My Highest Stupid Tax - Saving the Robin Hood Village Resort

There we are. All right, we are officially live. Apparently my phone wants me to go horizontally, so we'll go from here. Guys, welcome to the Robin Hood. Took me a second here to get connected, so hopefully we retain Wi-Fi. But we're just walking the grounds here at the Robin Hood Village Resort. We're definitely back in Seattle because that sky is without color, completely gray. Right now, just checking the— as we get going here. So we'll try to keep stable internet for as long as we can, but I'll take you guys to the old pub. We're going to talk about this deal, how it came together, and then I'm going to go get all ready for our event here that starts tomorrow. All right. Oh, it is good to be back. This deal came up. This is in Union, Washington. It's on the Hood Canal. Get some lights going here for us. There we go. We'll get the main lights on here in a minute. But all right, we are in the old historic pub. I have a light switch missing somewhere, so I'll get some more lights on as we go. But this deal, seller financed, $4.5 million. I bought it with partners when I knew nothing about hospitality. Now, if you remember the rules that we always share on this channel, you always learn from people who have done the thing that you want to do. We tried to learn from the seller how to buy a piece of real estate like this one here. Now, if you've never run hospitality, knowing multifamily does not directly translate one-to-one. So we bought this 4.5% interest debt. We bought it $1 million down and we brought in partners for that million dollars. Problem is, partners knew nothing about hospitality either, and none of them helped contribute to any of our projects. I also had two operating partners who decided they didn't want to operate the property. So my wife and I have been running this by ourselves for three years. We came up to it. We had to buy everyone out to make the deal work. So we restructured the deal. We got someone else to buy the note. So we have a new seller finance note with the other partners off the note now. But we completely restructured this. This deal, because I did this, cost me the first $1.4 million that I made in real estate. $1.4 million in cash. That is a huge stupid tax. That is not what you want to do when you are buying real estate. Now, fortunately, we went through it. The deal is doing well, it's performing. But I was put in a position to finish this project where I had to, had to eliminate the partners that we had. So grateful to be in the position that we're in, grateful to be at the Robinhood. I'm out here. I apparently don't have internet, uh, too well because we're remote enough. If I go away from this, uh, this location here, I have to hook up to my other internet. So you guys will be inside the pub and the Robinhood suite here for today. But the negotiation for this is really interesting. So this was actually passed to Michael Zuber. Uh, the old owners were a fan of his YouTube channel, so they passed to Michael Zuber. He passed it to Dion McNeely. Deon then went on to pass this to Cody and me. He's like, hey, this is way too active of a project. So when we came in and evaluated the deal, cash flow looked amazing, but we didn't know a thing about running a hospitality deal. Walk through the hallway here, I'll show you guys the Robin Hood Suite. This used to be actually historically was a restaurant that we converted into a room. Hello. On the YouTube channel, welcome everyone. Dan is, we'll be hosting our event in here. So we'll be converting this room back into event space here over the next day preparing for our event. But you have this one-of-one absolutely awesome resort. We have our little river up there, salmon just finished their run up through it. Well, you have this one-of-one unique, unique place, and we decided to buy it with that team of people who really didn't know anything about running a resort. So we had to figure out Airbnb integrations, we had to figure out VRBO, Expedia, we had to figure out how to market it, Google advertising, uh, staffing, which we cycled through 100% of our staff. Our staff now is awesome. The original staff, not so much. Um, so we had just issue after issue after issue here. Without partners, we now get to do what we really wanted to do originally with the resort. So I'll try to see if we can't get stable internet outside of the pub. If not, I'll post the full YouTube video of what we're doing here on project. Uh, one thing that we're doing that's gonna be massively helpful, uh, we are planting about 35,000 plants around the property that will all bloom 45 days before our peak season in the summer. So in the spring, we're going to make this thing absolutely uniquely beautiful. We have 13 acres here. It's all wooded, forested, gorgeous. We're gonna fill it with flowers. As we're a concert venue and a wedding venue, We're going to try to extend our season another 45 days for peak, which should add about $100,000 of top line revenue to the Robin Hood. If you can get higher bookings and a little higher price and more events, we get the grounds booked, we get the pub booked, we get all the unique cabins booked. If you can create all the unique spaces, it's going to be massively helpful. We're also coming in and updating all the furniture. But I had a set of partners that didn't have the liquidity or the desire to renovate and make the project what the project needed to be. Now, I host an event here out of the old pub. This actually used to be part of the restaurant. Still have all the cool glasses and original, original ware that we turned the back behind me into a traditional kitchen. This is down the street. Bill Gates has the family estate that's just down here, very publicly in Union. He used to come here, get his Macallan 18 out of the