The Cody Davis Seller Financing special - Creative Finance Live

Okay, we are live. Christian is actually not in town. I'm here with my buddy Brendan, but if you're new to the channel, my name's Cody. I'm here with my actually now friend and property manager Brendan. That's right, just started working for the company. I see we have a couple people in the chat. Last time we had some audio problems. Can we ensure that we are set? If anybody can just give a thumbs up or something, then we're going to dive straight into the questions. But, um, starting out, Christian is actually over in Vegas right now celebrating his wife's birthday and meeting up with a couple investors who are looking at funding a couple potential deals. We're going to jump into question number 1. That is with Kyle. Hey, I've got an offer pending. And will be partnering with two older guys on a deal. What should I do from an LLC standpoint? Okay, good. We got the thumbs up. Appreciate that. From an LLC standpoint, should we use their LLC? Should I use my own? Should we start a new one? You should start a new one because odds are you're— if you're just for the first time partnering with them, you're not on their LLC. And if they own other real estate in it, they're not going to just give that to you for free. So you're probably going to want to start a new limited liability company if that's what you choose to do. And then you'd be joint partners. However you structure up your ownership, you'd have your attorney draft all those docs, file it with the state. However, you're not going to just use their LLC because you're not on that yet. Question number 2, and we've only got 3 of these from the actual comments. So if you have questions, drop them in the live chat. From Vatsal, how do you get owners to offer you their properties? Well, that's a byproduct, and Brandon's starting to learn this because he's calling on some mobile home parks over in Moses Lake.

That's right.

But the way that you do that is you just build that relationship, and when there becomes a time that they do want to sell, they call you first. I've had some deals happen pretty quick. I know you're working on getting in contact with a couple people right now.

I am.

Hasn't happened quite yet.

Not yet, but, uh, it's just a matter of making those calls, you know, putting yourself in that uncomfortable spot where you're like, I just got to call the owners and start that connection somewhere.

Yeah, you know, it's not going to happen day one. It just doesn't. This is not transactional, but you build a relationship first, and then the outcome out of that is one day you're the guy or you're the gal. And our last comment that we actually got in the YouTube comments: thoughts on the Great Reset of 2030? And Klaus Schwab: one day you'll own nothing and be happy. How will it affect real estate? Well, the Great Reset of 2030— I'll be very forward, I haven't really looked into a whole bunch of that. However, what I do know is I'm going to own a lot more real estate in 2030 than I own today. And the cool part is you get to play the game where the goalposts are at. So whether that happens or whether it doesn't, Play the game where the goalposts are at today, because if you're just shooting off into the what-ifs, you're never going to score a goal. If you know the goalposts are here, shoot for here, and when they shift, now you need to shift. But play the game where you can today. So what are some of our questions from the chat?

Yes. So, uh, so Root dropped a question in there. He said, have you ever got an owner getting mad at you and why? I called the owner of a 23-unit I own a rental nearby and we're property neighbors and the owner got really upset. I followed your video scripts.

Okay. So that can happen. You're going to catch some people on the wrong end of the, you know, they wake up on the wrong end of the bed. It happens. I called up one of the first people I ever bought from. It was the 12-plex. It was on the market in Quincy for 551 days. And I'd called him up just to check in and he wasn't very happy with me. Now it might not have been, he wasn't happy with me. Stuff could have just been happening in his life, but that's a very real situation. You call someone up, I'm sure you've done it where you call somebody and maybe not even for real estate, but they're just having a bad day and you become the receiving end of it. Now that's not fun. However, the script, if you're just reading the script for what it is, odds are they're not going to be happy with you because that's a sales call. That's not relationship-based. The script is parameters and your ability to flow through the script determines how well and how quickly your conversation is going to go. But if you're just reading line by line, you're going to have trouble. So you need to make it you, you need to make it personable, and understand that even if you do everything right, you can't control the other person's day. It could just be going wrong.

Yeah, I've certainly found the same thing with cold calling. You know, if, you know, sometimes people just won't pick up the phone, they won't recognize the number, they won't call you back, they They don't like having somebody just calling them out of the blue like, "Hey, tell me about your property." Be as genuine as you can and just be consistent.

All right. What are the other questions?

Let's see here. Dividend Dave says, "Hello from Bellingham. Excited about the opportunities in creative finance." Let's see here.

Hey, Dividend Dave.

We got Gene Gross saying, "When is going into seller financing deal? What terms and down payments should you be going for?" So what kind of terms should you be looking for?

You should go for long-term debt as long as you can. Think about it like a balloon. Balloons go pop. And so if it's not going to amortize, meaning it's not paying itself down over time, you want to stretch this thing out as long as possible. And if you have debt due tomorrow, well, you're overleveraged, probably regardless of how much debt it is. And so if you want great terms, I would structure it where it cash flows. Number one, you have enough cash flow. You buy real estate on margin when you leverage. Meaning that if your debt payment's $2,000 a month, maybe you want, uh, $4,000 a month in income so you have some margin to cash flow and pay your expenses. But just make sure that you write your notes at what— people ask, okay, what's the perfect interest rate? Whatever makes it cash flow to where you're comfortable on a long-term note. I don't like 3-year debt. I don't want to have to pay back my loans in 3 years. I want as long as possible. If you can get 10-year, 20-year, 30-year, That's preferable because we want to buy real estate for the long term, not to flip it.

Yeah. So Caleb's got a good question here. He said, what are some red flags to look for in seller finance deals?

Red flags. Okay. So if they're just trying to retrade you— I had a deal, it was, I think I was telling you about this one, 87 units. When I first met him, I was, I was saying that I was going to stop buying real estate. I snapped out of that pretty quick. And the deal today thing, right?

Yeah.

The deal that snapped me out of it, it was 87 units, seller financed. And we agreed to terms, shook on terms, and they were like, oh wait, I want to do contract for deed because I have a mortgage and I want to keep making those payments, not paid off. I was like, okay, we can do that. And then last minute he retraded me, meaning he renegotiated. And while renegotiating is cool, if you shake on a deal, you write it up as they ask, and then they retrade you, that's just not very good business. And I don't want that type of person being my lender because as long as they're a lender on the deal, they're a partner on the deal. A lot of people don't think about it like this, but whether you're getting a bank loan or getting a seller finance note, if a bank's lending you 70%, you're putting 30% down, they are a 70% position on that real estate, not on the ownership side, but they have a 70%. It's almost as an investment. It's a position that they hold against the title. And so with the seller finance note, it's very similar. And you need to be careful about that because if they're going to retrade you over little things up front, then why are you going to want to partner with them? Meaning they're going to be your lender for 7 years, 10 years, because they might try and pull something, know something that you don't. Also doing really short-term balloons or non-refundable deals where you do non-refundable upfront and then they run away. Granted, you always send money directly through a title and escrow company, but those are just little things to keep your eye out for. Yeah.

So Dave G has another question. Dave G calling up those owners, right? Dave says, what do you think about leaving a voicemail if you can't get through to them?

Yeah, you can leave a voicemail, but don't say, hey, I'm calling about your property. They're going to think you're just trying to buy it. And that is not what I do. It's not what we do when we're making these phone calls. So I own a 12-plex. I've never done anything like that. And I don't know anybody who has. I'm curious how you did this. If you could spare a couple minutes, I'd appreciate a call back. That simple. If you're going to leave a voicemail.

Dividend Dave, he says, uh, what are some of the best strategies for zero-down deals and what are the risks?

