Multifamily Strategy is live!

Added to share a quick, quick short today. If you have any questions, as always, post in the chat and I will answer the questions as they come in. Today's topic, I'm going to do a full video on this, but today's topic is going to be specifically on the economy. Now, generally speaking, on a business front, I don't really massively care who wins the election. It matters like 1% to my business. As far as like the top of the executive office, presidency, don't really care. There are a few policies that I find unusually concerning that I wanted to bring up. I don't know how many people have taken the time to read it, but part of the Democratic policy is they're going to want to try to get rid of the 1031 for buildings or for any capital gains over half a million dollars. So you have a $500,000 capital gain. They're looking at removing the like-kind exchange. That is the one thing I wanted to cover today. If that goes through, which I don't know that it will, But if they get elected, that means we actually have limited time to buy a lot of real estate. Everyone who wants to do one of those, anyone who's trying to scale their portfolio, is going to try to rapidly do so. Which means I think there's gonna be a huge opportunity in the next year if Kamala was to win. I think there'd be a huge opportunity in the next year while they're trying to get the 1031 rules changed, where people are going to start dumping properties. That's going to have a really interesting effect on the markets and could open up some interesting opportunity. The The other thing it means is that if you're not currently in real estate, you should probably jump on it. And if you guys aren't already following this channel, you should probably follow because if you know how to buy real estate with or without money, that's going to help you a lot. But I think that's something that we're going to see in this cycle. Looking through both again, I don't see a massive impact. Generally speaking, the executive branch, it doesn't, it doesn't matter that much for my business. I built it on long-term fixed rate debt. You should do the same. If you have cash flow today, the rules are going to stay roughly the same. It's not going to have a massive, massive impact on my business. Now, on a personal level, of course, I think everyone should get out there and vote for whoever you want to vote for, whoever's policies make the most sense. But the thing I do want to highlight today is if you go through the economic policies of both, the one that really does cause some opportunity and some concern is that 1031 exchange. If Kamala was to win, we're going to limit that. One of her platforms is we're going to limit that to half a million dollars. That means if you're trying to 1031 out of a duplex, triplex, fourplex, single-family house, it's unlikely you've built $500,000 of capital gains there. You're probably fine. As you get into the midsize multifamily, not even that large midsize multifamily— a third deal I ever did in real estate was a 38-unit building, seller financed. I had $0 in my pocket. So this isn't a rich person buying real estate, right? This is— I mean, like, I was— I had $5,000 in my bank account. This is someone with no money trying to get ahead. That deal made $2 million. If I was to attempt to 1031 that, if I was to roll that into another property, I would have to pay capital gains on $1,500,000. If that policy is pushed through, that is going to massively limit us, the middle class. That's going to limit our ability to go out and play the game and to get ahead. Now, what also is going to happen is the wealthy already own a bunch of real estate. Well, now they're just less interested in selling and scaling up. They're going to hold longer. There is going to be less opportunity. Now, the nice thing is being elected doesn't mean all your policies pass, and it certainly doesn't mean they all pass immediately. I do not think that's going to be the first thing that they drive. There's a lot of other things going on, but that will be part of the economic plan. So my reaction to that is like, okay, if there was a time to load up on real estate in midsize multifamily, it's probably right now. This would be a great time to hold it. They're going to trade less often. I would try to get in the game as aggressively as possible because your opportunities are just going to dry up. People are going to hold them for years and years and years and years and years because we don't have the same incentive to offer more housing to people, to scale our portfolios, to grow, to become better operators. The thing that the government incentivizes us on forever is to provide excellent housing to those in need and experienced landlords, those who already own, can sell and roll into larger assets. So the more experience and time you have in the market, the more housing you're able to provide, and you're given a tax deferment to do so. So something to watch out for. Again, I wouldn't vote along that line. There's much bigger issues at stake, but something to watch out for if you're looking at the election cycle and you're