bar. So, historically, it's been a big part of the community. The other big thing that we're doing that that we are so, so happy with, as we are restoring the value of the Robin Hood to the community. Uh, once a month there's going to be concerts held in the bar, so we're going to reopen the bar on a temporary basis for an awesome, awesome group that's going to be running their events here in the summer. We host a couple major concert series, multiple days, farmers markets for a huge piece of the community, community events. Then we have all the normal things that you have in a resort— weddings, kayaks. Actually, while I'm down here, over the next two days I'll be installing our, uh, frisbee golf course. That we will put up on the hill back behind us and set up all of those features. But this is a very, very, very fun, uh, very, very, very fun project. By the way, in the comments here, I see from Oscar, attorney asked— told me to ask you, how does cash-out refi for, uh, the company constitute your funds to be exercising options for the buyout? Looks like there's some typos in here, but the way that I'm understanding the question here, so a cash-out refi goes to your LLC, the LLC you then can negotiate who gets what distribution. So if I'm doing a project, so a very common structure, let's say I'm doing a million-dollar project and we do a fantastic job and we appraise at $2 million, we get a loan for 75% loan-to-value. So we get a new loan for $1.5 million. We bought it for ease of math. Let's just say that we bought it 10% down. So that means we owe $900,000. We can pull out a new loan at $1.5 million. I can pull $600,000. Now, if you're a partner in this deal and we agree that, hey, on refinance, your buyout, your takeout is a fixed amount, I can then say, okay, so let's say that they put in the $100,000. I will double your money. I'll give you a 2.5x on your money for this amazing deal. So I have a right to buy you out for $250,000. Upon refi. It's actually in the documents. It just says, hey, when we do this, this much cash will be in the company at that time. I can eliminate the partners, or on or before. So at the same time, I give you $250,000, the company is now mine, the remaining money in the accounts are mine. Now, if you execute the cash-out refinance before you buy them out, their equity would dictate that they just get whatever their portion of the money is. So you do have to actually negotiate and execute the buyouts, but you can do them simultaneously. So I always put that on my contract that, hey, out of the proceeds of the cash-out refinance, once they receive this amount of money, this counts as executing our option. It's pretty easy to put together in contract. It's a pretty common structure even in syndication, or you'll see it, you'll see it in common in joint ventures, syndication, both 506(c) and 506(b) when you're doing a recapitalization or a debt restructure. Doing buyouts at the same time is a very, very, very common way to execute. Usually you're going to do it as some sort of liquidity event for the LLC. So in that case, that's how that works. That's also how I did that on the 38-plex. We came in, we did the cash-out refinance, we pulled hundreds of thousands of dollars, about $750,000 out of the building, and used $600,000 of that to buy out the investors at their promised return. Well, at their option value, technically. Can't promise an option that would make it non-optional. Uh, how do we collect rent if we switch to cryptocurrencies? We won't, but if we did switch to cryptocurrency, which won't happen, everyone would pay with said cryptocurrency. That's, uh, that's all it'd be. They, you can't in the US, we can't even deny tenants in most places. From paying with cash or checks. Like, there's many laws in many counties that you can't just say, hey, you have to pay online. We still are legally required to accept check as form of payment. So I have to wait for people to mail their checks and show up in the mail. We can't force electronic payment. There's a 0% chance we're going to force people to pay with cryptocurrencies. It will not happen. But, um, yeah, by the way, to be more clear on this, since it was specifically a lawyer who asked on the cash-out refi, it is in the verbiage. You put it in your use of funds, so you actually put that as your target. Another way, if you wanted to write a buyout option is you— if you really came down to it and you're like, oh well, I don't— you can't find a lawyer who knows how to draft it, you can exercise your option prior to the cash-out refinance, but like a few days before, so you can get transactional lending if you need to do. Uh, if you were going to, in our previous example, uh, be pulling $600,000 out of a property that has $1.1 million in equity and you have an option to buy them out for $250,000, you can of course just borrow $250,000, buy them out, finalize your cash-out refinance days later, and you would have also exercised your option the same way. It costs you a little bit more, but of course, uh, the fees to borrow $250,000 to execute your contract the way you want to is not a bad way to do it. But the cleanest way to do it is to put way. There you go. By far the easiest way. Sorry, even though I'm not on do not disturb, someone tried dialing through my do not disturb. So sorry for the, uh, the break in, uh, in our, uh, conversation here. But yeah, there's many, many, many ways to do that. But the cash-out refinance is one of the most common ways to buy out partners in all of real estate. I may recommend using a different lawyer if they don't know how to do that. That is like a— that's how you execute the BRRRR method when you have partners. As the money comes in, you distribute the money exactly as you'd put together in your operating agreement. But you can put options to do just about anything