Okay, well, let's talk about risks first because that's what a lot of people are going to want to know about. Whenever you leverage, you're adding risk. You add more leverage, you add more risk. And so if you 100% leverage, well, that's a lot of risk, uh, comparatively to if you're just paying cash, which is a much more conservative approach. But as far as doing seller financing, there's traditional— well, less traditional, less conventional, but 100% seller financing. They own it outright. They write a promissory note, deed of trust for the purchase price of the asset, and you buy it with a signature. That's great, but not super common. Another way you could do it is where you get them to finance 80% or 90% And then you have someone come in second position. You have first position lien, which is the first mortgage with the seller. And then you have an investor loan you the money, or you have a, a small lender or institutional lender lend you the money in second position for the down payment. And now you have a first mortgage on title and then a second mortgage on title. And the best way to think about that, a HELOC is a second mortgage. So you can get stuff, similar products, on rental properties as you start building up your credibility or your connections. And that's how I got my first deal. Seller financed 90%, a smaller investor financed 10%, and I bought it with a signature. Another way to do it, when you own some buildings, you own some real estate, is if they are open to financing 100% of the purchase, seller finance, but they don't want to put all the liability on the building, they could finance 80% against the property you're buying and 20% against something else that you own in second position. There's no money that trades, but they're going to record a lien, AKA a loan, against another property you own so that in case you don't pay them, they can foreclose on both properties, make you sell, and get their money back. So those are a few ways that you can do the zero down game.

Nice.

Just know that if you cross-collateralize, back to risk, you're going to be risking other assets that you own.

Okay, we got another question here from Root. He says, lots of times OpenCorporates gives the name of the property management and not the owners. How do you approach that?

Okay, uh, if you can put in what state, because different states are going to have that, uh, it sometimes puts in a registered agent, puts in the PM company. But as far as the owner goes with OpenCorporates, it's usually going to pull the owner LLC. And in Moses Lake, one of the largest landlords over there is actually one of the PM companies. I think it's Merrill something. I'd have to Google it, but they are the single largest by unit count multifamily owner over in Grant County and they're a PM company. So that could just be the owner. Now you got to figure out who owns that by plugging in and seeing, okay, who's the actual registered agent or the owner of that LLC?. And you can do Secretary of State to figure out who owns those LLCs as well. Then you just go down the rabbit hole of figuring out, okay, who owns the LLC? And sometimes they vest that with another LLC. It can take a little bit of time, but you can typically get to the bottom of it.

Root says he's, uh, he's basing in Colorado there. Colorado.

Oh, that's Aubrey. Yeah. Yeah. That's where Aubrey's going.

Yeah.

Uh, so I'd have to check in for Colorado cuz I haven't done a lot in Colorado. However, We could actually do that on a live video if you'd like, and I could do some live, see if I can actually figure it out.

Yeah, and we've run through the comments that we have now, so you guys have any more comments, drop them in there. I'll read them out as we get them.

Hey, someone said, whose sword is that? That's Christian's sword, and I think that was Gandalf's. I think he was— he had a tattoo on his arm. Who was it from Lord of the Rings that it was on his actual arm? I'm not sure. Oh, I think it was supposed to be Aragorn's sword, and then his buddy said, oh, I have that sword, and ended up being Gandalf's. And Christian's super into that stuff, but that is his. All right, great answers. Thank you. Okay, thanks, David and Dave. Looking for your first deal, would you start with a duplex or go bigger? Well, what do you want to do? I mean, that, that's really what it is. It can cost you the same amount of money to buy a deal. I bought 5, uh, 6, no, 7 of them. So I have 7 duplexes and it costs just as much money to buy those. I bought them seller financed, all of them. And, um, it just takes a little bit more creativity. So if you want to buy the duplexes, you can. I bought 3 side-by-side contiguous duplexes, so it operates as a 6. And I've done that twice. And then I bought a loan duplex, same amount of money, same amount of thing. But you got to be looking at the properties you want to buy. If you want to buy a 12-plex, you can. We've got folks like Caleb and Chuckie. You'll probably see them because we're going to post about them. They're one of our very first mentees ever. They're buying a seller-financed 10-plex right now, zero money out of pocket. You can do it. You just got to make a decision what you want to buy and then call the people that own that type of real estate. It is just that simple.

So we got another question here from Carter. Said, hey guys, with creative finance, seller finance specifically, no one talks about how to handle closing costs, taxes, and etc. How do we tackle the process of doing the closing costs?

Well, closing costs are going to have to come out of your pocket or someone's pocket. So I mean, it's either going to be the seller or yourself. I mean, those are the, the two options. So If you're raising the money for the down in the form of a loan, meaning you're borrowing it, because that's what I've done. I've borrowed in second position and I actually did one in third position once, took it all the way up to 60% loan to value. Yeah. Which is still pretty conservative, but that was on a refi. But you can borrow a second if you need a little bit more money, borrow a little bit more money in second. You just have to find a lender who's comfortable doing that for you. Deal debt equity. And if you don't have any equity, which is legit, I didn't have any equity starting out. You need to figure out how to structure the debt to where it actually lets you go buy it. And then once you actually figure out how to buy it, you have to answer the second question of how do you never lose it, which is long-term debt and cash flow.

Okay. So Carter said another question from him. He said, how do you handle the due diligence, physical and financial fees? And do you go hard money at all?

I've done hard money. I've borrowed as high as 18%.

That's expensive. That's, that's insane.

I had 6 figures at 18% and half a million at 12% at one point. Not fun. Got all of it paid off, and then I borrowed some more at 12. But, uh, you gotta be careful with that stuff because hard money is easy to get into and hard to get out of. That's the point about being hard. And when things don't go well, it gets really hard. So you need to be really careful with hard money, especially because paying 12% on a little credit card for $1,000, okay, $10 a month, but doing it on $200,000, $500,000, that gets expensive. So it's something to just keep in mind and think about.

And, uh, Root said he wants to hop on a live and do that.

Okay, deal breakdown, you're on. So I have to schedule. Yeah, message, uh, Message Christian or I on Instagram, probably Christian, because I'm still trying to get through all my messages. I'm swamped. But Christian and I share his account, so we'll find that one. All right, and then do we have any other questions? Let's see, I have the— oh, from Reed: Great answers, thanks. I'm down to go live. I have the PM's number already. Oh, that's perfect. So just call them up and we, we can go through it live, um, but just send us a message. Uh, Dividend Dave, I'm closing on a duplex this Friday and I'm looking for tri and quads in North Carolina. Heck yeah, I've actually got a buddy who was over in the Carolinas. I can connect you guys. He used to live here, he moved for the military. Uh, he owned, I want to say, a duplex or triplex over there. Caleb, we haven't answered that, have we? Not yet, no.

Okay, how do you guys structure hard money and/or private investor loans, how much extra is it to pay them off early?

Well, if it's a loan, it's typically not an early payoff unless you have what's called a prepayment penalty. If it's a partner, meaning they're coming in as equity, then you're probably gonna have to pay a little bit more to cash out because the, the rule of thumb is debt costs you more today because you have to pay your mortgage every single month. Equity costs you more tomorrow because if you want to buy them out, They typically actually want to make money. Imagine that. So you have to pay more and that's all pre-negotiated and in writing and in your operating agreement and contracts. But it shouldn't cost you more to pay off a loan early unless there's what's called a prepayment penalty. And the way that I structure my— if I'm doing it like an investor bringing money into the deal, there'll be a small minority partner in it. We'll make sure that they're backed by at least as much equity as they're putting in. And so that forces me to buy great deals if I actually want to keep equity and then have a buyout for the future. If I'm structuring it as a loan, then they just go as a lien on title and I can pay them at any time because I don't do the whole prepayment thing with seller notes or if someone's loaning me the money. But again, what you decide to do, you need to make sure you get it in writing and have it all drafted up by your attorney. If you're doing napkin contracts or just on a piece of paper, you type it out That's a good way to lose everything that you're going to build. So make sure day one, yeah, it costs money, may cost you $500, $1,000, $2,000, but it costs you a lot more down the road if you don't do this thing right.

