Week 1 of Converting the 33 unit Hotel - Multifamily Strategy Live

Welcome to the channel, everyone. Instagram, we follow along for most of this. We do our best to post over on YouTube, which is the easiest place for me to track all the comments. So if you guys have any questions, join me over there on Multifamily Strategy on YouTube. And everyone else, welcome to the show. Today I'm going to give some updates. Just got back from Moses Lake, Central Washington. Cody's still over there working on a project, but we closed on a few deals. I was in Mexico last week. If you missed that live, go ahead and check that out, but but in Mexico, signed for a 33-unit hotel conversion, taking a motel, bringing it to multifamily, and had the opportunity to sign for a mobile home park, which we'll update on later. Conversion is super fun. So we got a walkthrough of the hotel. I'm gonna be posting some videos of this shortly, but there are some problems, which is what happens when you buy 33 units for $1.6 million in Washington State. There's a few leaks. They're small, but there's a few leaks. There's some rooms that are just absolutely trashed. We took about, 10 dump runs out today. Carpet's getting removed. Cody is installing carpet with a— or sorry, installing the, uh, glue-down LVP with a couple friends right now. But we're going to be taking these bit— this big ugly building, and we're going to get it all into monthly leases or 6-month to 12-month leases, going from the weekly rates to, hey, we're a full-on multifamily building. City has approved it, but the project is going to be super, super intense, doing paint, floors, walls, appliances, toilets, adding kitchenettes. Looks like we're gonna do some of the mini splits throughout the building. And yeah, it's been really crazy filling in a pool. We're gonna build a community garden out in the front, which I think is gonna look gorgeous. But man, we saw some stuff last night. Some of the tenants are weird. We saw the weirdest looking cat that we've ever seen in my life in the old pool house that has the heater. And the light system to turn on the lights at night is the oldest electrical system I've ever seen. Cody only got electrocuted once there. It was absolutely wild. So week 1 was kind of crazy. I got everyone onboarded. A lot of these tenants are paying $1,100 a month to live there as a weekly rental, and they live there for— some of them live there for a long time. To get them on leases, we're moving them to $800 a month. So for a lot of people, we're reducing what they pay to sign a lease. It is going to be fantastic for our books. It's going to add stability, and most people are going to say yes because we are lowering their price. So getting those signatures in this week, we are very excited to go ahead and start putting the project together and to officially get this thing rolling. Target is to get the basic renovations and leaseability done over the next few months. We're going to install gutters on the building, and we would like to see this thing refinanced in 6 months. We have a bank that has already given us a commitment But we have to hit our targets and get enough of these units leased. Once we're seeing about 25 of the 33 leased, I think we're going to go ahead and get everything passed, and then we're going to finish the building. When it is done, we bought for $1.6, very conservatively going to be worth $2.9. More realistically, probably coming in at a $3.2, $3.3 million, uh, fully renovated rate, which is going to put us in an excellent spot. Now, it's tempting for a lot of people to lever these to the max, just pull out a whole bunch of cash. What we want to do is actually come in and try to stay at a fairly low leverage point and just make this thing a cash flow monster. So, spend as little as we can. We call this functional flipping. We're getting in, making the units nice, making them aesthetic, but doing it on a budget. Get the whole place rented with the cash flow, continue to renovate and improve the building until we have one of the nicest buildings in the city., just done out of cash flow. You do it over time, you do it phase by phase, but phase 1, floors, paint, appliances, kitchenettes, toilets. Phase 2, mini splits, fix the one area on the roof that should be fixed, add gutters, exterior paint. Phase 3, sweep back in, probably replace some doors, get the office up and running, get a lease in the office. And once you have a full building, 33 units all under one roof, paved parking, community garden, this place is going to be absolutely amazing. Amazing, and it's on the main dragon Moses. So that is our project for the week. Really grateful that Cody's still out there with a couple people working on that. I had to come home for a quick family emergency. However, that has all been settled, and away we go. I will not be answering questions with that emergency. However, um, very grateful to have a duo where both people can put in the work and grind. I'll be heading back to Moses Lake later in the week, get more footage for everyone. So I'm going to answer a couple of the questions here as they come in. As always, ask questions. We'll go till the questions end. YouTube's the best place to post those. That being said, Instagram, I see you here and I do see a question here, so I will answer it. Why lower the rent? Why lower the rent? Because the entire deal works and we'll get financed on $800 rents. I'd rather get leases signed and get the project rolling and just stabilize the