Multifamily Strategy is live!

Will not be doing a whole lot of looking at my phone. That's pretty dangerous, but it is attached to my steering wheel here. So I'll be looking forward, maybe a little bit hard to answer questions unless I'm at a red light like I am right at the moment. But as everyone enters in, I had some updates for everyone. So there are some delays, as you may have seen from Instagram, on moving to Texas. For those new to the channel, by the way, we bought hundreds of rental properties starting with no money using creative finance. Love talking about how to do that and helping others get there. But the goal for me was to retire my wife, to build my dream house in Texas, and then start a family there. Well, we got cleared to close yesterday for the house. I retired my wife years ago, 11 months into the investing thing. And what happened next? The kid decided like, oh good, the other goals are now attained. Let's, let's just be born now. We're about 60 days early. That's pretty premature. You really want to make it past 32 weeks. We're like 31 and a half. So we're close. Baby would be fine, but we're trying to keep him in there. As long as possible. So I have been in the hospital for the last, uh, about 40 hours and, uh, cruising on home to go pick up some supplies. And I promised everyone a webinar, which I am actually going to make on my wife's request. She is doing much better, much stable, much more stable, and it looks like kiddo's gonna hang on in there. Contractions, uh, finally stopped after, uh, pushing a lot of magnesium, which apparently helps slow this stuff down. So while I'm not big on a lot of doctor intervention, this is one of the ones that you really do want to happen. So things are going well. Danny and I are doing well. Most importantly, Danny and baby are doing well and hopefully going home tonight or early tomorrow morning with her. So right now on a supplies run for the wife and it's time where we go live. So we're going to go live. We're going to talk some real estate. We're going to talk goals, but I thought it was important if anyone had questions on the earlier post to let everyone know what's up with what's up. And it looks like I'm going to miss my exit. For those who don't know, this is actually directly related to real estate. I hate Seattle a lot, hence moving away from, you guessed it, Seattle. I do not like living in the city. I lived here all 32 years of life. I would not recommend anyone invest in a city like this. I certainly wouldn't. Landlord laws are very, very difficult when your evictions cost you more than your tenant's annual rent. That is a problem if you can't get people out, can't raise rent, can't screen tenants. It's illegal here to screen tenants for crime, so you can put a convicted felon next to a a lovely family of 4, and nothing you can do about it. It would be against the law to discriminate against criminals. There's a lot of things in this state that I don't really like as a landlord or as a business owner. Hence the Texas move. If you're investing, places that are business-friendly are generally landlord-friendly. They have their own issues, but I really, really have had a good experience investing in Texas. And I found it's easy to find deals and it's easy to navigate. And when there's less regulation, What ends up happening is you end up getting these, uh, what I found, the property managers who aren't good at running properties. So when we took the strict standards we have up here and the amount of difficulty there is to manage, they went to another market. What we found is we're just more competitive as a property management group. I can actually operate at a lower price and do a better job with higher standards, better tenant placement, happier tenants, better rents, um, just because there's a more competitive landscape up here. You have be really, really, really good to operate in the greater Seattle area. But that being said, when you're choosing a market, I actually do think the politics do matter regardless of where you vote or where, you know, I don't care what political party you belong to. That's, that's not really relevant. But as a business owner and a landlord, those laws are going to affect you. So regardless of your political leanings, I would really look very closely at markets that tend to lean towards the business-friendly more often than not. That is red states. You are going to see more appreciation in blue states than red in the coming years if you're after appreciation. We overbuilt a lot of the red states because everyone flooded to them during the, you know, the thing that we're not supposed to mention on YouTube in fear of being banned. But when the thing happened back in 2019, 2020, We had, you know, a little bit of political unrest and a lot of people went from New York, Washington, California, landed in states like Florida and Texas. While they're amazing states, you're gonna see a little bit of pullback in the housing market, maybe not multifamily, but in the housing market in those areas, simply because we overbuilt because everyone was pouring in there. Places that underbuilt, like your traditional beautiful blue states, Washington, California. I wouldn't call it New York beautiful personally, but to each their own. But a lot of those states are having researchers of population back to them. They underdeveloped, and so you'll actually see a pretty good bump in pricing here, I think, over the next 18 to 24 months. Other than that, you're still gonna have the same hard time running those markets. So if you're looking for where do I buy, just be, be aware you're going to work harder in some markets than others, and there's money to be made for everyone in every market. Further updates, and if I ever stop at a red light again, I will look to see if we have any questions. But further updates from the field, I love affordable housing. If you're getting into the real estate game, a lot of people have a lot of pride and ownership about the Class A stuff, you know, show-off property. Here's what I have found.