seeing like, okay, what does this mean for me in real estate? That is the big one. Other than that, it Some of the policies are dumb. Most of them won't get pushed through anyway. I would not let real estate be your main factor in an election. There's bigger things at stake, but I just watched— watch for that. It's a question I've gotten a few times on my take on the Trump and Kamala and the effect on my business. For the most part, they're not going to affect my business. I have long-term debt. I'll have the same properties on the same debt products with the same expenses long after either of them are out of office. So while it does not massively matter, it's a factor you should think about. Now let's see if I— this is a quick, quick little live today. Didn't have too much, uh, too much on the docket other than answering that one question. If you guys have any questions, go ahead and drop them in the chat. I have one here asking if I can send them $25. Uh, no, no, I will, uh, certainly not do that. That'd be weird. The real estate channel. This is not a social welfare thing. And some of the politics, that actually may be befitting to the topic. There are some political leanings on should people earn things or should they just be given things. That will have a much larger effect on my voting patterns, I think, than just 1031 exchanges and the finances associated. But I, uh, have also big news for everyone, huge news for everyone, uh, for those who followed the channel for a while. My child has been born. I officially have Xander Daniel Osgood in the house. Baby boy's in the other room, so I'll be peacing and going over there. We're not doing as much work, so if you guys see a short live or two, uh, that will be the reason. Uh, we finally hit all the goals buying that multifamily I was just talking about. Uh, we built this house, which I'm in my dream house right now, or a little side room in the office. We built the dream house, retired the wife from teaching, retired myself from the Coastal Star Group, and started a family in the state of Texas. Got out of Washington, moved to Texas where it's much warmer and I like it a lot more. Live in this beautiful neighborhood. And we were able to do it because we made the decisions that we did with the market that we had. Now, of course, when I bought real estate, the market's only ever gone down. I'm really excited for when we actually do have an upswing in the market. But I started buying real estate and interest rates started doubling. I've only had a down market, but it has been a fun, fun journey where we still made a lot of money. I can only imagine what happens in an up market. But yeah, big news, baby boy is born. If I seem really tired or out of it on any of the videos, it's probably because I am. But I am still out here sharing the journey with all of you guys. So again, in light of that, shorter live unless I see any new questions. I don't. Oscar, thank you for the congratulations. He is a dude. Being a dad is a whole new part of the game. For those out there who are teaching real estate, who have— they're flashing the boats, the cars, the— I have a huge house, but it's not like a mega house, a million-dollar house, not a $20 million house. For those who are just flashing all of the luxuries, going, hey, you could own this watch, you can own this car, um, yeah, that's not what matters. It's really not. Being able to provide for your family is awesome. And if you can provide an awesome service to your community, I do entry-level housing personally, I really prefer that because of the value we can bring to a community. If you can make great units, be way on top of your renovations, place rents at a place where you're profitable to hit your goals, but more importantly, you have enough money to reinvest back into the property and keep making these things nicer and nicer, you push your net worth, you push the cash flow, but you also provide a great place for your tenants that can afford to stay a great place. You follow a model like that, you can, you do a lot for your communities, but in the process, you can hit your personal financial goals doing a good thing. That's worked really well for me. So that's my words of encouragement here for everyone. I've officially, as of 5 days ago, hit all of my original life goals, which is really weird. The ability to do that was done through multifamily. It was done through really simple principles. If you want to buy and hold, you got to answer both questions. How am I going to buy and how am I never going to lose it? How am I actually going to hold this indefinitely without ever having to sell? Because of the decisions we made, we were able to hit that mark. It's been a huge blessing, and my son is going to have a much different life than a lot of people get to because of the decisions that his dad made over the last few years. I think that's a lot more relatable and a lot more important of a goal. If you're looking for motivation, that's going to get you a lot farther than the sports car, the boat. Okay, a couple questions here in the chat from Oscar. When you get an equity partner, do you pay