income. I will value the stability. So the trade here is we're going to get people to do a term lease, and the trade for the term lease is, hey, we're going to bring rent down to where we realistically need it to be, and over time we'll work these back up. It's good to have a proof of concept where we know people pay $1,100 to live here. That being said, stability is everything. Let's go ahead and get this thing leased up. We'll sign new leases at a higher rate, but for the existing people, I want to keep as many people as we can as long as we can. Stabilize, get through the first refinance, get our long-term debt product. We're borrowing at 13.5%. We funded this thing 100% loan to purchase price. So we got, you know, a 6-figure budget to start our renovations, but we're borrowing really expensive money. The rush here is let's go ahead, run the project, get through the refinance. We're gonna, you know, less than half the interest rate, which is gonna make cash flow look really, really strong, and then just continue to hammer out the building. Really fun. We did a 38-plex in Moses as our first deal. Uh, we bought for $2 million. It's now worth $4.1 million on appraisal, and that's before we did a whole bunch of renovations there. It's probably worth a little bit more today, even after the market correction. We leased a lot more units since we had that last appraisal. This is basically a carbon copy of that deal except it's all under one roof. The parking's paved, it's on a better street, and I wouldn't say the grounds are any better. It's a little smaller square footage as far as acreage. But we've done this project before and had $2 million of upside. We bought this one for $400,000 less than we bought our 38, so we're coming in very similar price per unit. We're just a couple years in the future, rents are higher now. I think this project may end up being the best project we've ever done. It's very exciting. All right, cruising through the YouTube questions here, by the way. And I am looking quickly through the other, uh, platforms, making sure we don't miss anyone there. But if you're watching on Facebook, Instagram, any anywhere else, feel free to hop over to the YouTube livestream, Multifamily Strategy on YouTube. All right, the Billy Butt Shake, Christian. Maybe it's me, but you don't appear in focus. Well, I will work on that with the camera. I am trying a few different things and I have rearranged the setup so we have a much nicer setup here on my end. However, I'm not quite in focus. I do apologize. We'll do our best to correct that moving forward. For that one, is there a percentage amount you use to estimate closing, uh, based off the purchase price? It totally depends on the deals. If you're talking seller finance, which is the majority of what we do, if we're using seller financing, it's going to be very, very low for closing costs. You're going to have basically whatever your legal fees are, which are custom to the deal, and you're going to have your title fees. You don't have like points that you pay to a lender like you would a bank. If you're doing a conventional finance deal 2, 3% of the deal may be wrapped into the total closing cost, so that'd be something to factor for, but very, very minimal. If you're doing any sort of creative finance where you're not going through the bank, majority of your closing fees end up going to the lender. That is the big piece of closing. Uh, what the— can't wait to see you land. The large only raise rent, not us. This is the second time we've done this, by the way. Our other, uh, hotel, which I'm going to give you guys an update on, uh, right after this question. The other hotel conversion, we actually lowered rent on all of them, and we got some great tenants to sign leases, and it worked really well. It stabilized the property. It was a really good experience for us. So highly, highly, uh, recommend if you're doing a hotel conversion, you're probably getting a premium for the short-term rents as you do the conversion. If you're doing a larger project, we have a 24-unit and a 33-unit hotel conversion Go for stability first, like underwrite your deal and figure out where you need rents to be, and then just go get that. You don't need to shoot for the moon. Your goal is to occupy immediately. You can always raise rents later as you make the building nicer. When you're stabilizing, vacancy costs more than you're going to get out of raising rents or stabilizing rents. If we can just fill the building, that solves all the problems. Then we can work on the pricing. The 24-unit hotel, by the way, that is the one that had about 19 units just get absolutely demolished with pipe bursts. That was expensive as far as fixing the pipes. We got the pipes fixed, water could be turned back on. However, building's vacant again. We just got insurance in there. Cody did a walkthrough today for us. He said it was absolutely catastrophic. We got wavy floors, we got ceilings down, insulation's everywhere. It is a wreck. We are expecting a huge insurance payout, which is a bummer. That means insurance is going to go way up. However, this is what you have insurance for. For those wondering, by the way, when you have a pipe burst, pipes are considered standard wear and tear. Almost no insurance will cover the pipe repair. However, any collateral damage, which is most of your problems with pipe burst, covered by insurance. This one had a builder's policy, deductible is relatively low. This is going to be sizable. You do