— and I do own some. Actually, I own a couple of very, very nice properties. You make more money traditionally on the entry-level housing. And you give more value to your community. Generally speaking, there is not a need for luxury housing as it is a luxury. But there is a huge need to fight homelessness, especially in states like Washington State or California where it is traditionally worse. I'm doing a deal in Texas, however, in an area that is underserved for low-income individuals. We found a beautiful building, 44 units, finally going under contract on that. We are partnered with two groups, a nonprofit called the CHDO, which is a group that works specifically with low-income and tax-reduced properties. I actually have incentives for providing excellent housing The building is beautiful. It'd be one of the prettiest buildings I own. Simple, but townhome-like property. Here's the rules in Texas for this. Over the course of 3 years, must invest $5,000 for every unit. So 44 units, we'll have to invest $220,000 into the property. That could be on any improvements. So I could do new windows. However, it's in such good condition. The only thing I'm aware of is that I think it can use some love on the trim and siding. So I'll repaint the building or redo siding. That's not going to cost anywhere near $220,000. So over the next 3 years, got to find some projects to do around there. That's not going to be too hard. Other than that, we found a deal that cash flows amazingly. We're buying 44 units for $1.8 million. We're getting a loan product that is actually a lower interest rate specifically because we're doing low-income housing and we're going to follow all the rules for the low-income tax credit, which will cut our tax bill in half. In the state of Texas, where you're not too far off of 2% of the purchase price for what your tax is, if you can cut that one in half, you save a ton of money. So there's tons of projects, there's tons of things I love talking about, especially on the low-income thing, because at the end of the day, if we're providing better housing than the places around us and we know how to use all of the government incentives and available programs to bring costs down, like paying less taxes legally, is fantastic because that gets reinvested into the community. But if you can provide these great communities under market rent, help fight homelessness, and have better places, and make a profit doing it— which, by the way, we make a lot of money doing this— um, I think something everyone can feel good about. It's hard work. It does take a lot to put these together. You have to learn a lot, um, with the different government programs. There's a lot of work to do. Which you are, I think, really handsomely rewarded for. You get the projects done, you buy real estate, real estate appreciates over time if you hold it. You can actually become extremely wealthy doing this and actually do a very good thing for your community. I've seen people do the slumlord thing, and it turns out there's programs in place where if you know what you're doing, you can actually provide excellent housing and still serve those in need and do a good job doing it, like a really good job doing it. I'll show you guys some interior pictures here, uh, when I get around to moving to Texas, um, I'll give a whole walkthrough of that campus. It's like, you'll see that and be like, oh my gosh, this is what low income looks like. It's like, yeah, beautiful, beautiful campus. A whole fitness center in the middle of the clubhouse. I mean, you're talking about an absolutely gorgeous property, really well run. And, um, it works specifically because all of the programs that are available to, uh, help people help others. So hope that helps everyone. Um, see a little congrats from Troy. Uh, congrats on clearing on the house. Yes, we got cleared to close. Funny story, I got uncleared to close today, but it will reclear, uh, tomorrow. Uh, they forgot to add a credit from the seller, which apparently kicks it back into underwriting, but Now we just have to pay less money. So underwriting has to approve it. We're no longer cleared to close because underwriting and the seller's title numbers don't quite match, but we are fully approved. It will close. Like, the numbers are now slightly better than what just got approved. So huge thank you for that. That has been a 10-month battle and a story worth telling. If you are looking at leaving the 9-to-5 and your goal is financial freedom, If buying a single-family house, like a primary residence for yourself, is part of that goal, which it was for