The Hommel Hack! How To NOT PAY Your Mortage!

Hello YouTube, welcome back. I'm Christian Osgood, joined again by Caleb Hommel. If you guys have not heard of the Hommel Hack, first of all, I don't know what rock you're living underneath, but this is one of the coolest clauses that you can put in a real estate contract. This is how Caleb, at age 19, picked up 3 deals for 28 multifamily units. I know you're under contract for another 24. We'll talk a little bit about that today, but this is going to be a heck of an episode. If you guys are trying to get started with no money and no income, trying to figure out how you preserve cash flow, It's the best strategy Cody and I have ever seen. Welcome to the channel. If you haven't yet, like and subscribe. And here we go. Caleb, you're on the channel all the time. However, for those who don't know you, give us the, the quick 10-second intro. Who are you? Where are you? What have you done? Tell us about you.

Yeah, quick 10-second intro. Caleb Paulmull. I am based out of San Diego, buy all my deals in Texas, up to 28 units so far, and under contract on another 20. 4 so far.

All right. Now, of your deals— and we're going to be talking, we're going to do a deep dive in the HomeHack here. So everyone pay close attention. How many of those deals, including this new one that you have under contract, have you used the HomeHack on?

So, so far it's 2 of 3 and under contract on another one I'm not doing it on. So we're batting about 500 for it. So 2 of 4 have used the HomeHack so far.

Okay. Okay. And Cody and I are going to use the HomeHack for the first time. We've used our version of it, which is not nearly as cool.

Just lower payments.

Yeah, the lower payments. This is a way to have no payments for multiple months, which is absolutely insane. Cody and I are doing this on a 22-unit hotel conversion, and the conversion is what got us the permissions to use the hack. So, Caleb, explain what the HOMEL hack is and why you can have absolutely no mortgage payments for an extended period of time.

Yeah, basically. So the HODL hack is, so you've got whatever, you've got a mortgage, that stuff, and it's— for me it was to build a reserve. I was broke as a joke, 18 years old, $300, so I needed a reserve to get going on the property. So it's basically just 3 months of absolutely— or for me it was 6 months of just absolutely no payments to the seller. So it's basically you just don't pay the seller for a pre-negotiated amount of time. Again, pre-negotiate is the key word. You are not going to do this out of the blue and decide to stop paying your mortgage a pre-negotiated time frame. No more.

You do have to pay your mortgages.

That's important.

Okay, so, so you have a predetermined amount of time you don't pay the mortgage. Is it accruing or is it just you literally aren't paying?

You literally just aren't paying. I'm not a fan of that accrual because the accrual, it just then it's like, what's the point? I mean, you get more cash flow, but you get stuck on the principal balance afterwards. It's just no accrual, it's just 6 months no payment, so your first mortgage starts at X amount of time.

Okay. Okay, so for everyone who's following along here, you sign a contract, you still have a down payment, right? Like money's changing hands day one. You pay your down payment, but your actual mortgage payments don't start or accrue for X number of months after close. Now, why would an owner accept that? Say they're trying to build their passive income, you close the property, they get their little lump sum of cash. Why would they accept you not making payments for let's say 3 months, 6 months, a year, why would they say yes to this?

Yeah, I mean, it goes back to seller financing. We always talk about every owner has different motivations. For the deal I first did it on, the owner's like, I got my price, I got my down payment, you're giving me my interest rate, this is all I need. What do you need to make this deal work? For me, it's like, I'd either need a lower interest rate day one for a little bit of time so I can go in and get rents up and have a little bit of reserve, or I just don't pay you at all for the first 6 months. And he liked the second option better, even though when you did the math, it comes out to less money for him. But that's what he wanted to do. He just wanted— he's like, hey, I want a cut deal. I want it simple. Just keep the interest rate the same. I don't want to be going interest only, amortized, raising rates, whatever this stuff. So him, it was just keeping it simple, and I gave him everything else he wanted.

And that's really important. So, so these only work on a seller finance contract, right? The, the lender is the one agreeing to this, right? So this is a, this is a specifically a seller finance creative finance strategy, and it's just, it's just an extra clause, right? You have your normal, you negotiate the price, the interest, your AM schedule It's just a special clause at the end of your contract that says, by the way, these payments will come into effect on whatever the date is.