not— you don't want a lot of these because if you have a lot of these claims, you can become uninsurable. This happens very rarely to us, but this is the third time ever we've had to file anything for insurance. Keep these to a minimum, but this is why you get insured. This would be absolute loss of building had we not got the right insurance. Well, the street is— you're coming to Atlanta, super excited. Yes, I am. I'm going to be up in, speaking in the Buckhead area of Atlanta. That's going to be end of this month, February 27th. I'm extremely excited. Only been to Atlanta a couple times, but I love it there. Also going to bring my wife. We're going to check out the aquarium, which apparently is absolutely phenomenal. So Atlanta, watch out, we're on our way. If anyone wants to join us, I'm going to be posting to my Instagram @ChristianOsgood all the details. I just got a marketing package for that today. So after this, I'll go ahead and post and everyone will know. The when, where, and how for seeing us in Atlanta. Everyone who's driving distance would love to see people live. What are the things I don't know— what I don't know about refinancing with a bank renovating a 10-unit? If you don't have bank debt for commercial debt, it's going to be harder. I see a lot of the deals that fall through. Banks are really slow to refinance when you don't have a lot of bank debt. Once you have some bank debt, it's a lot easier. That's been our experience. I've seen that same experience with a lot of other people. Uh, Heiner, I'm coming to NYC on— oh, I know this, I know this— April 2nd. I'm speaking in— well, it's in New Jersey, but I am actually coming out there. Uh, New Jersey is going to be the next one. Speaking in Atlanta, going home, uh, speaking in San Diego, and then I'll be making the run up to New Jersey. So keep an eye out for that. That whole speaking schedule is going to be pretty consistently posted on Instagram. So, yeah, Christian Osgood, follow over there. But I don't— I'll be seeing you soon. Speaking with Henry Washington up there too, who's a good friend and awesome, awesome investor. So join that event. Um, let's see here. So yeah, I'm sorry, going back to the bank question. That's the biggest thing. Uh, banks are fairly easy to get through once you've done it once. Just, you know, buckle in, get through this one, and as you get a little farther along, Luke, they get easier and easier and easier. Other thing that you should know, they're not gonna walk through all 10 units. You can do a good job of cherry-picking which units you get them through. Try to push that valuation by really cherry-picking, here's my 5 favorite units. All right. What are some of your favorite go-to items that you use in your functional flips, such as glue-down LVP? I love glue-down LVP, and if you have concrete floors, sometimes you can do the ones that come with their own underlay on them, and they're just stick-down, which is great. You peel and stick them. It sounds cheap, but they look amazing, and they're easy when you get damaged. You can peel them up, replace them. Just make sure that you have extras on hand, otherwise you kind of negate the whole bonus of I have replaceable parts. If you don't have the exact piece to replace them with, kind of useless. That is really, really helpful. Neutral colors. This is not an Airbnb. You're not doing short or midterm rentals. You're not trying to do something trendy. You're trying to create housing for people that can— they can make it their own space. So whites, grays. I've actually seen a really tactful blue used, though I recommend against it because painting over blue is a pain when it goes out of style. Basic neutral colors. Use the same paint in every single unit for your portfolio. Find something that works for you that is consistent. And use the same interior paint everywhere. Same ceiling paint for every unit, same wall paint for every unit. A big thing that we always do is we use— I believe it's eggshell. My wife knows this better than I do. She is our captain of functional flipping. But we use a lower but medium gloss paint. It's going to be resistant to a lot of the general wear and tear and stuff that gets on it. The higher the gloss, the more resistance it has. But you want to make sure that you get the exact same paint, exact same gloss. If you mix those, you have to redo an entire wall or a whole entire unit. That's kind of a pain. If you know, hey, I have X amount of gallons of this on hand, you can come in and very, very, very quickly paint your units, have uniformity. But a lot of the functional flipping, your biggest cost savings are from having uniform replaceable pieces that are uniform across the entire portfolio.. I also try going for the same electrician with the same panels everywhere. So as we replace things and upgrade things, everything starts to look very similar. I have the same people and the same layouts and the same equipment and the same countertops across the portfolio for all the similar style units. And by doing that, it makes a huge difference in your cost. Same with windows, same with mini splits. Replaceable parts is the key to functional flipping. Glue down LVP is still my favorite though. I, well, we never try to throw anyone under the bus, but we had a contractor use click-together flooring, waterproof click-together in one of Cody's units. And it's a basement unit. And it's like, we mentioned, hey, they didn't do what you ordered. If it floods, it will be a problem. And so