me, if that is your goal, I would highly recommend, and I mean really highly recommend, trying to stay in that 9-to-5 until you close the house. It really helps to qualify. This took me 10 months after my businesses all hit 2 years. It still took me 10 months to get through all the qualification. I have 22 real estate LLCs, I have 4 other larger businesses, and you add all that in, it turns out you take a long time to underwrite. There's a lot of questions. We did, I think it was 480 pages of invoices for renovations that we did to properties that we had to show underwriting. And this is for just like getting conventionally approved. After all that, we didn't get approved conventionally. We had to go to Plan B, which was a bank statement loan, which takes all of our incomes and just applies an expense ratio to them. If you're unaware, when you have like 30 LLCs and some of them are bigger companies, the gross income is insane. The number is very high. I'll tell you exactly what it is. There's a lot of top-line income that goes into real estate. Sorry, y'all, lost you in the tunnel. This is what I get. Um, I don't know where I lost you, but I was saying you should keep your 9 to 5. I took 10 months to qualify with a conventional loan, and then after qualifying, they decided to unqualify me and change their underwriting criteria, removing $400,000 off of my income, um, that did change underwriting a little bit. So I went to a bank statement loan where they look at the income of all the companies. If you haven't seen one of these, it's called a non-QM loan. It's basically a non-conforming loan. They're sold on Wall Street, uh, you know, groups of individuals and companies buy these loans and packages. Um, so it is not going to be purchased by Fannie Freddie. It's about a point higher, so paying 8% instead of 7%, which I'm totally down for. I'm totally down for it. Good deal. And they look at the top income from your business, which if I didn't cut out for saying this, you know, I'm not giving the exact number, but the businesses, the top line income is less than 8 figures. It's in the 7s. They use an expense ratio, so they didn't care that I did massive renovations to the buildings. They didn't count that against me. They were looking at, okay, how much does it realistically cost to run a piece of real estate? What we think is a good expense ratio? And how much income do you actually bring in on your bank statements. My businesses perform well, so we were able to be analyzed, I think, by a much better metric of how much money do you make and how much do you have left over. A bank statement loan can take a look at those things and really evaluate you, the individual, by the actual output of your businesses. So for me, that worked really well. But if you still have the 9-to-5 and you want to build the dream house, I would make an attempt, if possible, to hold on to that 9-to-5. It's going to help you qualify quite a bit. Luke has a question here. I'll read it in parts. If the seller refers— the nice thing about having a Tesla, it will in fact drive itself. If a seller refuses to have earnest money due after feasibility— oh, that's a good question— and I'm raising money, how do I go about getting it and putting that deal together? We'll see if I lose you guys in this tunnel. Hopefully I don't. I think I can hold you on it this time. I see we disconnected. We're back. If you are in a position where you have to raise earnest money, I actually did this for the Robin Hood Village Resort. We had $45,000 of earnest money. I had just bought 2 properties. I had no money on me. It was a $4.5 million purchase. They wanted a point down for the earnest money and we had to put it in escrow. We ended up borrowing it. If you put that money in, you have to have a plan to give your investors the money back if things go sideways. Additionally, if you don't pass feasibility, you're just going to get your money back. That clause is almost in the contract. I think a lot of people fall back on that. Uh, here's another true story. We did this in Walla Walla, $135,000 $1 million of earnest money. $8 million transaction. This would have been a monster deal for me because I don't syndicate. This would have been me and me, Cody Davis, and one other partner. We're going to take out this deal. Really, really, really cool apartment buildings. Walla Walla, Washington. Cool town. Someone, someone will make a lot of money buying those. But partway through interest, this is when interest rates were starting to spike. They went from 5 to 6 to 7. Well, the deal didn't work at 7% interest. This was a bank-financed deal. And so we went ahead and said, hey, you know what, they're middle of feasibility, we're going to go ahead and cancel this transaction. We would like our money back. They just refused to release the money and instructed title not to release it until the dispute was resolved. After a year of suing them, we really needed $100,000 for another project. We settled with them and they got to keep $35,000 plus the expense of our legal fees, which is about $25,000, uh, because they said no. The contract was not enforced. Uh, we had to take them to court, and court on specific performance of a contract can take you over a year, especially in a state like Washington. This stuff can take a long time. It can cost you a lot