Right. And, and Aldo asked, but if it's hard money, do they take the property? No personal liability.

So they could take the property. It depends if you're doing a personal guarantee or not. Because if you own other stuff and you personally guarantee the note and they sell the property, they foreclose, sell it, they don't get repaid, they could come after other stuff you own. So you have to look at what's called non-recourse debt versus recourse debt and think about it. If you don't know what that means, you can Google the term, but recourse means that they can come after you. Non-recourse means there's no recourse for them other than the property. And so I like non-recourse debt, but at the same time, if It shouldn't matter if you're buying good deals with cash flow and equity, because the only time a recourse loan becomes really fatal is when you over-leverage.

And Christian, Christian said, who's the other guy in my house? Hey Christian.

I don't know. He's your employee. Christian's over in Vegas in the pool.

Living the dream. He said, who is your favorite private lender?

Flynn Fan. Ah, from Beth. Hi Beth. Flynn Family Lending. They've only lent me, uh, close to 7 figures. Just a little bit. Yeah, a little bit of money.

And let's see here. Dividend Dads Dave says, uh, great about the connection. I'll reach out via Instagram. Uh, what's your tag?

Mine is Cody D 2020. Christian's is his name because he has a less common name, and the person who had my tag wanted to sell it to me for $5,000, and I said no. But his is Christian Osgood.

Christian Osgood. And, uh, have you discussed HELOCs yet? HELOCs.

HELOCs. That's a home equity line of credit.

Okay, so have you discussed those? How— have about $300K I could tap but don't want to do one big lump sum, would rather run a line of credit, looking to acquire multifamily.

Okay, so a HELOC is a line of credit So it's a home equity line of credit backed by your home equity. So on HELOCs, I don't have a house, so I've never had a HELOC. However, Christian does. We're actually sitting in his house while he's way over in Vegas having fun celebrating his wife's birthday in the pool with one of our favorite people ever, Matt and Beth Flynn and Johnson. Matt Flynn, Beth Johnson. But he used a HELOC for some of the renovation money on the 38-plex. He pulled a $100,000 HELOC. There's some really cool programs out there where if you're self-employed and or you don't have any income and you have a house, you can often do a no-doc HELOC up to $100,000, meaning that if you just have the equity, they're going to go get an appraisal. That's what Christian did without having to submit any income doc verification. He could pull up to $100,000 and he got that locked in for 20 years. It's 10 years that he can draw from it, 10 years after that to pay it all back if it's not paid off already. So HELOCs are great, but make sure you do a fixed rate. I encourage Christian to do fixed rate and he did variable, saved him a point until it didn't. And so if you can fix your cost of debt, it'll help eliminate risk. Interesting.

Run through those questions right now.

Wait on a few more to roll in here.

Okay, looks like Gene might be typing out a question right now.

Gene said, 'Wha— what?' Yeah, so yeah, if you have any other questions, feel free to drop them down below. Otherwise—

oh, there it is.

'How much would you set aside per month for maintenance, repairs, and costs on multifamily property?' In the beginning, I put everything aside. I mean, you're already living, right? You don't need it to live if you just put some money down, or maybe you figure out the zero down. If you needed the real estate to live, you would have already had it. So don't pay yourself day one. Stack all the cash, build up your reserves, and then when you have a comfortable reserve— this is how I operate— I would typically just pay myself all the cash flow. But an example, like on my 12-plex, I want to keep around $24,000. My mortgage payment's $6,000 a month, so I'll have about 4 months of mortgage payments just sitting in the bank. And then I'm, I'm going to pay myself everything above that because I don't want to keep too much cash in the bank, especially when it's going down so quickly. Are you going to seller finance that $5K for the IG handle? I suppose I could. I didn't make the pitch. But, um, yeah, I don't know how I would allow him to collateralize that.

Seller finance everything.

Yeah, I guess so.

So we got a question from Johan. He said, I'm in a position where I have a W-2. At what point should I switch to full-time real estate, and what was your experience?

Well, I never had a real job. You've had a real job.

I have, uh, I've had a few.

Yeah, so I mean What was your thought? You switched over, you're doing property management, but also jumping into investments.

I am. So my thoughts are, it depends on where you are comfortability-wise, where your income's at. If you're okay with taking some time off and you want to fully commit, I'm all for that. I think diving headfirst into things is a great way to force yourself to stay accountable, but it's your personal risk preference, how quickly you want to get into this. You can kind of maybe start out with your first small investment property, first small multifamily, and go from there. And if you really enjoy it, go for it. Yeah. That's my thoughts on it.

Yeah. And as far as for making that jump, if you've got some money in the bank and you've already made a few relationships, you could probably look at doing it. But it depends if you have kids, depends if you have a wife or a husband. It's something you got to consider. What's your actual outgo? Cash flow goes both ways. Cash flow needs to have a descriptor before, an adjective. So you have positive cash flow or negative cash flow. And in the beginning, you have negative cash flow, cash flows out of your bank account. So you need to make sure that that's not going to burn through your wad of cash if you have any in a month or two. Like balloons, you want long-term stability. So if you have 6 months, Okay, maybe you start considering that. But if you don't absolutely just hate your W-2, keep doing that. Start building relationships with owners who own the type of real estate you want to buy someday, and then you can make the transition. And we actually have a section on our YouTube channel for when to leave the W-2. I believe we do. I know it's in our course, but we should have some stuff on that on our YouTube channel. So check that out if you haven't already. And Christian, when he's back next week, can really talk on that because he left left his job making good money, and his wife left her job making good money to just do this thing full-time. When we had 95 rentals, he had 95 rentals by the time we did that.

Yeah. So Caleb's got another question. He said, if you only have $20,000 to $30,000, would you put that money towards a down payment or keep it as an emergency fund for the property or use it for refurbishing?

Okay, so I'll go into that. I want you to clarify this though while I'm explaining right now. Um, how much money you spend every month, if you can drop that in the comments. But I would have 3 months of all expenses for your emergency fund. And so if you're spending, you know, what is that, $10,000 a month, and you're blowing through that, then yeah, you should keep $30,000 as your emergency fund. But if you're spending less than that, say you spend $5,000 a month or $4,000 a month, you multiply that by 3, that's what I would personally keep. Now, do I ever do that? No, because I keep reinvesting everything and I, I don't recommend exactly what I do because I always stay perpetually broke. I make jokes to Brendan and his family all the time about that. But in your shoes, 3 to 6 months, I'm going to keep— like, I would recommend keeping a minimum of 3 just in the bank and then use the rest towards a down payment. All right.

I'll, uh, I'll update you when he comments there. Okay. Uh, Brandon says, does a wholesaler or a cash buyer make payments to seller when doing creative financing?