Cody's response was, well, hopefully it doesn't flood. It flooded. It ruined the floors. It's going to be an expensive repair. That glue-down LVP, I swear that stuff is the magic entry to mid-level rentals. It looks really nice and it works really, really well. Manuel, what— and white-gray paint. What do you do for kitchen countertops, cabinets, appliances? Kitchen countertops, we use a lot of the— it's like the Formica stuff. Find nice countertops in a neutral color. One thing we did wrong is we did awesome stone countertops across our entire portfolio when we first started. So we're doing renovations, we had these amazing countertops, they're beautiful. And what we saw? No change in rent at all. We spent way more. When they get damaged, they're way more expensive to replace. No one cared. For entry level, they want something that looks nice, it doesn't have to be the nicest material. So you don't wanna use stuff that's gonna get abused chipped, dyed. You want to— again, it's the replaceable part thing. So, uh, nice laminate countertops that are well done, that are consistent. We have a lot of the black and white ones that kind of look marble-esque that look good in pretty much every unit, especially if you have white or gray tones throughout. One more tip my wife always reminds me: if you have smaller units, you really want to go for light colors on the flooring. So we're looking for the lighter grays, the tan tones, It makes the whole space feel better. On a 300 to like 300 square feet all the way up to 900 square foot units, you want them to feel as big as possible. I love dark floors. My entire house has dark floors. My last house had dark floors. I love the feel. They're not ideal for rentals. They make it feel cozier and smaller. Smaller is not something that you want to feel, especially if you're in a unit that is not huge. If you're talking about renting a duplex where each side is 1,500 square feet, you have more options on what you want to do for floor and wall colors. Troy Roberts just bought a duplex that had one tenant, uh, that we were not allowed to contact until close of sale. Tenant was month-to-month and said, uh, the listing agent, we would sign a lease for existing rent. Finally got in contact after sale, they found a new place because they thought they were going to get evicted. I don't like anything squirrely with leases on acquisition. I actually had this happen on a deal that I'm looking to buy right now. They actually came in and said, hey, um, the manager said, hey, we're gonna place a tenant even though the contract says that we have to confer with you. I said, well, if you're gonna place a tenant, then you go through my background check and they need to be a certain price. That broker was flabbergasted at the price that we were asking for. And the amazing thing is it wasn't very much money. We were asking for a fairly low price for the property. And they just— the rent was about $200 under what we're getting from market, literally across the street. Absolutely insane. But they wanted to place a tenant in there at a crazy poor rate. I don't like messing around with anyone else's leases, anyone else's contracts. Tenant— like, there's a perfect example. Tenant thought they were going to get evicted. They weren't. But you weren't allowed to contact them, so you just lost the tenant. That's a bummer. That happens a lot. Sorry that happened. That's one of the things that I do in all my PSAs. I make sure I have a lot of control over the leasing. They're not allowed to place new tenants without consulting me. I get to see the background checks. Once it's under contract, we are making the assumption that we're going to close, and so get as much control as you can on those. Billy Bush dehumidifiers do wonders. Get them running ASAP. We are. Unfortunately, on our hotel where it flooded and everything just collapsed and awful, Concrete block walls. There are a few that had some really nice drywall on the side, like over the concrete block that, you know, that's gone. But overall, brick building or concrete block, it has a— what's that? The red roof. It's a like tile style roof. I don't know the name of it, but you have a really nice, basically invincible building. The only things that are ruined are the subfloors and the ceiling. Things, which is a lot because all the electricity that goes through there, all your light fixtures, done. A lot of those units were furnished, furniture's done, uh, floors are absolutely done. It's going to be a lot to fix, but your actual structure, basically invincible. We have a really good shell to work in for this. Dehumidifier would be good. Thoughts on syndication? Syndication is interesting. Um, I think it has a huge problem that a lot of people think they should start with 100-unit buildings. They've been marketed as, hey, syndication, this is a way to get in without your own money, raise capital from others. Biggest problem: syndicators get paid up front. You have all sorts of fees you bake into this. Your management fee, and that's to manage the manager, by the way. That's not like they're managing the property. You have a management fee, you have an acquisition fee, you have a disposition fee when you sell the property. You get a bunch of fees whether or not your investors make money. I like to see goals aligned with results, and I don't always see that in syndication. You get a large chunk of money up front. Things I like about syndication: there's a lot of room for creativity. You go, you