him or her with a cash-out refi, or quarterly, monthly? I'm guessing it depends on the contract terms. Yes, beautiful thing about creative finance and all LLCs, your operating agreements and what you agree on is you get what you negotiate. It's up to you. On deals that have higher cash flow, I usually share some of that cash flow because the return is right there. You could— your deal can service it. On deals that may be a little tighter on cash flow but have a ton of upside, that is an excellent example of when I do a larger equity payout. The goal, though, every single time is for the real estate to buy the real estate. So say they give us the money for the down payment. So I have an investor now, it cash flows beautifully day one. I'm probably paying them more in monthly dividends and less to buy them out later. Flip that around. Say I have a value-add project like our 38-plex. We bring in 3 partners, $100,000 each. It's a cool deal. It's great property. Tons of upside, $2 million upside, but it barely cashflow day one. I mean, it was a skinny, skinny deal. We had 12— no, we had 15 units that we needed to lease in that building. So basically like half-occupied building, barely cashflowing. When we did that deal, the way that we got through it was by not having to pay investors every month. We saved the cashflow, reinvested back into the building to get the value up. The appraisal went up $2.1 million from when we purchased it. That is a good way to run that for that deal. So always customize to the deal. If you have a ton of upside, your buyout's going to be higher. I doubled their money. I paid them 2 to 1. So they put in $100,000 each, 3 people, $300,000 down. I paid them— I bought them out at $600,000 each. That's expensive, but I preserved my cash flow. It cost me $600,000 to buy that without any money out of my pocket. I made the million for the investors, doubled their money, everyone was happy. But I made a lot of money doing that. And I was able to pull it off because I didn't share the cash flow. We focused on the upside. Flip side, I've had deals that are super high cash flow with less upside. It's like, well, not gonna be able to multiply the money the same way, but we're gonna get paid every month. So let's structure our payments to that. Lexi says, congrats again, and don't stop at kid number 1. The goal— my wife has said this since I met her. She wants either 0 or 4 kids. 0 is now off the table. So on to the next 3. I'm gonna give her a little break. But no, we don't plan on stopping at 1. Kids are a huge blessing. And it's been amazing. The first week of being a dad. Let's see here. Bobini, what are the primary metrics you're looking for in entering a new market if the market is too expensive? Well, nice thing with real estate, if you drive any market, there's— you could see a bunch of buildings, even in California. You're driving around New York, you see a bunch of buildings, you see this, say anywhere, drive any neighborhood, someone owns all of those properties. And the odds are they're probably not losing money. Most people are not. It's not like everyone in California is just hemorrhaging money on their real estate, right? So there are deals and there is a way to cash flow in any single market. So I wouldn't worry about the expenses. Here's what I'm looking for. I want appreciation. Appreciation makes you rich, but you keep the building long enough for depreciate if you have cash flow. That's the metric that you're really looking for. So for me, I'm looking for places where population is growing up, supply and demand, providing housing for humans. That is the, that is the core metric. So do humans want to live here? Metric number 1. 2, I want to see job stability. And then I just need to find which properties there can I get to cash flow. If you do it in an expensive market, we typically find a stabilizing and destabilized asset. You make more money. You have more appreciation and forced appreciation in lower cap markets. So where there might be less cash flow, there's more appreciation. Where there's less appreciation, you typically see deals trading for more cash flow. But as long as the deal flows, whether the market's expensive or not, more important to that is, is the area I'm buying— population going up, diverse employers. I don't want to buy in a college town where the college is the only metric because Scandals happen, colleges shrink, same military bases move around. So I don't want to just invest just in the military town. But if there's a few other employers, that makes me a lot more comfortable. Can you speak about being involved in buying and operating a small multifamily with a few partners versus investing in a fund of accredited investors? Yes. So a syndication. I'm going to give a couple of real-world examples here. There's nothing inherently wrong with syndication. You can get super creative with the syndication. I actually have a friend who does a ton of seller finance and then funds his deals through syndication. So creative finance— it's not like one strategy is exclusive of the other. Problem with syndication: syndicators are paid upfront