So let's say a wholesaler, so they get it under contract. Now, not a lot of people wholesale seller-financed deals. There are some out there. Uh, let's say it's a million-dollar purchase, $100,000 down, and they wholesale it to you for $1,100,000. You're gonna have to come up with the closing costs. In the original example, the seller was financing $900,000. If you put $100,000 down, take a million plus $100,000, you're at $900,000. So if you buy it from a wholesaler for $1.1 that seller is still only financing the $900,000. So you're going to have to come in with $200,000, of which $100,000 is going to get blown on the wholesale fee. And you're going to have to come in with a little bit of closing costs, whatever associated with that specific deal. So you'd probably be out of pocket $220,000 or so just to close it. All right.

Let's see here. Alan says, what's the best way you have generated leads for seller finance multifamily properties?

Google Maps.

And what was that conversion rate, he was saying?

Oh, okay. Well, I've called a lot of people and I bought for most of them, so the conversion rate is definitely over 90%. But that 90% wasn't day one. There was someone I called them and now we're good friends We weren't when I first called them. They said, no, not interested. This is when I first learned how to sell, how to become a relationship-based person over a transactional broker. I called him up, tried to buy. He said, no, not interested.

Click.

And I'd done that for a while. This was a 6-plex on Broadway over in Central Washington. And it took over 2 years to buy that deal. And the turning point was when I went from trying to buy it to, hey, I I own a sixplex, but I've never done anything on Broadway. I've had to buy some of the worst locations. This is a great location. I'm curious how you got to this point. Could we grab coffee? And then we met at PNW Coffee Co. in Auburn, and I learned a story and he offered to sell it to me. It's just crazy how that works. But, um, conversion rates over 90%, and I find all my deals from Google Maps. Again, back to the simplicity of this game. Find people who own the type of real estate you want to own. Well, Google Maps, you find the type of real estate you want to own, and then you figure out who owns it, give them a call, and boom shakalaka.

Yep. And I think this question is actually for Christian. Okay, uh, Johan says, when you guys move to Texas, are you thinking about big city or small town America?

Christian's moving to, uh, Flower Mound, I believe, was one of the areas he was looking at.

Okay. And, uh, he also said, would you like to see— what would you like to see in your location before investing? Population growth, etc.?

Yeah, population growth matters. If I drive it, I want to see if people are taking care of the yards. Are people happy where they're living? Are they making more money than they used to? Those are all driving factors for me because, yeah, Seattle, people are making more money than they used to, but next to nobody's happy there. There's not pride of ownership. Needles in the streets, garbage everywhere, graffiti everywhere. No one's taking care of anything. So I don't want to invest there. Even if the population goes up, wages go up, that doesn't matter to me. And that's just something I look at when I look at Quincy or Moses Lake, Grant County. Most yards are really nice, most streets really clean. They're redoing all the main roads right now. It's beautiful. They just put in a brand new roundabout. Off the highway. Like, it's, it's coming along. So that's the type of stuff that I would look at above and beyond just the numbers. Do you have any thoughts on them?

Yeah, I think, uh, so a couple like metrics that I've used, just like you were saying, affordability has been really, really helpful. Uh, U-Haul puts out some really interesting metrics each year about where the U-Haul trucks are going. So looking through those as you're looking for different markets has been awesome. Um, yeah, another thing, just like you said again, is industry. I'm always looking when I'm, you know, searching for different areas is what industries are there, making sure it's not just one big company that, you know, just for example, like Boeing, right? Let's say if Boeing was the only supplier of jobs there, if they suddenly leave town, you know, there goes so many jobs, there goes that town. So make sure there's a little bit of diversity in industry.

The U-Haul report's cool.

The U-Haul report is awesome. Uh, let's see here. And then we got— so Josh says, can you elaborate step by step how you evaluate deals Well, from what's most important to least.

Yeah, well, I have two qualifying criteria. How do I buy? How do I never lose it? And the first thing, okay, I need to figure out what my debt is going to be. Debt matters if you're doing the creative finance thing. I mean, that's really important. But before that, you need to identify your location. I'm not buying in a bad location. I will not compromise on that. So once I'm sold on the location, I need to figure out how I want to do the debt. I never ask about the price. I ask about, okay, what do we want the terms to look like? Because terms are way more important. Price only matters if you're planning to flip this thing or you're going to have short-term debt. That is really the only time it matters because with apartments, that just determines how long it's going to take you to pay that thing off. So after I figure out the location, I need to figure out, okay, what's my debt going to look like? Because if I don't have the debt to do it and I don't have cash, I never keep cash. That's why we do creative finance. Then I can't buy the deal. So So we need to figure out the debt. And if we can negotiate the debt to where it cash flows, which is the single most important piece of any piece of real estate, if cash flow doesn't come in positive every single month, you know, consistently, like there's gonna be times of negative. I've got a sixplex that's negative right now 'cause I just bought it. But once you're stabilized, if it doesn't cash flow positive, you're outta luck. And those are the real things that matter. Figure out the location, figure out the debt, figure out the— you make sure it cash flows, and then have solid management so that you can walk away one day. Because if I get hit by a bus, I have Brendan to help out. And if Brendan gets hit by a bus and I get hit by a bus, we've got Christian and Hannah. And if they all get hit by a bus, then Christian's wife is screwed. So we can't all do that. We don't want to be all together walking across the street. However, Outside of that, we build the systems for the management. And if you can do those few pieces, you're set.

All right, and, uh, let's see here. Caleb says, I have no property yet, looking to get my first one. I spend basically no money each month living at home and just graduated from high school. I think he's looking for a suggestion on how to get started.

Okay, well, depending on where you're at— I can't remember if you were the one in Colorado, but wherever you're staying, do the Google Maps thing. If you haven't seen the Google Maps video, it's like 8 and a half minutes long. Go through it. You're going to figure out how to find any property owner's contact info ever, unless you're in LA County. I guess that place is just hard. But, uh, you know, everywhere else, as long as you're not there, it's pretty easy to find people's contact info. And I've done that for, you know, Wolf of Wall Street, Bradley Cardone, Elon Musk. You can do that for really big people and mom-and-pops. So go through the video and then start calling up folks that own real estate that you want to own. And it's okay to be nervous because they're going to hear it. I used to be afraid to go talk to baristas at Starbucks. That's how I learned how to communicate, because I figured when I butcher it, they're not going to know who I am, they're not going to remember after 15 minutes, and I may never see them again. So if you're nervous making that phone call, everybody is, but start making those phone calls. And if you can just prioritize— I'm guessing you're younger, you may not be.

Um, I think you said just graduated from high school.

Okay. So you're younger, probably, unless you did it later in life, you could be in your 30s or 40s. But if you can build your skill of communication, effective communication is more important than all the other skills. Because you can learn how to communicate, you don't have to have the street smarts, you don't have to have the book smarts. If you can just connect with other people, you will move faster, and everyone's going to think you're cheating, it's handed to you, you got lucky.

It's like, well, Rich Dad.

Yeah, you got to have a rich dad, right? It had to be handed to you. Well, no, if you know how to effectively communicate in person and over the phone, you can get deals no one else will get because everyone sucks. I mean, so many people are so bad at the communication game, and that it prevents them from building really solid relationships with folks. If you can just learn that skill through practice, you're gonna zoom past all the people that are ahead of you right now.

The Coyote Old Man said, when looking for areas in this environment of financials in the US, what are your top 3 areas and what do you like to search?

Top 3 areas to invest, I think that's what he's saying.

So we did chat about this a little bit. Um, I think he's saying in terms of when you're scanning for new areas, what are your top 3?