Yep. I mean, I've never heard of a conventional lender or a bank or credit union or anybody allowing that. But if anybody has, please let me know. I would love to see that debt product.

Yeah, well, it's funny because if you do a conventional loan on like a house or a duplex, you're doing your small multifamily loans, you usually have a grace period for the first month. So you close and there's no mortgage payment for month 1. That is just a standard. That's how the commercial or the, like, your basic bank loans are going to work. You've basically taken this concept and just said, well, why not just take that grace period to 6 months so I can build cash flow? I love this on deals where you have low rent because you have to look at— we're always looking at cash flow, long-term fixed rate debt. And if you can't cash flow day one, but all you really have to do are maybe light improvements or rent increases, that gives you time to manage the property better and get it in the state that you need it to be in. To hit the metrics and have your rules of how you own it, how you never lose it, which is why I love this strategy so much. Cody and I, our first deal we ever did together, we did lower monthly payments for the first little bit. You just took it to a whole new level, which is how you invented the HOMEL hack. Um, for a little bit of details on how Cody and I are using this right now, we're buying a 22-unit hotel in Moses Lake, Grant County, Washington, and the actual project has a bunch of short and midterm rentals in it. We're going to be converting it into multifamily and doing a refinance. We're probably going to do the refinance within the first 6 months. However, we have 3-year debt. So if you're going to use short-term debt, have a very solid game plan of how you're navigating that. Realistically, I think we can pull it off in 3, but conservatively 6 months. If we are wrong by a whole lot, we have a lot of time to move the pieces.

Big runaway. Yep.

Yep. Picking up a $2 million property for $1 million, but the income is going to be brought down to virtually nothing. While we do the conversion, which is perfect for a HOMEL hack and super easy to propose to another owner. Hey, we have a plan. We're going to reposition this asset. We are not in a position to float the negative because we have a lot of cash flow right now, but not a lot of liquidity. We want time on this property to reposition the asset so that we can get the new debt financing. If you allow us to do this, we can move a lot faster, which will get you paid in full in a shorter period of time. Easy.

For them, it's a no-brainer. Yeah, for them it's like, well, I want my money as quick as possible. You guys are telling me this is how I get it as quick as possible. Let's do it.

Yeah, we can take the full 3 years and do it slow, or if we don't have any payments, uh, for the mortgage, we have more budget for renovation, we can float this, we can hyper-speed the project in 3 to 6 months, uh, we can completely cash you out. That is a very easy pitch to land and something I think a lot of people can do on their deals because It's a half-price deal. It just doesn't cash flow, and that's where you're going to get stuck. You're not going to get conventional financing on it. And if you're like a lot of people, you're starting with no money, uh, maybe low to no experience in real estate, you don't already have a huge portfolio. If you find a deal like this, this is the way to make these things work, is you just figure out where can we save on monthly cost and buy myself time. Because that's all you're missing on your first two deals, right? You just needed time to get the assets performing.

Exactly.

Your strategy, how did it work for you on the first deal? Did you get the property where you expected to get it in the time that you had allocated to get it there?

So lesson in real estate, everything takes longer than you expected. I got it most of the way there, not completely. And this also helped, like I mentioned, the reserve. It's— I had no money, I raised the down payment, didn't raise any extra. So this reserve was crucial to little repairs and turning units. So I got it most the way there but not completely.

Okay. And that's a great lesson, by the way. When you're, when you're new, you're not going to hit all your projections. It's never going to happen. You gave yourself— that one was 6 months?

Yeah, that was 6 months. 6 months.

How close did you get to where you were trying to be in the first 6 months?

Gosh, probably a little over 50% of the way there. But like you said, it's— oh, well over 50% of the way. But like you said, when you're getting started, you just don't know what you don't know. For me, I had never had a real estate asset before. I'm 19 years old. I was like, on paper, it realistically should look like this, this, this, and this. But when you have— sure, as you learned, when you get into the game, it's a whole lot different than on paper.

Yes, it is. It always costs more, it takes longer. That is, uh, it might always be true. Did it cash flow when you hit the end of those 6 months? If you got 50% of where you wanted to be, did the deal cash flow, or did you still need to do a little bit more work to get it to cash flow?

