Under Contract for the Next 76 Units!

All right, welcome to another episode of Multifamily Strategy Live. Today talking about the next deal that we're working on. If you're wondering why I'm wearing a blanket, got this comfy, and it's a cooler day than it was yesterday. My AC was still turned on, so this room, it's absolutely freezing. Um, however, welcome to the studio. Welcome to Multifamily Strategy. We are going live yet again today, so welcome to the channel. Today, talking about a deal that I'm really excited about. We're officially under contract for a deal called Riverwalk. This is a 76-unit. It'll be the biggest deal I've ever done, and like the last deal we did, It's going to be a LIHTC deal. This means Low Income Housing Tax Credit property. What does that mean? What is Section 42 of the tax code and how can you use that? We're going to go in that today. I'll actually— I've never done this before on my streaming thing, but I'll actually share my screen. We'll just dive right into, uh, drive right into the actual property. I can show you guys what we're actually working on and why this is so cool. All right, should be the screen here, and away we go. All right, here is the actual property. First of all, you might notice this is an entire neighborhood. That is awesome. We got a tiny little community pool, we got a clubhouse, we We got these beautiful buildings. Look at these garages, 2-story walk-up townhome style. You can tell they have definitely Photoshopped the greens on those grasses. That is, uh, grass looks nice, does not look fluorescent. But I mean, look at these things. Great interiors, high ceilings. If you are doing affordable housing, you're a lower-income individual, you're trying to look for somewhere to live and you want to live in Erath County, you want to live in Stephenville, Texas, where I have another 95 units. Look at that. That is nice living. When we talk about affordable housing, first thing I want to say, this is what I mean. This is about the same quality, maybe even slightly nicer, but about the same quality as the 44-unit that we just purchased. When I talk about affordable housing, we mean properties that look like this. Now, I love deals of this size. When you start to get in the 75 and above, you have an on-site leasing office. When you're starting to actually staff your own properties with your own people, you have full-time staff on site. This is what we start to call a legacy property. That means it's not something that you're going to just self-manage forever. You can set it and forget it to a certain extent, but this is the type of stuff that you want to pass on to your family. The net operating income from a property like this is enough for your family to live off of. There's going to be hundreds of thousands of dollars a year. Now, what is the play with something like this? And try to grab my, grab my screen back here. So what is the play with a property like this? We're looking at 76 units, big beautiful campus, multi-family. It's in LIHTC, which means it's rent restricted. In fact, this property is massively rent restricted. What are we going to do with it? Well, the game plan is to do what's called a qualified contract. We will be exiting the LIHTC program Probably going to take us a few years. We actually want to run this, do the capital improvements first, which you always want to do on a qualified contract. What that allows you to do is essentially exit the existing LIHTC project and is priced based on what you bought it for, what you currently owe, and the capital repairs that you have done to the property. If you have improved the property, you can sell for more. Now, the interesting thing is the government lists it for sale, and if you've done a bunch of improvements, someone has to be willing to buy it at a higher price with the exact same numbers that you just bought it for. So while the deal may work for me, you do capital improvements until the deal no longer works for someone else. If they do not get the deal purchased in the first year, you are allowed to exit the LIHTC program and you're allowed to increase to market rent over a 3-year period. Now, no, we're not trying to make people homeless. No, we're not trying to end affordable housing. We will still work with Section 8 and other housing groups. However, we're going to lower the rent restriction and we're going to work with other housing to get market rate in here. While still keeping excellent people and maintaining housing for as many people as possible. The other side effect from this is that makes a ton of money. If you can find deals that follow the rules of cash flow day one, you can lock these things down, use the cash flow to keep repairing the building. You can do something like a qualified contract to get paid to wait. Maybe not a lot, but it's— we're still looking at 10% cash on cash in this deal, more or less. You're going to put in, I believe, slightly more. Well, you're going to put in cash into a deal like this. We're going to grab a few partners. We're going to structure this deal. We're going to close it. We're going to hold it for a few years, exit LIHTC, have 3 years of rapidly increasing income. We're going to work on housing. We're probably adding carports and a few other— As you could tell, this place is already quite nice. You have pools, you have playgrounds, but I'd like to add covered parking, which will be a big CapEx project. You make the campus nicer. You go ahead and pull it out of the program. You continue to work with affordable. The income on this can triple. The returns are stupid. You're talking many multiples of the original down payment in valuation. We're buying this for $6.4 million, 76 completely stabilized units of that quality built in the early 2000s. We're probably going to do a little bit better than doubling the value. However, We're going in levered. Looks like we're going to be able to get this 80% LTV, which means we're only putting in 20% of that $6.4 million. When we double the value of this place, it is going to make a lot of money. Really fun project. Also in the city of Stephenville, which means I get more systems and more people in that market working on my portfolio. We'll take our 95 units, we'll add another 76. We're now becoming a significantly sized landlord in that town. Coming in a little north of 170 rentals. This will round out, we'll close this at about a year and a half of having first driven to Stephenville, Texas and selected that as a market that we wanted to participate in. Now you don't have to just dominate your market every time you buy real estate. You don't have to come in and just rail that market and be like, hey, we're going to be the biggest, baddest owners of all time. You don't have to do that. But what I wanted to illustrate with this purchase and