I have to see it. Okay, when looking for new areas in this environment of financial in the United States, what are your 3 top areas you like to search? Okay, um, well, I'm investing in Washington right now, so as far as locations go, I'm in Grant County King County and Mason County. Those are the 3 that I'm looking at. Kitsap, super strong, but I'm looking for main— as far as like quantifying a location, I want strong employers where I buy. Uh, like Mason County, the property neighbors are the Nordstroms, uh, the Rakes, and the Gates. Those are the neighbors. In Grant County The employers are Boeing, Google, Verizon, Intuit. There's a lot of strong employers in King County, and it's near Seattle, and there's a lot of money in that area. So I'm looking at those pieces. If I were to go invest out of state, I'm going to look for similar metrics. Who are my neighbors? Not just adjacent, even though they're adjacent for the one deal. Who is around me? Because there's a 6 degrees of separation. Everyone you know is first degree, everyone they know is second, and within 6 of those, you know everyone on the planet. If you can strategically put yourself in the right place, connect with the right person, that can wipe out a whole bunch of those degrees for everyone you want to meet. And if you can start buying near solid employers like Texas, everyone's building there. It may get oversaturated with apartments, see, depending on the area, but it's hot. It's a great market as far as rentals go. So So stuff like that, you gotta weigh the pros and cons of a whole bunch of people are gonna be there. There's gonna be different challenges, but there's a reason everyone's there versus Missouri. Right. So, right. Keep those in mind.

So Jess says, I am too young and don't make enough to get a loan of the size I need. I live in a rural area with little to no networking events nearby. Where do you find your investors?

Ooh, that's a fun one. So before you find investors, I mean, the only reason you're trying to find investors is cuz you're looking for money. And the equation is deal, debt, then equity. You're doing equity, debt, and deal. So you're in a small town in America. First place I bought had 7,600 people when I bought there. Now you may be living in a smaller place. I also looked at buying in a place that had 2,000 people, but I had to find the deal first and then figure out the debt. Because if you're just looking for investors, it's great. I have a bunch of people that want to invest with me today. That are either local or far away, I don't have enough deals to put them in. But yeah, I mean, we could do okay deals. I don't want to do that. How do we buy? How do we never lose it? We could answer those questions, but they're not just super amazing. So I don't want to just put people into that, especially if they're loaning me money for a down or do a small JV. In your shoes, I wouldn't be looking for investors right now. Find an opportunity because odds are you could probably just do 100% seller financing in small town America. A lot of people there own it outright. That's just typically what, and consistently what I've found. So a lot of people in these smaller towns own things with little to no debt, and they're just looking for someone that wants to learn, take it over, and it often won't cost you any money. So I would start there.

All right. And Brandon says, I'm a wholesaler and I have no money. Can I still do creative finance?

Uh, regardless of what you do for work, you can do it with or without money, but understand when you add more debt, you add more risk. So I started with $3,000. I didn't spend the $3,000. I didn't need the money for it. I just had a great deal and I was able to line up the debt and took it private with seller financing. Whether you're a wholesaler or not, if you can wholesale deals, get some cash, great. It's a lot easier with money. A lot easier when you have cash. It is possible to do without cash, but regardless whether you're a wholesaler or not, whatever you're doing for work, you can do the creative finance space, but it's going to be limited to who you're talking to. And if you don't have the right connections yet, you need to build up your skills so you can get the right connections.

I think that's what's so appealing to a lot of people, especially myself, is starting out as a new investor where I don't have a lot of money, I don't have a lot of income, is with seller financing, you're building your loans basically off of your relationships. You can get properties just by networking correctly. And so for me coming in, and same with you, is you have almost no money to go into it. You can find these deals, you can make it happen. It's just a matter of putting yourself out there. Yep. So let's see. Dividend Dave says, Cody, sent you a message. Thank you so much. Also, how fast would you recommend someone to scale? The duplex is my first.

Well, Christian bought a duplex first after he bought his condo, and then he bought another duplex, and he bought the 38 with me. Figure out whatever you're comfortable with and then go a little bit further. If you're comfortable with 4, do 6. You're comfortable with 6, do 10. See if you could just push it a little bit, but make sure that— I mean, you're going to be able to scale based on your ability to get debt and cash flow. I can go get a ton of debt today. I mean, I could start a fund and lend it and I could blow up, but I would actually blow up because I wouldn't be able to structure that in a way where I could cash flow it. So you can scale as long as you can keep getting long-term fixed rate debt that cash flows with margin. As soon as you run out of long-term fixed rate debt or you run out of cash flow, you're either going to lose it all or you're going to not be able to scale and you're going to have bottleneck, which is what a lot of people hit because they try and get all, you know, bank loans and they run out at 10 and then they have to go non-conventional. And that's what's going to hinder you, your ability to get new debt that cash flows.

Let's see, say Alan says, have you dealt with any bad tenants and have you had any landlord issues with Washington since it's a blue state?

I've had bad tenants, very few though. Most people are good people. And some of the properties I bought have been beautiful, turnkey day one, nothing needed. Others have needed a lot done. And I thought going in I was gonna have to fix everything right away, it was gonna have to be perfect. That's not the case because these people are living there, they're happy, they want little things done. It's not like living where I'm living. I'm living in a 500-square-foot apartment, but you know, they just wanted new appliances, so I had to go do new appliances. And all of a sudden it went from non-paying to really appreciative, paying a higher rent and never missing a payment. So you take care of people and most people are good people. Now, there are some out there that are less than that and they just don't have good ethics. They just, they don't care. And that's okay. But they're not going to stay where I'm going to own. So you got to handle that sometimes with an eviction. And it can be tough in Washington. Talk about blue state, red state, whatever, be a human. If you can just be a human with people, communicate with them, you can get through to most people. And yeah, it can be really difficult to manage where it's not very friendly towards landlords, but somebody's going to own the real estate and it might as well be you if you can figure out how to get the debt and make it cash flow.

Robert Leonard: All right. And Caleb says he's based out of Lancaster. Pennsylvania, uh, working on networking. He's already met someone. That's great. Keep it up. Yep. Keep networking. Uh, Caleb, uh, Brandon says he's from, uh, York. And, uh, let's see, Johan says, do you mostly prefer small town America, Moses Lake? Do you call multifamily owners in Seattle or Tacoma, for example?

I haven't been at all. I just do the Moses Lake, Quincy, because there's a billion dollar opportunity over there. One thing I want to do, and if you're from those, it's like watching this, understand I'm going to do it someday. There's requirements to put in Topgolf, so I'm going to put a Topgolf over there. But to do that, I need 3 years of hospitality experience, hence why I'm really excited about doing the resort deal that we've been briefly mentioning online. And we'll have more details to come very shortly, but that's hospitality. And after I run that for 3 years, I can build a Topgolf. And so if I just keep focusing on building up in the area that I already own in, the day I put a Topgolf, the whole area is going to come up because people are going to come visit because they don't have that over on that side of the mountains. So I'm going to keep building up over there. Concentrate, focus, and be persistent.

All right. And, uh, Aldo says, other than population growth and jobs, what else are you looking for in target markets?

Again, the pride of ownership thing from owners. I want to see if people are taking care of their yards, taking care of the streets, not trash everywhere. I want to look at, okay, what's the percentage of ownership versus renting? Because if it's 85% ownership in a market, I'm not going to have a huge renter pool. And if it's 100% rental, then I'm like, okay, this is weird. This is just a landlord town. But I want to look for somewhere in the middle. Or we've got a good mix of homeowners versus renters.

All right. And here's a question. We've chatted about this a little bit, but Min says, do you, how do you find off-market deals? And how do you know if you're getting a good rate from a money lender since you have no 2-year income or a loan from the bank?

