions. I have this script on multifamilystrategy.com. If you've taken the course, you've seen this script, but I'm going to ask them 5 questions and some small talk around those questions. But I have a framework that I go through where we talk about the deal. We transition from general questions into more specific questions into closing questions. When they realize they're talking to a competent and like a real potential buyer, we get into the details of the deal. If it's not a deal I want to buy, this is where the relationship comes in. I'm like, okay, I'm looking to buy stuff exactly like this. I'm seeing a couple problems here, and I let them know what I'm seeing. And it's like, is this— if I'm trying to get into this market, is this the deal that I'm buying, or is there anything else that you can think of that's gonna be a better fit for me? And then they're going to ask you more questions about you, or they'll show you more deals, or they're going to move you farther up on their buyer list because they now know, okay, this guy's capable, he can communicate what he's trying to do, and we can do business with this individual. And so that's what we're trying to get out of every single broker meeting, is, um, you're trying to get to the top of their list. I do not want to be on another mailing list for a real estate agent. That is a lame place to be, and it's an easy place to get to. Everyone else can get on some agent's list. Don't let it be you. Um, you want to be top of the list and you want them to specifically know what you're looking for. Uh, when you do build that confidence, you know, because they reach out, they start sending you deals, and the deals they start sending you make a heck of a lot of sense. Got some laughing from, uh, Chris. That's it for questions. So if you have any more questions, let me know. And I actually, um, we were going live on Instagram. I have to go on my computer. I might have to— I have to bring you guys to the office. Uh, for, for, for Part B here. Let's see if we have more questions in there. Let me finish a sip of coffee. Keep asking questions here. But for those who missed it, banks are tightening up a ton. It's going to happen for the next 24 to 18 months. I'm, I'm expecting it. You need to budget for it. But for that time, be ready. It's going to be tough sledding. You're looking at agency debt and seller financing as your main forms of acquisition. All right. Come with me, bringing the whole, the whole stand right through the kitchen. Moving out from Renton very soon too, so you guys are gonna see that. My wife's giving me a look. We're on our way to the office. Everyone say hi to the amazing Dani. Look at that paperwork. That's gnarly. That's gnarly. I'm in trouble. All right, welcome to the studio. All right, let's continue on. So looking over here on Instagram for some questions. Um, I am Boogeyman 77. We want real lives, not these pre-recorded ones. This would be very hard to pre-record since I am taking the live questions. That would be ludicrously difficult to pull off. I would have to be extremely psychic if we're making that happen. So I am Boogeyman777. You're crazy, man. Could you rank real estate strategies from your favorites to your least? I think I can do that. Favorite real estate strategy of all time? Seller financing. Big surprise, right? I do a ton of it. Seller financing is amazing, uh, for multiple reasons, but the biggest one is you get to name everything on your debt product. Now, the downside of seller financing is you just negotiate everything on your debt product. So you can literally negotiate a terrible deal and you can sign for it and no one's there to stop you. So downside of seller financing, you can negotiate everything. Positive, you can negotiate everything if you understand what a deal is and you know how to underwrite a deal. That's why the math is important. If you can do the basic math for a deal, you can set all of your terms. You can buy deals that cash flow a lot of your fixed rate debt because you negotiate for it, and you are set. You can pay above market price for long-term fixed rate debt because it will cash flow until the property increases in value. Basically, a strategy to acquire real estate and hold it until you're rich, which is great. That's what I want to do. That's my favorite. Next favorite is actually agency debt. I haven't even used it yet, so I don't know if that's fair, but I'm getting quoted a bunch of these. Agency debt is trying to place money right now. It is the lowest interest commercial debt available right now outside of some HUD programs, which is for low-income housing specific, and a lot of nonprofits. For those programs, you might get even better, but generally speaking, if you're trying to close something in a reasonable amount of time, Agency is the next best. Now there's other types of seller financing too that fall into the general camp. It's not maybe necessarily seller financing, but you can buy on a land contract, which if you guys have seen subject to, that is a clause on a land contract that I would avoid like the plague. So