A little bit more work to get to cash flow. I got it most of the way, but there's still rental upside I still need to hit and get that taken care of.

Okay, so you have a small cash flow negative. So you didn't knock it all the way out of the park, but I'm gonna imagine that you would be in a much rougher spot had you had to pay the mortgage for those first 6 months.

Oh, 100%. And the whole deal was, hey, day one this is going to be close to break even, and then once we get the rents up— I mean, you have like $350 rental upside a door on 10 doors. Like, that doesn't suck.

And you gotta bank all that money that you saved for the first—

exactly.

So I assume the the negative that you're paying is out of the reserve that you built by not paying, right?

Exactly. There's just no issue with it. It's like whenever repairs come up, it's just bang, bang, bang, turn in units, working on the roofs, everything like that.

Home hack is, in my opinion, this is the simplest, best clause that you can possibly have for a low cash flow deal.

Not even a question.

Yeah, it's just a great idea. Uh, what made you come up with that? Because I, I know we've talked about this on the channel before. Like, you, you went through our mentorship program. We worked with you on getting your, getting your momentum going. Um, we definitely didn't teach you this. I mean, what made you come up with this idea as the solution for all of your deals?

Yeah, so this kind of was just, uh, it actually kind of fell into my lap. The seller on that first deal literally asked me, hey, if we have this, this, and this, what do you need to do this deal? And it was already just the question. I kind of thought about it. I'm like, gosh, I guess no payments at work could give me the reserve and give me some cash flow, and I could go and do the deferred maintenance, start it off. And he's like, I had— I didn't think he was gonna say yes to any way, shape, or form. And I'm like, absolutely no way, I'll just throw it out there. And he's like, okay, sounds good to me. And then, and then I was like, wait, I could just apply this to every single deal.

Dude, that's ridiculous. And that is the basis of all creative finance. If you're trying to learn this game That is all you have to do is you take the pieces you have, which is mapping out what the seller wants to do, what you need to do, what your principles are that you're not going to violate. For us, it's that long-term cash-flowing fixed-rate debt. It's how do we buy it, how do we hold it forever, how do you hit your metrics. Take their pieces in consideration and then ask that final question, okay, what would it take to get this deal to work? And that's where you get creative in finance. And it's not that creative, right? It's, wow, what kills me on this? It's the darn mortgage payment. If we didn't have that, this thing would work perfectly. How long do I not need it for? Easy, basic questions. It's just a little tweak in mindset. This is a masterclass right here. This episode, uh, this is a masterclass on creative finance. You can do this or any other hack that you come up with. It needs to be simple. It needs to be repeatable. This hits all the metrics. This is a perfect clause. It's an original clause for Caleb. Um, If you guys noticed, his last name's Hommel. That's how we came up with it. That is the Hommel Hack, one of the greatest moves in creative finance. So you're going to hear it today straight from Caleb. If you have any questions on how to put together your deal, how to implement the Hommel Hack, or anything else on real estate, Caleb, how do people connect with you individually?

Yeah, easiest way to reach me is on Instagram, and that's caleb.hommel. And like Christian said, creative finance is awesome, but just make sure this is pre-negotiated, people. Again, you can't just stop paying your mortgage for 6 months. Creative clauses are awesome, but everything pre-negotiated, please.

That is extremely important. And then you're— I, I know you're, you're revamping your YouTube channel. Um, if I recall correctly, that was the, uh, Business Building Masterclass on YouTube.

Yep, I've had you on there a couple times. I'm filming some videos, some other business people. But yeah, revamping that, getting up and rolling again.

You have. I'm having a lot of fun contributing to that. I've— between Cody and my business, I do a lot of the business stuff. Cody does accounting, acquisitions, Cody is our dedicated— he is the real estate, real estate guy in the business. Uh, yeah, business guy in the business. So that's been fun contributing to that channel, but you can check that out there. I know you have some long-form videos coming back in the pipeline here in the next month.

I do.

They're on the way for your relaunch. Everyone who hasn't subscribed to that yet, please do. And if you watched this whole video and didn't subscribe here yet, I don't know what you're doing. So give this a share to a friend who needs to know the HOMEL hack, subscribe, and we will see you all Next week.