negotiate, you can adjust your cash flow, how much equity you're willing to give, if people are paid out on the back end, like how heavy they're paid out on exit. And how much cash flow I get through the deal. There's a lot of pieces that are very much like standard creative finance. Syndication has a ton of room for creative, uh, for creativity. That being said, not my favorite strategy. I don't believe it is a good strategy for beginners. I don't like a lot of syndicators, but there's some good ones out there. Someone who is worth looking into, uh, if you're looking for great syndicators: Terrence Doyle. He's out of Denver, fantastic operator. Gets some crazy returns on his deals. He's a very good underwriter. He has a fantastic team. He is worth following. There are great people playing this game. Another use for syndication that I've actually looked at is we have deals that we bought, that we financed, where we might want to change the deal structure. And sometimes on a larger deal, you can go ahead and crowdsource and do what's called a recapitalization. I can basically buy the deal again for myself. We've actually looked at doing this on a property. Where I had a partner who wanted to be bought out very early and had a really generous offer for what we could buy them out for. Like, hey, if I can get bought out, I'd appreciate it. I'm trying to do something else with my money. My plans have changed, which is just fine. That happens from time to time. We also had some ideas for the property that would cost more money than we initially thought. We want to take it to a different level than we did when we bought it. I had the wrong capital structure to do that, so we actually are looking at syndication as a potential recapitalization. We'll essentially buy the deal from ourselves in a syndication. If we were to do this, we may not, but we would syndicate, buy the deal from ourselves, redo the deal, pay out the investors, and write a new capital structure that works well for our deal. So syndication should be a tool in your tool belt, should not be your primary mode of acquisition. Audio quality sounds different, Mason. I'm curious if it sounds better or worse. I am trying a new mic with a new setup. My old mic died, so it's not like I had a choice, but this is the new mic. I'm curious how it sounds. I'm also very stuffed up, so if I sound more nasally, that is my fault. If the audio sounds bad, let me know. If you can give me a thumbs up or thumbs down in the chat, that will also let me know how we're doing. Zach, what does your business structure look like? Just watched your stream with Lumberjack Landlord from a while back. Lots of good info. Business structure. So I have a few businesses. For multifamily real estate, Cody and I are partnered. We have a holding company that now buys everything that we're 50/50 on. So we have one company that holds a majority of the equity in our different LLCs. So you have a holding company. Each acquisition has its own LLC, or at least each partnership does. Some partnerships have bought multiple buildings. But on a structure, very, very simple. Cody and I come in under a holding company, say we own 50% of a deal. Our 50% is owned by our company, which is really nice because it can now move capital around the portfolio correctly without commingling because it is the owner of the LLCs. Most acquisitions have their own LLC, or at least each partnership does. And all of those are just LLCs in parallel. They all file their own K-1, also known as a Form 1065. Those all roll to your personal tax return. Easy to document, easy to do, keeps the books clean and separate. On property management, I own that company. That one has an in-market employee. My wife and I both work in that company, and that is where we run a lot of our maintenance teams, coordination, renovations, rent collection. That all runs through there. The resort has its own employees, so I have a director of the Robin Hood, a director of maintenance, and we have employees in the winter. We run a staff of 4. In the summer, we run a staff of 8. That's the bulk of the universe. Multifamily Strategy is a company where Cody and I are teaching people how to play the game. We mentor, we have our calls 3 times a week. That is still Cody and I. I have a marketing team that helps me get the word out to people. They are a contractor. It is a two-man show. Multifamily Strategies Fund, you will start to see more of my wife Dani on there. She's talking about the functional flipping, managing contractors. Cody and I could not be where we're at without her. She is the one who actually makes the— honestly, she makes all the money. We find the deals, we manage the deals, we onboard, we talk about it, we teach, we swing the hammer. But at the end of the day, the contractors, the coordination, who gets the bills paid, Dani Osgood. She is a freak of nature and she works in the PM company with me and will be contributing more to this channel soon. Very excited to have her on more often. My wife is awesome. My egregiously better half. Change is the game. When does it make sense to use less leverage? When you want more cash flow. When you're building your portfolio, you want to keep DSCR really high. I like to stay around 1.5 while you're building, so you have way more income than you have expenses. That is really important. So we keep that in check at all times. Once you've built a portfolio that gets you to where you want to go, I would start deleveraging as fast as