in your operating agreement. By the way, I'll keep answering any questions in the chat. If you guys have more questions, feel free to ask away. Continuing the vision of the Robin Hood. Uh, we are already up about 60% since I bought out my partners, which is incredible. We're doing, uh, we're doing really, really well. Strongest winter we've ever had. Going into the summer or the spring season, we're going to plant all those, uh, flowers, and yes, they are deer resistant. So we're not gonna have this beautifully landscaped place. We're going to be marketing for the events, the weddings. We're going to extend our long season. We're going to increase the actual quality of the inside. Even though they're nice, they're a little bit dated, so we're going to update inside, fix a couple roofs, and again add some other activities. So I'll be installing the frisbee golf course while I'm down here. Uh, we already have cornhole set up all over the place, and I have a few other games that are coming in, uh, where there's just— it's all about experience. We'll be updating the kayaks and the kayak shed. So you'll have, you know, you get out here, you do your events, there's fire pits, there's firewood, there's, uh, you know, you can play frisbee golf, you're in a cabin, there's barbecues all over the place that you can use. So the goal is that it feels exactly as advertised, that it's this amazing magical escape to the woods. Right now we got the wooded part down. We got the escape magical. It feels like it's a really cool, very unique 3-star hotel. We're going to try to push this to 4-star, which is our goal. So that's the plan for the Robin Hood. This was my most costly mistake, cost me $1.4 million to get to where we're at. But because we executed the game plan and because we made good decisions elsewhere in the business, We paid the stupid tax. Just know, if to avoid this particular expense, partner with people who know what they're doing. The partners that you choose are so, so, so critical to the deal. And always learn from people who have already done the thing that you're trying to do. We made the stupid assumption that because we've done well in multifamily consistently, deal over deal over deal, that we were good at real estate. And just because we've done a lot of creative finance, a creative finance resort is going to operate and we're going to have the ability to do it like we would in multifamily. It turns out completely different businesses, a lot of the skills do not transfer one-to-one. Assuming because you've had success elsewhere that you'll have it in all of your ventures was a stupid thing that young people tend to do. Uh, here we are entering the fourth year of the Robinhood. I'm having to run it all by myself, but at least we have 100% of the equity and the upside of the project. Oh, and Oscar looks like he just closed a deal. Congratulations, Oscars, on many of our lives. And, uh, this is good to— good to see this happen. And many deals do fall apart near the end. I closed in 2 weeks or less on Aniston Park 1 and 2, the 144-unit in Abilene, Texas. We're right there on the finish line. I had one of my investors— they've already signed all their docs, they're supposed to have their money ready. They're in for half a million dollars. They call and say, hey, turns out I had a business transaction. My money's tied up till February. There's nothing we can do. We're right here waiting to close. We're days away from getting the word that we're ready to fund. And you have to go back and find another $500,000. So Caleb and I have been making calls for the last week, got it all lined up again. Not a big deal, but you do have to be persistent on this if you're raising capital. You're always going to want backups. You always want more raised than your actual capital raised. And the money doesn't count as in until it is literally there in the account ready to be deployed. And then you sign those final docs. I've had many deals that have come to the finish line. The craziest one, 25 units. We had an investor we hadn't met yet that we wanted to fund the whole deal. So we got coffee with them, had a very big business. Liked everything about the structure. He had a ton of multifamily. So I'm like, okay, we got a reputable business, very high net worth individual, tons of experience, wants to be the sole investor in our deal. So our deal is completely funded. 2 days before close, he gets arrested for fraud. Turns out the new partner we just met has been doing shady business deals and completely illegal business deals for a long time. And gets caught. So thank God we didn't end up partnering with them. That being said, we're 2 days from close. I'm getting on a plane to fly down and sign for this property. When we land, I had to make— I had to do the sprint to go through the phone tree to start calling people. Hey, I need to put together $400,000. We've been working on this for 2 months and I need you to wire it by 9 a.m. tomorrow. And you know what? It still happened. You see it all the way through, but I've had deals completely raised that fell apart literally on the finish line, less than 24 hours to close. So I agree with that. It's fun times. If we have no other questions, welcome to the Robin Hood. Welcome to my highest stupid tax. And hopefully now today we owe a little less than $3 million on this building. Hopefully we get this thing all the way through its project and we hit our target $6 million valuation, which I think is very possible. And we are tracking for very, very smoothly before we finished all of our projects. So I will keep you guys updated on the journey. You guys will see a lot more of me here on social media at Robinhood because we'll be doing a ton of fun here in the next few days. But thank you for joining YouTube Live. We'll see you all on the next episode.