Well, how do you know? As far as the rate goes, if you're paying double digits, it's probably not that great. Now, if you're paying double digits on a hard money or a private loan, That's a bridge for a year to 2 years or less. That could be great. That's why I've done 12%. I've done a lot of 12% money with Flynn, and I've done as high as 18% private when I needed money. Like, I could not have it come in, so I borrowed really expensive and I got it paid off. But if you're buying deals on single digit and it cash flows, great.

And same question, or same guy asked another question here. "Can you do a video on how to break down a deal and know if it's a good cash flow or not?" Yeah.

And we actually have math videos, Math 101, Math 201. You can check it out. I think we have a playlist for underwriting or math, but we definitely have videos on that on our YouTube channel. Check it out.

It's over an hour of content. Gene says, "How do you collect rent?

Have you found a system that works well for you?" Yes. Not with cash. I don't want to go pick up a bunch of cash. I did that in the beginning and it was a nightmare. Don't do that. Talking to my 19-year-old self, I use AppFolio, and you're going to have difficulty using AppFolio in the beginning because there's a 50-unit-plus requirement for that, meaning you have to have 50 units or more, 50 apartments. Now, I like that because people can just press pay now and money comes from their bank account. It goes to my bank account. And since I now own a PM company, which I didn't originally, the money goes to the PM bank account and then I press pay now and that goes out to the property owners, which just so happened to be me. So then it goes to personal, but I like as much online as possible. I also have tenants send checks to an office local to where I live. And so that gets deposited at the bank and then the bank scans over all the checks and then that gets logged in that folio as collected. I keep what's called the tenant ledger. It shows what's the bills, what's been paid, and if they have any outstanding.

All right, and Santiago says, what are you looking for on margin on DTI? Uh, call it safe on 15% cash-on-cash return.

Okay, so 15% cash-on-cash, that could be cool, but it depends. And more than cash-on-cash, I look at DSCR, which is debt service coverage ratio. If you invest $100 and at the end of 1 year you made $100 net cash flow, you doubled your money, you made 100% cash on cash, but it's only $100. And if you spent, you know, your property costs you $100,000 to keep it in debt service and you only cashed out $100, but it was still $100 on $100 investment, great return. Terrible margin. And so instead of looking at it as cash on cash, I make 15%, 40%, 50%, I want to say, "Okay, what's my net operating income above and beyond my debt service?" So if my NOI, my net income, meaning after you pay all your property expenses outside of your mortgage, because you imagine you have it free and clear, let's say it's $150,000 and your mortgage costs $100,000 a year. Well, that's a 1. 5x DSCR, and that's pretty good. You want that to be as high as possible. A lot of my stuff's over 2, meaning that if my debt costs $10,000 a year, my property will net $20,000 a year. And that just means that I have enough margin to weather the storm in case something goes wrong. And it's really just about those percentage margins, not your percentage return.

All right. And Carter asked, he said, hey guys, do you utilize land trusts or just LLC to hold your properties?

I use LLCs right now. Eventually that may change, and by may I mean it probably will, but I'm not there yet, and so I don't worry about it. I say that to everybody and it makes some people upset, but you're not there yet, don't worry about it. I say that to myself all the time. In the beginning, I wasn't focused on all the best protections. I was focused on let's build, let's expand, and then build something worth protecting, because people will come after me. And then someday when they do, they're going to realize I don't keep any money So they're like, oh, that was a waste of time. But, you know, someone's going to see this online someday and be like, ah, I'm going to see if I can get some free money. You know, they could do that. And could I better protect my stuff? Yeah, but I've got stuff in LLCs, I've got different partnerships and different protections and insurances in place. And at the end of the day, yeah, there's probably a better method to do it in some type of trust or something, but That's not my main goal right now. My main goal was to build, and then from there I can protect.

So Alan asked, how do you find a great property manager? Do you use tenants sometimes to help manage your properties?

I don't, don't use tenants to manage. That's a good way to lose money. But you can have an on-site manager, meaning someone who can help out with maintenance coordination. A lot of people do that. As far as finding a good management company, make sure you're working with people that actually own real estate. If they don't own the type of real estate that they're managing for you, that's a red flag.

All right. And Julie asked, years back I bought a Desert Air for $3K and sold it a few years later for $30K.

Congratulations. Hey, I know Desert Air very well. I've hung out there many years. Instead of going left to Moses, you go right. Oh, okay. After the bridge. Nice.

Uh, so Johan says, how are you buying most of your properties? Are they coming from people you've contacted 3 years ago?

Some of them, yeah. I mean, I got, uh, the Pheasant Apartments I got from someone I contacted a couple years ago. Broadway a couple years ago. Gibby was a couple years ago. You know, it's definitely scaled. Some of it's coming from brokers now because brokers know that I can perform. They get a deal, they just know I'll buy it in that market because I'm trying to pick up market share. And so you don't get that in the beginning. In the beginning, you gotta do a lot of the legwork, and then it gets progressively easier.

And, uh, Alan says, do you follow Pace Morby? He saw you on your show.

It's a cool experience. Oh, well, thanks for coming and checking out this channel. I don't follow Pace a lot. We have different strategies. He buys a lot more From what I've seen, now he's starting to do the syndication stuff and get bigger with funds and do some bigger, really cool deals. But in the beginning, it was a lot of mom-and-pop buying from grandma and grandpa, buying houses sub-2. And I'm like, "That's cool, but I'm not trying to buy transactions and get that margin where you can get some good negotiations." You can get some great deals for grandma and grandpa. However, I want to learn from the affluent people. Who've done exceptional things because I could take best business practices. And so we just have a little different models. I'm not in it to buy the real estate. That's been a byproduct of learning from people who have absolutely dominated the game.

And Boom says, after pitching seller financing to agents, how would you respond when they ask how much money you have for a down payment when you don't have any capital to invest?

Okay, so I just be truthful, right? I mean, I've never had any money. I'm doing the resort deal right now. I'm going to be able to put $1 million down. And the way that I do that, I mean, I've got way more than that in equity in the assets between Christian and I. We just told them, look, we don't stay liquid. And you're not going to lie and say you have a bunch of real estate when you don't. That's not good. But just say, this is what I'm looking to do. I would like to do a seller note, 10% down. Now you have to do the math on that. If you don't have a bunch of cash or any cash, you just need to propose an idea and show them the vision. You have no money. I'll round down for simplicity's sake. My first deal rounded down was $1,000,001. I want to do 10% down. And the only reason that they would ask for a proof of funds is they don't believe you can close. Because if they knew you would close, they wouldn't ask you for proof of funds because there's trust. And you do that through presenting yourself as a professional. Back to what I was sharing earlier with the guy who just got out of high school. If you can learn how to communicate, you get a lot of cool deals. I don't keep $1 million liquid, but I'm doing a deal where I'm putting $1 million down next month. And we could close that way sooner than that. Now, do I need the proof of funds? No. Do I have it liquid? No. Am I getting it right now? Yeah, I'll have it this week. We'll have it all set up. But in your shoes, if you don't have cash, you need to share the story because the story's worth more than the real estate.

All right. And let's see, Johan says, my friend just got a $700,000 single family from his family. How should he invest it? Should he sell for 1031 or refinance or something else entirely? He wants to get into real estate.