possible. There is no better investment than paid-off real estate, but you can't start with paid-off real estate. We do not have an economic system that lets you do that. Most people do not start rich. I didn't start rich. I had built up my income and then learned that my income did not buy me any real estate. I got my income all the way up to a quarter million a year in sales and realized that that bought me a house and two duplexes. That did not make me rich. I thought it would. That's what I believed when I went to school. We built a lot of wealth when we learned how to just find a deal and then line up the debt and equity and do it again and again and again and again. So that was what I, uh, that's what I found there. But as soon as you can delever, we will have all of our portfolio paid off. It's about a $30 million portfolio. We are already starting to wind down debt actively in our portfolio right now. Uh, from the YouTube channel here, I am a realtor in Canada and cannot see the seller details. So would I put in an offer on property and then find an investor to help out with down payment during the conditional period? Yes. Always deal than debt than equity, no matter where you're at. Get the deal under contract, you're going to do due diligence, you're going to be finding out new things. You do not know enough about a deal to raise the capital or find an investor until you have a deal under contract. So stage 1, find the deal. Stage 2, get it under contract, and then you start doing due diligence and capital raise and other pieces come together. But always keep it in that order. Any book/podcast recommendations? Yes, podcast, Lumberjack Landlord. He is my mentor, Matt Hawkins. When I get stuck, he is the one I call. He is amazing. He's very, very smart. Dropped out in 9th grade, and I think that was the right call because he's too smart for school. That guy is a genius. Follow him. His channel is way too small. A book. There's two, and neither of them are real estate books, by the way. You want to learn real estate, watch this channel, watch YouTube, join Multifamily Strategy. I would love to see you there. If you want to learn the skills, Jordan Belfort, Way of the Wolf, straight-line selling. It will teach you how to script, how to pitch, how to really present yourself in a way where you become an obvious buyer for anything. There are principles in that book that are so simple and they're going to treat you very well. The other big piece in there is tonality. The way you talk to people, the confidence that you can communicate is going to get you deals. I think that's the most valuable book I've read. Second favorite book, also a sales book, Never Split the Difference, Chris Voss. There's sales and there's negotiation. This is a negotiation book.. It is fantastic on how you actually get what you want out of your deal. Neither are real estate books, they're both sales related. But if you can open, negotiate, and close, that is a majority of the real estate game. Management, learn that from a mentor. Learn that from a— I would not learn property management from a book. Learn that from a YouTube channel. Learn that from someone in your market doing what you want to do. Or join a group where you can ask questions actively. For the getting into real estate, best two books are actually just books on sales. Do you always lose earnest money if you back out of the deal during due diligence? No, you never lose earnest money if you back out during due diligence. I've never seen that before. Earnest money is money you put up, but due diligence gives you a clear out for a contract. Heiner just started listening to A Way of the Wolf, by the way. I just saw that in the chat on the, uh, on the Instagram over here. Heiner, it's a good book. By the way, if you do the, uh, if you do the Way of the Wolf book, audiobook is the way to do it. He talks a bunch about tonality. It is really hard to read about tonality. If you listen to it, it is massively better. Absolutely better. Back to due diligence. When you do due diligence, you have a period where essentially you go into contract under the assumption that what the seller gave you is true. As you're verifying stuff, you may find that rents aren't what they promised. You find problems with the building. Due diligence is there to protect your earnest money. We rarely ever back out of a deal, but we have backed out of several during due diligence because we found that assumptions were not true. It changes the deal, and that's where you either renegotiate or you back out. Earnest money is, generally speaking, safe during the due diligence period. And if you have more contingencies, sometimes you have a financing contingency that allows even after due diligence. I'm gonna hop through Instagram really quick, get caught up here, because I do see some great questions here that I want to make sure are answered. Should most goals to deliver be based on when cash flow hits a specific goal? Um, so this is, this is with goal setting in real estate, and this is really important. When you are setting your goals, you want to make sure one, it's something that's going to push you, that makes a difference when you attain it. So the significance of your goal is the most important thing. Then you want to go, okay, to reach that goal, when we're talking about investing, investing is about creating an income stream. We want an asset. Assets create income, liabilities reduce income. We want to pick up liabilities smaller than our assets. We