of money. So really important to know even if you're right and even if you have a contract that says you get your money back, depending on your title company and a myriad of other, other issues, you may or may not see that money when you would expect to see that money. And I think that's really important. So, uh, know that if you're raising it, there needs to be a plan to give it back. Um, the mistake we made with the Robinhood is we had a couple things come up where I'm like I want to lose $45,000. Let's go ahead, let's go ahead and close it and we'll make it work. I'll tell you right now, as someone who is, is in the middle of having a, you know, we're having a kid, moving to Texas, I have really 6 core businesses. I have hospitality, multifamily, property management, another property management, totally different team, uh, sales company, and education company. Um, having all of those platforms I could do without the very intensive hospitality one. I would have been financially free a year earlier because while I made a lot of net worth on the Robinhood, I did not make a lot of cash flow in its first bit. We were off on a couple things that we were worried about being off on, and that sucks. That's— that's— we call that a massive tax for not knowing what you don't know. It's a bummer. It's where we're at. Had we just walked from that $45,000, it would have been astronomically better. I would just be financially free. I would have used that investment money to buy more multifamily. We'd have more cash flow, we'd have more money, we'd have more properties. I would have less total businesses, less employees to manage. Um, I screwed up because I didn't want to give away $45,000. Uh, sometimes you have to be able to eat the loss. I'm hoping your earnest money is less than that. Um, may or may not be, but, uh, yeah, lots of thoughts on the earnest money. Front. And yes, I'm looking through the comments here. Yes, I did jinx myself in the tunnel. It was hanging in there for a while and I was like, you know what, we're halfway through, we still have the feet, but such things happen. Okay, by the way, I'm not reading these in any order. I am prioritizing our safety here, but I'm going 2 miles an hour on an on-ramp. When you're working with a broker, are they asking you to have a contract with them to help you look? No, no, I would never sign that in a million years. Brokers don't get paid for helping me look. They get paid for closing deals. As a seller's agent, seller's going to have a contract with you. And so if you're selling something, you have a contract that says what their commission is. Buyer's agent, almost always free. There are two exceptions to this that come to mind. One, if you're buying a deal actually zero down, traditionally the seller is not going to go out of pocket to pay the expenses to close. So some things like broker fees may get transferred over to you. That's not uncommon. However, what is uncommon is doing an actual zero-down deal. It happens, but it's rare. Usually there's some down payment in which the broker's commission and closing costs are going to be covered. Most people don't pay to sell their properties. That would be abnormal, but not impossible. Usually you're going to pay something there to a broker. Another thing, and this does happen to me frequently, I work direct with a seller. I negotiate a deal, I negotiate the terms, we sign paperwork. This is the only time I use an LOI. If I want to go under contract, we've already negotiated everything. I'll just have all parties just sign like, hey, we've already agreed to this, let's all sign that we've agreed to this. And so that's step 1. Step 2 is I want a broker to write it up. Typically, the seller is not going to pay for that if it's an off-market deal. They weren't listing it. There's no listing agreement. They're like, "Hey, we can either sell this, you know, just, you know, we do the paperwork ourselves." I like to be represented by a broker, and I found that if you pay brokers, they find you more deals and they really start to like you. People do in fact like their clients who make them the most money if you're easy to work with. So what I'll frequently do is negotiate a flat fee with a local broker who I would like to continue to expand a relationship with to say, "Hey, I have a deal, all parties are already matched, the money is already negotiated. In fact, I have it all lined out here in this signed letter of intent by both parties that we'd like to proceed. Will you please draft the paperwork appropriately and then manage the transaction? Uh, we usually do that for a flat fee on a mid-sized deal. $10,000 usually gets it done. If someone wants a percentage basis of the deal, I think that's stupid because you've already done all the work. You're asking them for a specific service, which is manage the paperwork. That should be done at a flat fee. All right. How much are broker's fees? Broker's fees, um, 2-3% per side. Full commission traditionally has been considered 6% if you're selling a property. There's a lot of pressure on brokers right now though. The model is changing like real time, so I think these numbers are going to look a lot different. They're— in my opinion, there's too many real estate agents, so there's only a few of them who are really doing all the transactions anyway. They