hate subject to unless there is no due-on-sale clause, and then subject to away. Land contracts work similar to seller financing. They do favor the seller a little bit more as it is not a foreclosure on the property. It is just a failure to execute a contract. So the actual, their ability to take back the property is a lot easier on a failed land contract. So that's also known as contract for deed. Um, uh, there's a whole bunch of different words for it. Um, but it is a basically a sales contract for a piece of property where title stays with the owner. And, but like, while you're still on title, uh, think of it more like a, what's a good analogy? Think of it more like a car purchase where the bank holds the title to the car. They hold the deed, they have legal title, you have equitable title. So you are the owner, but in the event of default, it just reverts right back to them. It's a lot simpler method, but those types of methods, fantastic. Going through a bank is probably my least favorite. It's a ton of paperwork, ton of time, expensive interest. And, oh my gosh, there's so many different ways to do it because you can combine bank and seller financing, combine bank and land contracts. There's all sorts of combinations. It depends very much on your deal, but my favorite of all time, hands down, a great seller finance deal is a great seller finance deal. Okay, Instagram, you guys are welcome to answer more questions. I know, I believe if I recall correctly too, I show up super pixely on Instagram when I'm doing this multi-streaming thing. I'll pop back over to Instagram a little bit later today so you guys can have have a meeting in HD. All right, how much should I underwrite to be able to pull out on refinance and at what rate? So when I'm doing the underwriting, 70% loan to value. So conservatively, what do I think at stabilization the property is going to be worth? When I have that number, that's based on the market cap rate and my net operating income. If I have that value, I go, okay, um, now I'm getting a lot of 80%. I'm going to write 70. 70% of the future value of the property is what I'm likely going to be able to refinance out to. If that cycles all of my original capital, or if I'm using equity partners, if that cycles out and pays off my partners, the real estate's buying the real estate, that deal is a go. So I would underwrite to a debt service coverage ratio of 1.2 or or higher, ideally 1.25 or higher in case they tighten up even more. So a debt service coverage ratio of 1.25— my target is always 1.5 personally throughout my portfolio— going to write to that debt service coverage and no more than 70% loan to value. If you hit all those metrics, you should very conservatively be able to have your real estate buy the real estate, which is always the goal. How do you determine what you need What you'll need an architect for. Well, if there's major engineering, like if you're putting on a new roof, you're gonna need an architect. You're gonna need plans. If you're building a new unit, you'll probably need that. If you're doing basic renovations, you're almost definitely not gonna need an architect. You need a general contractor. If you're moving a wall, moving some basic plumbing, architect is usually for large structural projects. The times that I have used architects, every single time has been designing new pitched roofs on buildings that don't previously have a pitched roof. So there's actual architecture that needs to be put together that's submitted to the builder. Then the builder goes ahead and bids it out based on the architecture plans, and you have a quote. I don't need an architect for much. Also, if I was adding like a full unit to a building, like if I was just building another building, anything where you're doing real massive construction, that's where you're going to need an architect, where they're actually going to need to engineer something. If it's a little bit more basic, you're probably using a general contractor. How often do you check DSCR occupancy. So I check DSCR and I, I, I watch it at a portfolio level all the time. So I know our gross debt on the portfolio, what I owe every month and how much we make every month. I watch that number every single month. I know exactly what that is to the dollar. So I know portfolio DSCR, which we try to keep at 1.5 or higher. We are there today, um, quite a bit. So that checks the DSCR for me. Now when I'm looking for like on a specific deal, how often am I looking at where we're at DSCR-wise? If it is in bank financing, there's usually a review period every year. They usually take a look at your deal and see how it's performing. You usually have performance metrics that where your note can actually be callable if you're not hitting certain metrics. So you want to be really careful with this. We always watch around note review time. How are we looking, and do we want to start any major projects right now? The answer is, uh, we're just about to get reviewed or likely to get reviewed. Let's wait off on some of the projects. Let's keep occupancy high. Let's maximize DSCR