want to keep doing that again and again and again.. So yes, your goal should always be based on cash flow, but it can't just be, I want to get to $10,000 a month. For me, it was, I want to retire my wife and I want to work full-time in real estate in my companies instead of selling for someone else. To do that, I needed to create a $20,000 a month income stream that replaces my wife's income, replaces my income, and allows me to more or less live the life that I want to live. The only other thing that I wanted to do was buy a house in Texas. Foundation is being poured tomorrow. We were able to hit those goals only because we had a very clearly defined numerical target of I can do this when I hit $20,000 a month consistently every month. Now we've passed that by quite a bit now, but that is the goal that I set out with, and that is very, very important. Uh, recommendations on, uh, real estate attorneys, someone who owns real estate or who represents a lot of the other people in your market. The referrals for attorneys are so important because there are so many bad attorneys. There are so many attorneys that suck, and it's almost all of them. Find the best one. You're probably gonna fire the first few that you get. You will find your team, but the biggest thing is find somebody who has owned real estate themselves. Very important. Back to you, YouTube. By the way, if you're watching on Instagram or Facebook or LinkedIn or any of these other channels, hop over to YouTube. That's the main feed. YouTube Live, Multifamily Strategy, Change the Game, Tips for Value Add. Don't over-improve a property. Real estate needs to pay for the real estate. There's usually phases. If you want to get a really, really nice building You need to do this in phases. Keep it very, very simple, but you're going to do things based in this order every time. First, safety. You do not want to be sued, but more importantly, you're trying to provide a nice place to live. Things that are a safety hazard to your tenants should be addressed first before anything else. That means correct lighting outside, no slip hazards. If there are outlets that are obviously, uh, electrical hazard Fix them. Basic stuff like that. Next, you're gonna go into livability. So once safety is addressed, which is the main thing, we're gonna go into livability. What things would prevent someone from wanting to live here? Let's go knock those all out. So do you have ugly carpet in every unit? Let's take that out. Are your fridges functional but a little rusty? Remove them. Put a nice fridge in there. Our preference is a black fridge. They look nicer than white fridges. They cost less and last longer than stainless steel. Stainless steel, if that gets dented, is ruined. Black, you can get away with a little bit more. Entry level, that's the target. But those are the types of tips for value add where you're— how do we— I say this all the time now, functional flipping. That's my wife's thing. How do we do this functionally and have the most impact? Address safety. Address livability. That will eliminate your vacancy. If you have a safe place that is nice to live, you'll get your income up. Out of that income, you can start doing the nicer things, which is the optimization phase of real estate. That's where we can go back and say, hey, now that everyone's renting and the interior looks nice, we need to repaint or reside the building. We can make the building nicer and optimize the building. We can add a community garden. We can add Whatever it is that your property needs. We have some friends at Grow In Homes out of Florida, awesome company. They do crazy landscaping, sustainable fruit trees everywhere. They're a whole like community living, let's all come in, pick fruit. It's an awesome brand, it's a really cool mission. That sort of stuff is optimization. If you have stabilized a building and you have a fully rented building, you can go through and make it a really cool a cool, unique place to live. And those things can take a good property and make it a fantastic property. But keep them in order. Don't do everything all at once. Do it out of cash flow. Focus on eliminating vacancy, safety, livability. Nail those, then go into optimization. All right, going to the next one. Getting some good feedback on the mic, by the way. I'll move that a little farther away, see if that helps. Keep, uh, keep, keep letting me know where we're at. I will get this thing optimized eventually, I promise. My last one, I had to speak a lot closer to it, so we will get this down. Thank you for that. How long is due diligence typically? Depends on the building. If you're doing something simple, so say you're doing due diligence on a 4-plex, couple weeks, 14 days, that's pretty normal. That's more than enough time to review the bank statements. I always have it start your due diligence countdown after all documents have been received. So I send a list of here are the documents that I need. I need to see stop letters, I need to see bank statements, I need to see leases. If we can get all that going, we're ready to rock, let's go. Now the 14-day feasibility will start. On something like our hotel, 33 units, older building, lots to look at, need a full inspection, I believe we had 30 days on that. So it will depend on the project. Robin Hood, which is a massive resort, 12.5 acres, 18 individual cabins, I think a few of them are duplex and triplex, I'm thinking through all the units. You have on that campus, I think you have like 