Well, he's already in real estate, so good job, you hit your goal. There you go. Uh, depends if you have debt. If you just have a $700,000 house, I'd probably liquidate it because I don't think you're going to get a very good rent. But also depends on your risk tolerance. If you want to Dave Ramsey this thing, great job. If you own it free and clear, maybe you get $3,000 a month in rent. That's a great start. You can start snowballing your way into the next thing. But if you invest $700,000, let's just use percentages. Let's say you earn 6%. 6% on $700,000, if you reinvested it into something else anything else, it's going to be $42,000 a year. And so you can just do the math on that and be like, okay, that's $3,500 a month in net cash flow versus $3,000 a month top line on the house. But figure out what you want to do. I would sell it because I don't like to keep single-family houses and I know where I put the money. But if you don't know where you're going to put the money, rent it out. Figure out the landlord game on something that you have low risk on if you have no debt. And use the opportunity to build your knowledge, build your confidence, and then when you're ready, scale up into the next thing.

All right. And, uh, Brandon says seller wants to be paid $1,700 a month for 5 years for a totaling price of $130K. The numbers are right if it was a wholesale deal, but not sure for refinance.

Okay. Um, total price of $130,000, $1,700 times 12. I'm just going to do some quick math. 12 times $1,700 times 5 years, you're going to pay $102,000, meaning you would owe $30,000 left. Uh, so depending on the interest rate, I mean, if that's all principal, that's a great deal because you could probably come up with $30,000 in 5 years to pay off the note. Again, you don't have to refinance. You could Just pay it off.

It's very real.

Or you can sell it. But if it's interest only, well, all of a sudden that's not necessarily that great. But you just need to figure out, how do I buy? How do I never lose it? If you can make that thing cash flow enough to pay it off, you get the real estate to buy the real estate. Well, now it's a great deal.

There you go. Coyote says, question: would you start with creating an LLC first? No.

The first thing you would do? No. Um, No reason to create an LLC to find a deal. Deal, debt, equity, and then legal structure. That's the fourth one.

There you go. Get your name out there. Um, let's see. So Johan says, is DSCR based on gross income or net income?

Net. Always net operating income because you're going to have certain expenses to keep the property alive. If you don't pay your taxes, well, You're not going to own the property forever. Turns out we only rent things from the government, and our rent payment's called property taxes. If you don't believe me, just don't pay your taxes for a while and see how long you get to keep it. Not a good business model. 10 out of 10, don't recommend. I, I've seen people not pay their property taxes and then it goes bye-bye. You see how quickly you rent from the government. But it's after operating expenses, and the reason we don't include a mortgage in that is because everyone's mortgage is going to be different. I guarantee you I can negotiate different mortgage seller financed than you can with bank. Cause banks can have fixed rules and I don't have any rules within reason.

And Alan says, using your model to contact owners of multifamily to learn from them. How do I do the same with you?

Let's grab some coffee. Uh, well, where are you at? I just met with two people yesterday. I've had people fly in from out of state. I've flown out of state to go meet with other investors. You want to come grab coffee? I'm in Renton. I, I run into a lot of people that watch this every once in a while. They're like, what, you live in Renton? I'm like, yeah, we're neighbors. And I ended up meeting one guy, he's two blocks from where I live. So if you want to come hang out, just go grab a beer, grab coffee, burgers, sushi— not sushi, Thai food, whatever you want, just let me know.

That's how I met Cody. Just met him, uh, a little over a month ago.

Yeah, we met at a meetup event. And then I hired him and now we're good friends.

It's crazy how that works. Uh, let's see here. Uh, Caleb says, can you get insurance without smoke detectors?

Um, why? Just put in smoke detectors. That's all I have to say to that. Follow regulations. Yeah, I know what deal you're talking about, Caleb. But, um, just get smoke detectors installed. It's not that expensive, even on 10 units. Let's see here. Yo, I live in Renton! Come on by. Yeah, shoot me a message. Uh, how do you—

oh, there was a question and it got retracted here.

Oh, from Min. Yeah, Sal, if, uh, you want to meet up, Kandor Coffee, You let me know when. If anybody else wants to meet up, we keep this stuff easy. Message us. Well, that message got retracted. So Dividend Dave DM'd me. I'm gonna read that. And if you have any other questions, feel free to put them in the chat. Caleb said, what about fire extinguishers? If it's a commercial property, you'll probably need fire extinguishers. I have to have them on my 12-plexes, not on my duplexes. But you should just ask your insurance guy or gal. From Dividend Dave, thanks for taking the time to provide great information, answer my questions. I'll be moving to the Salem area in North Carolina and would very much appreciate the connection. Oh, okay, no question.

Well, Dave, we will connect. Uh, REI asked if you have any experience using FHA loans.

Not personally, but I've done it for clients as an agent and I'm starting to hang up the whole agent hat. It's a little bit less of what I want to do. I'll still help people that want help in Washington, but I'm not advertising for it. You can do FHA, great option. You're going to have some restrictions on fourplexes, anything really over duplex. The income actually has to cover a percentage of the income has to cover the mortgage in its entirety for you to qualify legally. And so in really expensive areas, it can be really difficult to FHA. That's something that I've run into. And if you're doing VA, if you don't have any rental experience, you'll need to work with a professional property manager to count the rent. So it's just something to think about. Oh, we got the question from Min. There it is.

How do you know how much to charge for monthly rent? Is it just determined by what market you're going for?

Yeah, so you could use a couple different websites. RentCafe is one, Rentometer is another, spelled like rent-o-meter, and you can get some free—

some freebie uses. BiggerPockets has a really awesome rent calculator as well.

Yep. Yeah, so you can use different calculators online. You can also just look up what's for rent in the area you're buying. It's a good way to do it.

You can also call up some local property managers. Yep. See what they're saying, what rents are going for. If you know the rough square footage, how many bedrooms, how many bath, That should give you a little—

give you an idea.

From Boomflix, what is your favorite part about building your business?

It's been pretty cool to fix up some of the properties. The biggest deal I ever bought— and for people that have been to Moses Lake, you know this property, it's, it's on the highway across from Home Depot— this was the worst property in all of Grant County. Like, I could go to bat to defend that claim. It was the worst thing that ever existed in the '90s, because before they put a Home Depot there, it was outside city limits, and then the city bought some more land and expanded their borders. But the problem with it being outside city limits is cops wouldn't go there, and so it became what we call a drug den, and a lot of issues come with that. The city bought some land, put a Home Depot, expanded their horizons and brought it in. And now the cops are going there and got it all cleaned up. But I got to go in and start fixing up that property, and that's been a huge work in progress. And by work in progress, I still mean that we are still working on that, getting buildings painted, getting interiors redone, plumbing redone. Eventually we're going to completely replace the roofs from— there's, uh 3 buildings in the back and there's a flat roof in the front. Being able to make an impact, people talk about, "Oh, what are you going to do with the money?" Well, it's not about the money, it's about the impact. You want paper or you want impact? And so the impact that I've been able to make and now start working with people like Brendan and Hannah and Christian to start managing these assets better, you can give people an experience that they're not going to get elsewhere. And yeah, they may be living in a 500, 600, 700-square-foot apartment, 800 square feet, but they don't deserve to live in a bad 800 square feet. So we're going to give them an experience that other people aren't going to give them. And that's been the most fun about this whole thing, being able to see the change. For 3 years ago, I bought a turnkey 12-plex, and I bought a really crappy 12-plex that I got to fix up and make it way nicer. It doesn't— you wouldn't be able to tell it's the same building if I just put 2 photos side by side. Being able to do stuff like that impact the quality of the lives of the tenants and not greatly increase the cost of the rent, that's cool. And so I've had a lot of fun with that.

It's cool to see the, uh, the areas just get improved over the years. Looking back at some of the photos of the buildings, it's crazy.