make really good money, and they should make really good money. It's just a personal opinion. People, people complain about brokers all the time. A really good broker makes you a lot of a lot of money and they work very hard. All of the mediocre ones, it's fine if they're getting a $30,000 commission because it could be like their only commission of the year. Um, they make less than most of us, average real estate agents doing a couple transactions a year. Uh, your really good ones are doing multiple a month. They make a lot of money and, um, those are the ones I want to be working with. So I don't personally have a problem with broker's commissions. They're Their fees are fixed costs in the deal. The more you use them, the more they want to work with you. And the more they want to work with you, the more deals you do. I have no problem with that. It's just another number that just goes into the numbers of your deal. If you're paying another fee, it's rolled into the grand math of the deal. And if something with a broker's fee causes the deal not to work, one, probably wasn't that good of a deal to begin with. But two, you can get, uh, over the next— I believe it was 5 years, um, but he has a several-year window where he's going to be getting a portion of cash flow up to a certain dollar amount in lieu of paying out his commission on the deal because a lot of things changed mid-deal. Could you just use a zero-interest card for the broker's fee? Yes, you can. So Caleb Hommel and Chuck Sotelo did that on a couple of deals. I actually bought Chuck Sotelo out of a couple of those deals. To add a little bit of managerial oversight and help me break into Texas. But they did a couple deals where they actually financed the earnest money on a credit card. You can do the same thing with broker's fees. There are zero-interest cards. The best, in my opinion— I bought a $6,000 course on how to use these and then learned it in the first 5 minutes of the course. So if you want the— if you ever looked at credit stacking, I'll summarize the whole thing for for you. Um, go to AMEX, the Blue Cash Card, and go to the Chase Ink Cashback Card. Both are— have a very high rate of approving LLCs. Um, apply for those two cards if you want a zero interest card. They have usually 12 to 18 months of zero interest plus some cash back rewards. Uh, the rules, rules of the game here: remember, everything needs to cash flow. If you borrowed zero interest rate debt and then that promo rate expires, you're going to go like 20-something percent. Real estate needs to be able to pay off whatever you borrow within the first year so that you never actually pay interest. You do get some points. You actually get paid to use the card. If you screw it up, you get stuck with really high interest debt, which is dumb. I've done this on 5 or 6 deals. I have had one where we opted to keep the credit card in place for an extra 8 months. However, That's not actually all that bad. Zero interest for a year and then an additional 8 months at, I believe it was 18.5%. If you average out the payments, we're still sub-10% interest overall on a loan that really helped us getting the deal going. And it, uh, the real estate did pay off the card. Deal cash flowed. We made a lot of money on it. Uh, good use of it, but we did miss the target. Just know, you know, there's a little bit of grace period, but like everything, you have to budget and plan. Don't just use a card because it's convenient. Go like, well, in a year when it gets interest, I'll figure it out. I'll be richer then. I've seen that excuse many times. I see a lot of investors do that where they justify things like, well, you know what, it's short-term debt, it's 3 years. But you know what, I'm going to be richer in 3 years, so it's not going to matter. Do the darn math. Come up with an actual plan, an actual budget that gets you from A to B. Don't just assume you're going to be wealthier because you're buying real estate. Does that usually happen? Yes. When it doesn't and you just owe a bunch of expensive debt, I've seen that crush people. Don't do it. I'd like to know how Shannon rolled the broker fee as a payment. Well, this was actually Alex who put this together. So what they did, they found out mid-transaction was going to be 25% down. They found out mid-transaction that there was actually a lot of capital expenditures that need to be done. There's a couple of units that weren't even really units. One was more like a glorified closet. The other one was completely unlivable. So they're like, oh, wait a second, that's, that's a quarter of our building is not what we were told it is. That's a problem. And it is. They negotiated a 5% down payment and they will pay the broker's fees, which I believe was 6%. All they did was say, I believe it was like 10% of the cash flow, or it was a fixed percentage of positive cash flow, is paid to the broker over a certain period of time equal to their full commission. And the reason that the broker said yes to this is because the broker didn't disclose the condition of these units. The seller kind of tried to hide some stuff. They found them out due diligence. This deal has been on and off market before. It was on market for a while. There, the, the options that the broker essentially had was, okay, You can take payments over time on this deal