with where we're at right now, and we'll do our improvement projects on the next cycle. Um, so I check that if I'm coming up towards refinance. We're looking at DSCR really closely, but on a portfolio-wide level, all the time, constantly. I always know what that number is on a monthly basis. Caleb Harris: On average, what is the interest— what interest rate do you typically manage to achieve through your seller finance deals? If There's no such thing as average because you go, you negotiate. But if I did, I'd say 5% is the average. I have 5% on a ton of deals, I have less than that on a ton of deals, I have more than that on several deals. On average, we're somewhere between 3.5% and 6%, I think. Do I have any higher than 6%? No, it's between 3.5% and 6% on all of our deals, average being 5%. 5% is like very common. I'd say 80% of my deals, it is 5% interest. Hey, Chris, with housing authorities, can you find out what they'll pay for your property before buying it to underwrite? Oh yeah, yeah, you definitely can. I'll tell you guys exactly how to do this because this is super helpful. This is how I run a lot of my portfolio, actually. From what they've heard, they ideally pay less than HUD fair market rate and won't tell you until you own. There are differences across the country, but generally speaking, Section 8, I can call them and they have set maximums for set areas. So if I'm like, I'm looking to buy in this building, what is your maximum rent? What is maximum FMR, fair market rent, for these properties? And most, not all, most Section 8 offices have that number published. They will explain exactly how they get to it. They'll let you know a caveat that, you know, it's like If you are, you know, far inferior to other units, it may have to be brought down. There are also cases where you have a unit that is notably nicer and you can make a case to actually come above fair market and they'll actually pay it. I've seen this done. I've done it before. This is an option for you. So when working with housing authorities, generally speaking, not all of them, but almost all of them, you can call, you can let them know what it is you're buying, and you're like, what is— what do you guys have as FMR, and do you think it's realistic to get that on this building? They will usually give you— usually give you a straight answer. If they say yes, you can go ahead and use those as your standard rents for your underwriting, as long as their fair market rent at least is a sensible number compared to what you're seeing for market rent. I have seen some housing authorities pay way too much. I've seen some pay way too little. If it's way too little, You're super conservative using their numbers. If you're like, hey, rent in my market, I believe it's $1,000, but they're willing to pay $1,200 for one bed, I would underwrite to $1,000 because that's— always choose the lower number when you're doing your underwriting. Conservative is always good. If it works on your worst case scenario, it's going to dominate best case scenario, and you'll usually fall out somewhere in the middle anyway. Because I've got a sheet from my housing authority, but they told me that they go based on AffordableHousing.com comps, and I see they're way lower than posted FMR. That sheet is what they should be basing everything off of. There's actually a standard for Section 8 where they have to take from approved sources, which may be AffordableHousing.com are the comps they use, but that should be accounted in their fair market. So their FMR sheet has to like in their mandate, it has to be based on the data of the average of, uh, I think it's the rolling 2 or 3 years, but from 2 years ago. So the beautiful thing with Section 8 is you have a crystal ball into the future with whatever happened to the market 2 years ago is what's going to happen this upcoming year. So you're always 2 years behind. So we know that we had the major rent jump. When you were gonna have another major rent jump Section 8, uh, this next year is going to be a smaller jump, and the year after that it's going to be a smaller jump because the market started to flatten a little bit over the last, you know, as we started raising, uh, raising interest rates. Now, Porter mentioned it did not go flat, it continued to go up. So we will still see those rents go up, and we know this to be true. This has always happened in the history of Section 8. Section 8 follows, uh, 2 years behind the market the way that they have to run their comps. But if they're giving you a sheet that says this is FMR, they're going to have to come up with a great case for why they don't believe their sheet is accurate because they actually have requirements on how they calculate that sheet and what they have to go off of. So I would challenge them on that. If they're telling you that they want to pay less than what their published fair market rent is, I would challenge them on that. I think you might win. Um, can't guarantee it, but I actually think you might. I've had a lot of luck in my portfolio, uh, managing and working with Section 8 to enhance my