If you get rid of all the bad stuff, turns out there's no more bad stuff. The problem is nobody wants to do it. So if you're the person who does it Eventually you just end up with a nicer community.

And let's see here, Gonzales asked, how did you get the money for the down payment on your first rental property?

That was basically a hard money loan, second position. But you got to know the hard money loans, I mean, those just come from people or institutions, but people run the institutions. There was an investor in the office, I made a bunch of pitches and botched them all. But I got one of them where these are just people that have money sitting in the bank and they wanted to earn 12% a year. And so they wrote a promissory note in second lien position and think about it like loan to own. They're loaning money on a great asset, beautiful building. Because my first building was actually really nice compared to the rest of the stuff I bought. And it was 30-year fixed rate loan, which you can't get. The seller financing was great. So if I botched it, they would get a great building, with a great loan product that you can't get with a bank, loan to own. But I was able to get them paid off and now I just own it without hard money. So they earned their 12% until I paid them off. And then if I didn't pay them off, they just get a great asset. That's how I structured that. But they were just a lien on title.

And Caleb asked, he said, with generally some knowledge of real estate multifamily properties as a first-time home buyer or first-time buyer, Could you explain the step-by-step process?

Okay, um, yeah, so your step-by-step process— if you're starting to work with a real estate agent, the way that that works is you find a place you like. After you get pre-approved, you're going to work with a local lender, not one of the online lenders. They're a bunch of crap. They're going to retrade you, promise you great things up front, and then deliver on next to none of them. So work with a local lender who understands the market.. And once you're pre-approved, you get a pre-approval letter, then you're going to— not a pre-qual, but a pre-approval. Then you're going to work with an agent, start making offers, and you get an offer. You're going to have contingencies. So let's say you get it accepted to buy a fourplex and you're going to do 3.5% down FHA, and you don't have to use your FHA on your first— it's not a first-time homebuyer program, it's a Federal Housing Administration. So it's just to help you get into housing. So you do your FHA loan, 3.5% down. If you're pre-approved, you're going to have contingencies. You're going to get what's called a title report, which shows all the liens that are on title. Because when you buy something, you want free and clear title. You don't want to inherit other people's loans. You're going to get what's called an inspection report. You're typically going to have an inspection period. You have a professional inspector on a fourplex. You're probably going to spend $800 to $1,500, thanks inflation. And, uh, you're gonna spend the money, you're gonna get the report, you can renegotiate if there's something super wrong with it. And then you're gonna have an appraisal, and once the appraisal is in, you're gonna make sure you're at value. If you're not at value, then you need to renegotiate. If you're above value, congrats, you're walking into free equity. And once you have all those pieces, eventually you'll send your down payment to escrow. And if you're in an escrow state— there's some states that just have attorneys— so you need to figure out where you're at, but you get your money sent over to escrow. You never send it to the seller, never send it to the agent, and they handle all the money, they handle all the contracts. And as long as you're working with a solid agent who has good business ethics, they'll make sure you got the right contingencies. And when you waive your contingencies, you move on to close. Congrats, you sign and you're the owner.

And I think that's the last question that we have as of now.

How far— oh, that one just came in.

Oh, there it is. Okay, so Gene says, how far from where you live would you go out and find your first deal?

My first deal was 200 miles, so it was, it was a 3-hour drive. It was 200 miles as the crow flies, which is not how you drive. So I went 3 hours So it's 6-hour round trip. I'll tell you, it's a lot easier to drive to my Tequila property from Renton than it is to drive to Moses Lake from Renton. It just is. So if you can buy closer, great, but it really— go buy the biggest opportunity with the most upside. If you could buy a 100-unit complex that's 4 hours away from you, or you could buy a duplex that's 10 minutes from you, what would you buy? Let's say it costs you the same. And that's where you got to draw the lines. Like, okay, if the opportunity is big enough, it shouldn't matter how far it is. You got to figure out how to manage it. You got to make sure it's in the right location. You got to make sure cash flows. You got to get your debt. So if you can get those pieces lined up, then yeah, go do the 100 that's 4 or 5, 6 hours away. That's it for questions for today.

Oh no, nope. Uh, how do you manage a property that, that's far?

Also budgeting. Okay, Gene, so the same way as if it's here, you're gonna have to find vendors that are over there. You're gonna have to make sure that your tenants know where to pay rent. You're probably gonna have to eventually find someone to post notices for you. You do have to post notices or mail notices, so you're just gonna have to build out your system. But it's very similar, and it wasn't hard as a 19-year-old to manage a 12-plex, but I had to make sure that they knew where they're paying rent. And the first month is always a hassle because almost none of the rent goes to the right place, and then you got to go find it. Sucks. So, um, you're going to manage it very similarly. You just got to build out your systems. When you have your systems, you're going to get more comfortable. My first deal, I was super worried. Second deal, I was even more worried because my first one was turnkey, second one wasn't. Third deal, I was like, I got this. You're gonna have to build your confidence up, and that comes through building out the connections in that market who can help you when something goes And Lucas asks, uh, he said, how do you find the owners of multifamily properties in his town? Um, I don't know what town you're in, but watch the Google Maps video, and we can link that down below. Hopefully Christian's watching this because he's that guy, but we'll link, we'll link a video down below after this is all wrapped up. You can check it out, and that's how you can find anybody in any town.

Gregory asks, do you recommend student housing? I have an opportunity to buy near campus, 20 units, 27 bedrooms, and 3 total buildings.

Do you want to do that? I mean, if that's the gig you want to be in, great. You could become— that's Gregory— you could become the guy for student housing where you're at. But build a brand, because the brand, the story, it's worth more than the real estate. Yes, you need to figure out how to monetize the real estate, but You can build a brand in your market. You get known for something. You're going to get all the opportunities that are in that associated niche. So if you want to do that, do it. And if not, then don't, because just because it makes money doesn't mean it makes sense.

Nate asked, is seller financing best? Because if the underlying value of the property drops, then the bank won't call the loan off some ratio.

Yeah. So technical default, if you lose your equity position on a commercial loan, they can call your note due. They may not, but they usually can. In a seller note, you have to negotiate, right? I mean, if you have a bad note, then you have a bad note. But as long as you have a good note, seller note, it's not going to be callable just for that stuff. Now you have to have your attorney draft it all up. But what this person's referring to is called technical default, when, uh, there's all those little paragraphs that no one ever reads if you're asset value drops and you lose your equity position, they can call your loan due. And then you get in a big scramble because who's going to give you a new loan when you have no equity? Seller note, typically not the case, but you need to make sure that that's all drafted up by your attorney.

Caleb says, would you rather buy in a higher living cost area with better occupancy rate or a lower cost with lower occupancy rate based on the Lancaster, PA versus Lebanon, PA.

I'd buy in a better location. Occupancy doesn't mean better location because it could just be mismanaged. So, I mean, there can be a lot of properties that are mismanaged. I've seen whole towns that are mismanaged. So I would just make sure that you, you do the opportunity that you feel comfortable with and trust your process. If you buy 50% occupied, what's stopping you from getting it to 90%? Now, if there's actually nobody that wants to rent, well, I wouldn't buy there. Then I'd buy in the higher occupancy Make sure it cash flows. And that's it. So that is it, actually. That is actually it. So we're going to end there. And, uh, if you have any other questions, drop them in the comment section down below so that we can answer them for next Whiteboard Wednesday. And, uh, have a great rest of your week.

Thanks for joining, Brendan. Thanks for having me.

Appreciate your reading.