if you really think it's such a good deal, then, you know, let the deal pay you over time, or we're gonna have to drop out of contract and you're gonna have to find a new buyer, which is a lot of work for him. So he did what I think is actually a pretty smart move. You have a win, you're a salesperson. What you want? All the commission up front. Okay, that's off the table. The table now. Your options are hold out and hope for another buyer and hope that you get the commission you want, or, you know, you have a win here. Let's cash in your chips. Let's take the payments. Let's move on to the next deal. I think that was an intelligent move on the broker's side, seeing the deal, really understanding where the cards were and understanding there was no full commission available with this particular lineup of clients. Taking the W is a good idea 9 out of 10 times. I think they negotiated really well. They got what they needed. They ended up coming in very low down on the deal, which gave them their budget to do the renovations. And I mean, there we go. That's it. End of story. Victory, Shannon, Alex, and team. A huge win for the seller who got his deal sold, and the broker has more money now than he did before. Makes sense across the board to me. How often have I found that Section 8 FMR, which is fair market rent by the way, is way higher than market? I would say in the markets that I've looked at, maybe 8 out of 10. I know I'm making up a statistic there, but that feels about right. Out of every 10 markets I look at, about 8 out of 10 are actually quite significantly higher than what I believe actual market is. They're pretty conservative in landlords' favor on this. They really, one, don't want to dispute. Two, they use pretty good data and they estimate on the high side. They really want to get people placed into units, and the housing authorities have done a good job nationally in pricing in a way that helps mitigate landlords' risk. There's a bunch of other things to mitigate your risk, by the way. There's a ton of programs, like if a Section 8 tenant damages your unit, there's actually some guarantees. Found more money that I've spent that I actually didn't need to spend. Um, but programs usually pay above market. Their fair market value is typically above market rent, and sometimes very significantly. I have found that if I am building— if I'm putting together units and we're following our functional flipping model where we turn the units to be nicer than all of the units around it, they don't have to be super nice. We're not talking like stainless steel and stone countertops and marble floors. We're just saying like we have nicer LVP, nicer countertops, better cabinets, nicely painted, well-renovated, good layout. Uh, you know, if we're competing against entry-level properties, we have really nice, really clean spaces. And to incentivize us to put people in those nice spaces They do pay a little premium, and we found that the market rate tenants, since we do have nicer spaces, will actually pay that same premium to live there. We get a really good mix when I do our renovations to our standards, which I share all the time on this YouTube channel, by the way. If we renovate— if I renovate to our standards we, uh, we end up getting a good mix of Section 8 and market rates because people actually pay above what we expect market rate to be, and Section 8 places some people. So I'm about 50/50 if I put a unit up at Section 8 fair market rent, whether the market scoops it up at that price first or if housing actually signs the contract. One more aside on housing, um, ours is terrible at managing money, and they're really easy to get to, you know, to say yes to things. They have a problem with paying on time. They actually frequently run out of money and have to stall to let the capital refill. It is government guaranteed. They do have to— they're legit government-backed checks. I found in Grant County, Washington, expect at least once a quarter you're going to have a significantly late check, even though they're from the government. They do about the amount of management of their, their capital management is about as good as the rest of the government's. So that makes sense. Now, for those who are joining a little bit late, you may have seen on Instagram, or if you've been around on this video for a while, I'm driving back from the hospital. Uh, the amazing Dani decided, uh, decided it is time to go into labor. Actually, more specifically, um, our, our soon-to-be-born son. Looks like we've calmed things down. However, I'm getting a call from her her. She takes priority. Sorry guys, love you, but ask more questions. I'll go live on Instagram later today, so, um, hit me up over there if you guys have more questions. Sorry I couldn't get all to all of them. I do— I had 3 goals when I started this channel, which was, uh, in addition to sharing the journey with everyone, uh, retire my wife, build the dream house, and, uh, have the kid. Kid decided, uh, since we got clear to close the dream house, he's like, good, so it's my turn now. We're working on slowing that down. Looks really promising. She's doing well, baby's doing well, but I'm gonna go ahead and take take your call. See you guys soon, and, uh, as always, I'll see you guys all on the next episode. Like, subscribe, and, uh, peace.