for an acquisition fee. They're usually paid a management fee throughout, and they're paid a disposition fee. They are incentivized to buy the most expensive piece of real estate they can. Because they're paid more. They're paid on the back end for the best sales price they can get. What I found is a lot of syndicators make enough money on the front end where they slack off in the middle. They are poor operators. They don't manage the expenses well. They skate by on a skinny deal. And what ends up happening— I've had this happen to friends— the distributions dry up or there's capital calls where you start calling people saying, hey, projections were off, we're going to need everyone to put in more money to get the upside. They drain more money from their investors, but they do eventually get the value up. Then they sell the building and they get paid for selling the building. The incentives don't align with the objectives correctly in syndication. On a partnership where just a few partners working together, you buy into a building and sometimes the deal finder takes a small acquisition fee, nothing like a syndication. I've seen that happen many times. I've done that a few times. But generally speaking, there's not a lot of fees up front. You're all working together to manage the deal. It's a collaborative effort. Everyone has the same goals. If you're sharing any part of cash flow, cash flow really matters through that deal because that's how a lot of you are making your money. And you have to get the value up, especially if you have a buyout for one of the partners. You have to get the value to a place where you can actually buy them out. Real estate has to buy the real estate. So I think Having partners is a much— it aligns the incentives correctly where everyone's on the same team. One more thing, as an LP, a limited partner in a syndication, you do not have the same active tax benefits as an actual partner, an active partner in a JV. Even if you're the capital partner, as long as you have a few tasks assigned to you, you are an active member of the LLC. If you become a professional real estate investor, so actually a professional, a real estate professional— sorry, that's the, that's the lack of sleep talking there— real estate professional where you spend enough time in real estate, at some point you have enough hours where you're like, yeah, I am actually a real estate professional. I make my money buying, selling, and managing properties. If that becomes you, you are an active member that can have massive positive tax implications for you. Which is another reason to do it. Oscar, when you use OPM for deals, do you raise a little more, um, to fund attorney services or the accountant, or do you pay out of pocket? Um, you always raise enough for everything. So I, like, for a great example, about 26-unit building not that long ago, we raised an extra $70,000 more than we needed to close the deal. This covered legal fees, this covered insurance, and to put together a budget for any maintenance that we might have. Now On that one, we actually had a pretty significant rent increase, more than I would usually do, just because the building was so under-rented. In light of this, as you would expect, we had a little bit more vacancy on the front end. We brought the cash flow from positive to a little negative to very positive. During that little negative, it was nice to have a reserve and a cushion. So we budgeted for maintenance, attorneys, accounting, failed ACs, remediating bugs, we prepaid and raised for all of it. The goal is to put money in once, and if you don't have the money, someone else needs to come in with the money. Don't buy just— don't bring in just enough to close it and then do a bunch of out-of-pocket yourself. The out-of-pocket that I had for that deal was temporary. I put together the money for the earnest money. That was my money. When we closed, that money was refunded to me from the LLC after we assigned to that deal. I was no longer on hook for the earnest money. The LLC reimbursed that after we closed, but that's the only money I put in the deal and it came right back. My job on that deal was to find the deal, to line up— that was actually bank debt— so find the deal, line up all the bank debt, get the financing put through, put together the operating plan, manage the building for free, by the way, on that one. That was part of my contribution. Manage the building coordinate all the lease-up. I did all sweat equity on that. I put in a lot of work, and in exchange for that, that is how we structured our LLC. That is what we have for questions. Those are good questions, by the way. I like those technical questions. I'm gonna go hang out with my kid here. I like to spend usually about an hour. For those who are new, by the way, welcome. I like to spend usually about an hour, hour and a half on live. For today's live, I have a crying baby in the living room. I have a very tired wife. I have a brand new dad. I'm gonna go hang out with the little kiddo, little Xander Osgood, and I will, uh, I'll see you guys all next week, normal time, 3 o'clock Pacific, 5 Central.