portfolio. Let's see if we have any other questions. If not, we're just about an hour. I'd like to go, you know, we're at 58 minutes. Let's get a couple more questions. Let's round the hour and we'll call it a day. Caleb Harris, second question related to interest. How do you usually begin negotiating interest? Do you bring it up in combo after running the numbers and try to reach your 1.5 DSCR? What does that combo look like? That's an excellent question. So first thing that I'm looking at, if you don't know this, you need to look it up on this YouTube channel, or this is like, we talk about it all the time, multi-family strategy. You need to understand what a loan factor rate is. Loan factor rate, and this is probably not going to click in this video if you're hearing this for the first time, I'm going to explain it, and if it goes way over your head, DM me on Instagram @ChristianOsgood, ask me a question about it. I will try to answer every single one of you. It is your total cost of debt divided by the total amount of debt. So it's principal plus interest annually. Divided by the total amount of debt that you have. That will give you a factor rate. That factor rate is compared to the cap rate. We have house talk this side. Ooh, sounds like I'm buying a house in Texas after this. I am finally closing on my Texas house. You've heard it here first live. I'm glad we stayed the extra minute. Uh, like my wife came in, we know we have something. Okay, For those who are like, what is he telling me about loan factor rate? Okay, so it is your annual principal plus interest divided by your total debt amount. You compare that directly to your cap rate. Now a lot of people go, oh well, if it's 5% interest and I have a cap rate of 6, I'm making money. But that's not true. If you have an amortized schedule, you could be losing cash flow while you're still making net worth. Your increase— like you're paying down your loan, your actual outflow of cash is going to be greater than your inflow of cash. You can lose that deal. Don't do it. You compare a loan factor rate, it includes principal in the number. So if my loan factor rate is less than my cap rate, it means I have a positive spread on my debt. Every dollar borrowed makes me money. So if I'm interest only, doesn't have principal, so 4% interest only on a 5-cap deal means I get a 1% spread on every dollar I borrow. That is the best indicator where I'm going to make money, is the more I borrow, the more money I make. That's the interest rate that I'm interested in. I want to make bare minimum. If the deal has some upside, I want to make half a point on every money— on all the money borrowed. If it's a great deal, it's like if I'm gonna get 3% on every dollar I borrow, I want to go as low down as humanly possible and borrow as much as I can. The more I borrow, the larger my cash-on-cash return. That is interesting to me, and that's where I make the most money. So that's how I negotiate the interest rate. I don't explain that to the seller. That's internally how I'm very quickly going like, okay, well our payments are this every month times 12 divided by the total debt amount. The deal as presented looks like it's a 5 cap. I need to come in at a loan factor rate of less than 5%. Now I know the deal will make money if I do close it on that loan factor rate. That is the easiest way to do it when it comes to negotiating with the seller. By the way, the seller negotiations I've actually— I've changed this. So if you guys have heard me talk about this before, this is gonna be new. I don't even bring up seller financing anymore. I used to always do it as, will you carry a contract? And that absolutely works. Absolutely works. You can do that and you'll have a ton of success. Just keep it super simple. I go even simpler. I don't bring up seller financing anymore. I just propose the terms. Okay, in lieu of cashing out the bank note, could I— and then I just insert the price and terms. If I gave you 20% down and we had monthly payments at 4.5% for the next 10 years, and we can even bump that on year 5 to 5.5% if that makes the deal better for you, because I, you know, I have a game plan to increase the revenue. But I pitched to them the terms. You're going to get this much money. I'm going to pay you this much in interest, and the remainder is going to be due in 10 years when this balloons. It'll be backed by the property. So I need to get the value up here. This aligns the project with what I'm trying to do with the property. Do this work. And then if they have questions about it, that's where you, that's where you explain it. Do not sell them on seller financing. You will get a no. Do not overexplain it. Just give them what you want. I'd like to put this much down. I'd like to pay you this much per month with the remainder being due. At whatever your proposed balloon is. If you propose it that way without calling it seller finance, you don't put the word in their head, you just go, does this work? They're going to actually think about the proposal instead of like, well, I'm not really open to that, or I'm not