Christian Osgood breaks down stabilization, the hardest phase of real estate investing: getting a multifamily property to 95% occupancy and market rents. His 12-plex went from $1,000 to $4-5K monthly cash flow. He covers the operational demands, common mistakes like underestimating timelines, and why nailing this phase unlocks most of your profit.
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The hardest and most expensive phase typically of the 4 phases of winning real estate is the stabilized phase. We're going to be talking about that today and why it is so important that you move quickly in this phase. This is where most people win or lose the game, so watch closely. Hello and welcome back to the channel. My name is Christian Osgood and here we go. Now, if you haven't yet, please like and subscribe to the channel and check out some of our free links below. We have some worksheets, free courses, but a ton of free resources that you can use to get started on your financial freedom with or without any money, credit, or experience in real estate. It's all here on this channel and on those links. But first, you're going to want to watch this video on stabilization. When you stabilize, first thing to know, it usually takes 3 times longer and costs 3 times as much as you think it's going to. Be prepared for that. That is a hard and fast rule that happens for basically everyone. It is always more work, more time, more money to get through this phase. Cody and I made a huge mistake. We did the build phase a little bit longer than we needed to. We did not focus hard enough on stabilization, which means we lost out on a lot of potential rents. That is a lot of thousands of dollars that could have gone back in the portfolio and accelerated us. We focused very hard on the acquisition, which you do need to do, but we didn't do stabilization at the same time. Stabilization has a few rules. I'm going to go over those right now. One, you are 95% occupied or more. That means your units are leased. 100% occupancy is not common, and it's not necessarily a good thing. If you're 100% occupied, you're probably too inexpensive. You want to sit right around 95% at all times. Number two, you're at or slightly below market rate. We actually like to come a little bit under market rate because our units lease longer. Since vacancy is expensive, that small reduction in rent actually does make us a lot of money in the long run. But you want to be at or near market rate. The next one, and this is the expensive one, no deferred maintenance. This does not mean we've optimized the property. It doesn't mean we have brand new siding, uh, stone countertops, heated floors. We're not going insane here. We're doing basic opti— or not optimization, basic stabilization pieces. Is the roof fixed and not leaking? Are the floors in good condition? Is the electric, plumbing, sewer, septic all in good working order with no major damage? Are the appliances, the toilets, the fridge, the dishwasher, the stove, are all these things in good working order in every single unit? If you can knock out all those things, 95% occupancy, near market rents, and no deferred maintenance, you are a stabilized property. Now, when you're stabilized, you're typically cash flowing a lot more than when you picked it up because rents also increase over time. So as you're going through this, your rents have inched up from where you've purchased. If you purchased under market rent, you've gotten through all of your rent bumps. Cody's first property, was a 12-plex. That 12-plex he purchased 4 years ago, it was cash flowing $1,000 a month. Today, that cash flow's about $4,000 to $5,000 per month. It grows relatively quickly, but stabilization is huge on your global cash flow. To date for 2023, I was just looking at this, we did 41 renovations on units. We should have done them in 2022, a lot of them, but we didn't plan well enough. So we took too much time. Our teams were too small. They couldn't get to everything. This year we knocked out a ton and now we are almost fully leased. Our cash flow has gone up $23,000 per month from where it was at the beginning of the year. And it is solely because of the stabilization phase. So when you're stabilizing, what do you need? First of all, you need to understand How much vacancy am I realistically going to have? How many units need work? How many move-outs are we going to have? How many rent bumps are we doing? You then need to make sure that you have the maintenance teams to do that. That is where Cody and I missed. My wife Dani built these teams for us when she left her job. This is what she manages. But we have at any given time 20 to the max we ever had was 40 people simultaneously working on our properties, which is insanely, expensive, but you get through all the problems at once. There's a saying that is silly and I absolutely love it. We use it all the time. When it's done, it's done. Yes, it's expensive. Yes, it is painful. Yes, the outflows are more than the inflows for us during that phase. If you try to do 40+ renovations at the same time, good luck out-earning that at the same time. But we put it together and we got them done. When they're done, now we have another $20,000 to $25,000 a month coming in, and we're still leasing up a lot of those. I believe by Q1 of 2024, we should be at about an extra $30,000 to $35,000 in total positive cash flow on the portfolio. That is extra from where we were at. Absolutely insane. To do so, we spent about $1 million. Now, if you're not building the same size portfolio we are and your goal was, say, $10,000 a month, not, you know, $50,000, you need a lot less real estate. It's going to cost you a lot less, which is great. Less money, a little less upside. You need smaller teams. It's going to be a lot easier if your goal was a little bit simpler than Cody and my lofty goals in building our portfolio to where it's at today. As you're building this, stabilization is the most important thing. Where a lot of people will lose is they do not lease their units. They don't rent out enough. They leave some vacant because it's going to be really expensive, or they go cheap on contractors and there's recurring problems. I've seen this again and again. We redid a roof, but the crappy contractor didn't tarp it and it rained. It ruined all my ceilings. That will happen more than you think. I had someone I asked for light texture. It was like alligator scales on the walls. I don't know what they did. But they basically just took the thickest coat of just nasty wall texture and just blasted it everywhere over my trim. Over— it was— I'm still mad about it. When you go cheap on the contractors, they're going to cost more. You want to get multiple bids. You want to find teams that you like and trust. And it's almost never going to be the least expensive team, but you're going to find the right team for you. You're going to build that out and you're going to prioritize. When I buy a property, stabilize as fast as possible. Once it is stable, it is making money. Once it's done, it's done. You are in the clear and you are good to go. There's no ticking time bombs and it's done. Focus hard on that. It is the hardest, most stressful, expensive phase in the whole thing. But when you hit this, you have hit your cash flow goal. Without the next two phases to win the game, optimize and deadhammer, you have already built what you set out to build. Now we're going to talk about how to make it invincible in the next two videos. If you liked this, please like and subscribe, share this with a friend. And if you have any ideas of what you would like us to cover in the future, post in the comments below right now. Do it. We'll see you on the next episode.