with all the other purchases that we've done, This will be transaction number 4 in this market. Wherever you select somewhere that has growing population and you drive to that market, you like it, you're like, hey, this is somewhere that I want to invest in. If you spend a little bit of time getting to meet the players there, getting to meet the brokers who transact in that area, you form some relationships. It's not get rich quick, but it doesn't take that much time to figure out what are the opportunities and who is trying to trade in and out of properties. When you have that mapped, you have the conversations, you negotiate the deal that you want on the property. And with a few conversations and a few offers, I'm almost 200 units into here. There's some bigger owners in town. There's in fact some huge players in this little town, but we will be within the top 10 largest owners in less than a year and a half in a growing city in an excellent market. This is a strategy that anyone can copy. We've done seller financed, we've done bank financed conventionally. We've done, this will be our second low-income housing deal. There's other opportunities in Stephenville. Some of them are smaller, some of them are larger, that are still available. Now, while I'm not trying to just become the king of Stephenville— we also own in Houston, Laredo, McAllen, in Washington State, all over Grant County and Mason County— while I still own all over the place, this has been the strategy that's worked for me in every single market, every single time. This is what I have done. It's worked very, very well for me, and it's a strategy that I want to continue to use. It's worked. I— this is how I made millions of dollars. You do projects just like this. Uh, one more interesting piece about this, an update that I wanted to give. This will be the first time that we syndicate a deal. Now, you guys have heard me use mixed reviews on syndication before. I have multiple thoughts on syndication. Why would we syndicate as opposed to doing a JV? Well, one of it— this is gonna be a $1.6 million raise, and while I can do that with 3 people, I did want to open this up to more people to participate. In addition, the goal of this channel is to educate. There's a deal type, and we've had a lot of syndicators on here. There's good syndication, there's bad syndication. Here's where syndications go wrong. There's a lot of people who try to do their first deal and they're knocking out multi-hundred unit properties with no experience. The stupid tax will lose a lot of people a lot of money. There's also syndicators for a long time here using variable rate debt. The market shifted, everyone lost money. Syndicators have a conflict of interest. They get paid upfront a portion of the deal. Like, it's usually a percentage of the purchase price is paid to them for buying the deal, not because it's a good deal because they bought the deal. That doesn't make a ton of sense to me. They also get paid an asset management fee to manage the property manager. It doesn't mean there's no work to be done on managing the asset. I'm just saying they're usually paid a fee to manage the asset every single year. In addition, they typically get paid on the exit of the property, a percentage of the sale. The goals don't always line up with the incentives. So why are we looking at this? One, limited partners is a good way to do this. If we end up with a few more capital partners on this deal, which I intend to open this up to more people— I didn't want to limit it just to my richest clients. And if you have that many members on this size raise, say you have more than 5 total team members, it is very hard to make the argument that it is an active partnership and a joint venture. You end up creating a security, which means you have to make it a syndication. Either way. So syndication would be the correct way to protect ourselves and our clients for the amount of people that we would like to give the ability to participate in the project. In addition, we're going to document how we are going to structure this. So I'll be very transparent on all of the structure on exactly what we are offering on this deal. We're not taking huge fees to close the deal. We're not taking any fees to manage the deal. We're going to run through this the exact way I think a syndicator should. We're going to be rewarded on the back end out of the success of the project. That is the best way to do this. We have marked down the acquisition fee. There's a ton of work that goes into this. We marked the fee down to less than half of what most syndicators charge. We're not charging an asset management fee. We'll get paid out of the successful outcome of this deal. As our primary form of income on this project. I think that's a pretty awesome way to run this. I think this is the way syndication should be run. It's like, hey, let's put the incentives on the back end. Let's not just get rich for buying deals. Let's get rich for making a lot of people a lot of money. So I'm going to run this my way. I think the best way to run a syndication, we are going to make a lot of money on this deal for ourselves and our clients, and we're going to expand our portfolio. In addition, we're putting clause in there where we have the right to buy this property from the syndication. Now, we still have to give the promised return, and so there's an ethics piece, there's also a legal piece to doing this, but we are structuring this in a way where I would like to, at the end of this project, when we take it to market rate, get an amazing return for my clients and also be the end buyer for the finished project. So that's what we're projecting for, that's how we're putting this together. Really excited for this adventure, but wanted to go live briefly and share exactly what that adventure is going to look like. Now, uh, coming up a little bit later today, if you guys want to learn how to do the same thing, I am going to be running a webinar today. I tend to do those on Wednesdays. I'll get out of my comfy outfit and I'll actually dress like an adult. However, I'm going to be, uh, talking about how we're finding funding, negotiating, how we're actually using Section 8 to make millions of dollars. I'm going to show you guys some math there. If you haven't attended a webinar yet, uh, hop over to my Instagram page at Christian Osgood and go ahead and go into my story. I have a link there where you guys can join this upcoming webinar. It is going to be in about 30 minutes. So I'm very excited to see you guys there. If you guys want to join, I'll see you there. Otherwise, hope this is helpful. This is a quick update from the field. If you guys have any questions, drop them below in the comments section. We'll make sure we get those all answered. See you on the next episode.