comfortable with seller finance. You're just proposing terms. Do these terms work? It is different. It is psychologically, I believe, better than the way I've been doing it. And I bought over 20 deals proposing it with like, awesome, are we doing this with bank financing? Are you open to carrying contract?. I just think it's a better way to do it. I've started doing it and it's working even better. Hard to go wrong, but definitely never try to sell on it. How can you float negative cost of new buildings? Doesn't make sense. You can float negative cost. I'm doing this on a hotel conversion. Massive negative, huge negative when we started. We're leasing it up now and it's not as negative. You can float a negative when your portfolio has enough cash flow globally to float the project. So we're doing a hotel conversion. 31 units. We actually collapsed one, so now it's 30 units. We combined 2 units together. On that conversion, day 1, we took out 13.5% interest hard money debt. Super expensive debt, negative cash flow, but our portfolio can sustain the cash flow. So we got it in a position where it's sustaining its own negative, holds its own, and we're able to achieve a massive upside. We refinance that down into like 6% debt 6.5, even 7.5. But when we basically— when we cut the debt in half on it, it cash flows like a freaking monster. It— we bought it for 1.6, we're putting $300,000 into it, we're going to refinance it at a value of about 2.6, maybe 2.7 if we're lucky. Pretty conservatively though, we're gonna make $700,000 of new net worth. We're gonna have a $7,000 to $8,000 a month cash flow on property. We bought it $0 out of pocket. We made a ton of money when we finished the project. You can't do that project if you don't have cash flow. So how can you float the negative? Buy a bunch of deals that have positive cash flow. Limit yourself to only those deals until you have enough global cash flow to live off of. And out of the excess, you can take on more risky or more negative projects because you can afford to do so without bankrupting yourself. You have to do it out of cash flow That is the lifeblood of your business. You have no blood, you're dead. Get enough blood in the system to sustain new limbs. I think I'm kind of losing the analogy now, so I'm going to cut that off here. But see, you need to keep cash flow. Cash flow is king. That is everything that we invest for. We buy for appreciation based on cash flow. I hope today was helpful. I'm gonna go sign some documents close on my Texas house. Dallas, here we come! I'm gonna be moving in about a month, uh, so everyone in Dallas, drop me a DM on Instagram. By the way, I want to meet up with everyone. We're going to host the big event when I'm down there. Um, we're gonna hit the ground running in Dallas. I'm so excited. Uh, but to our Dallas fans, um, shoot me a DM at Christian Osgood on Instagram. YouTube, give me a like, follow, share with a friend, ask any questions. You can also just DM me if you have any questions for YouTube. I will ask them the beginning of YouTube Live every week. We go live at 3:00 PM Pacific Standard Time. I guess pretty soon we go live 5:00 PM Central Time, which is the same thing, but I'll be calling it Central soon. Thank you so much for being here. If you guys have any questions, let me know. One last Easter egg for you. I am gonna run a 2-hour webinar. I've been getting harassed online forever, like, oh, if you have all this knowledge, why do you have a course and a mentorship? Well, that should cost money. It costs money 'cause it costs them, you guys, you have no idea what the cost is to market these things. You have a whole bunch of online gurus who are trying to drain your money. To have a great course and to market it, it costs a boatload. It's expensive for me, so the course and mentorship cost, this webinar's gonna be free, and I'm gonna go 2 hours, I will bring this to you and I'm going to absolutely bring it. I have worked out a huge presentation going over exactly, literally exactly how we went from 0 to 100. This isn't a like, hey, this is the one trick. This is like, this is what we did and then we did this and we did this. And here are the actual steps that you can copy for free to do the same exact thing. I'll be dropping a link to this webinar on my Instagram @ChristianOsgood. So follow me there. We also have a brand channel for Multifamily Strategy on my Instagram. Follow that channel. So I'll be dropping all the updates there if you want to learn how to do this. You have an hour free. It's going to be next Wednesday, I think, probably about 5 PM Pacific time. I'll release more on this if you want to join that. Like, literally not billing you anything, not asking for anything, legitimately non-marketing. This is just free. I want to give this to everyone. It's been requested. It is here for you. So that's the only promotion I'm doing for myself. I have free stuff for you guys. Join there. Let me know if you want more details about that. DM me on Instagram @ChristianOsgood. Follow Multifamily Strategy, and we'll see you all on the next episode.