15 individual buildings. That takes a lot longer. I think we had a 60-day feasibility on that one. So it will depend, but make sure that countdown starts once you've received everything that you need. Otherwise, I've seen people wait, like sellers wait till the last week of a 30-day feasibility to get you everything you need to really start feasibility. That's not helpful at all. I just realized I moved the mic in a way that probably just completely blocked me on Instagram. Instagram, I apologize. Should you have a mixture of room types or just look for apartments and stick to one? People have a lot of mixed thoughts on this, and I've seen BiggerPockets weigh in very heavily on, hey, there's a best unit mix. You want 3-bed, 2-bath, people stick around, it's awesome. Here's my opinion on this. We bought a lot of studios and one beds when we started, and now I get to control studio and one bed rent. Like, we have such a huge proportion of them in our market. When I set rent somewhere, it's just what the market is. I really liked the power to control that specific class. That being said, I'm now trying to pick up more twos and threes because when tenants move out, I want to have somewhere else to move them. I like to keep great people in our portfolio. But as people expand, maybe they make more, maybe they start a family, you want other places to move people around in the portfolio. When you're starting though, do not worry about the bed-bath count. It is not what makes or breaks the deal. Where I get worried about it is if you are competing with a bunch of other people who are good operators and they all have, for example, say everyone on my street has 2-bed, 1-baths. And there's a few vacancies on market and they seem like pretty good operators, they're priced competitively, you're going to start competing with people that you have the exact same inventory. Supply and demand, you're going to have some difficulties there. Now if everything is being leased up, no worries, but you need to just know what your competition is. Another thing that I used to help people a lot when they were building— so when I worked for the CoStar Group, we'd look at this with developers all the time. We're running searches for what everyone else has. If all the buildings next door are one beds, we're probably going to build two beds because we can add something new to the market. So just figure out where the biggest opportunity is, but don't let that be the deciding factor of your deal. Your main thing is how big of a need for housing is there in that market, which is measured by population growth over time. So young. Credit score is not so strong. Our seller is usually fixated on this. I've never had a seller ask me for my credit score. Never happened. I've had someone ask for a background check once, which came back great because I don't have a criminal history. Credit does not matter in seller financing. Never had it come up, especially if you can build a relationship with that seller. Credit never comes up. We've had people— I haven't even had people ask for proof of funds. I've only had that happen one time where they said, hey, do you have the money for this? And my answer was, sure don't. Here's how I'm going to raise it. And I sent them my schedule of real estate and said, here's all the deals I've closed. I didn't have money for these either. This is what we're going to do. But rarely comes up. Your age doesn't matter. Cody started at 19. Caleb started at 19. A lot of people start really young. Age won't matter. Credit score does not matter on seller financing. If you have a plan to say you have a seller finance in 5 years, you want to make sure that you have a clear plan of how you're handling your credit over the next few years to convert to conventional. Don't, don't do a 2-year note if you have weak credit right now because it's gonna be hard to refi. But keep those things in mind, you'll be fine. Any property management channels to learn from? I talk a lot about it here. I actually ask your questions here on the live and ask me on Instagram any day of the week. @ChristianOsgood on Instagram. You are more than welcome to ask any question. My wife's gonna be more active on this channel too, so we're gonna be doing a lot more on asset management, which means less of you are gonna watch my YouTube videos, 'cause if I do a video on creative finance, it gets a ton of views. We do something on like, hey, make a million dollars managing your asset, no one watches it. I don't know why, but just the way it is, it's okay. Matt, Lumberjack Landlord, actually does a lot of asset management as well, and he runs it completely differently than I do. So that's a good one on self-management. Watch Matt. He also has an online course that I believe is fairly inexpensive called Oh Shit, I'm a Landlord, Now What? It's actually a great course. I took that and well worth the money. Message him directly and he can get you set up there. That's @lumberjacklandlord on Instagram. He's actually fairly responsive. Can you put together, or can you put in grace periods or late payment fees in your owner financing contracts? Yes. To help you not lose the property, or is it pretty much miss a payment and it's gone? So if you do contract for deed, it's a lot more like miss a payment and it's gone. You have a sales contract, if you break that contract, you can lose the property. You have to be very careful with those. They're done a little bit differently. You don't put a lien on title with a sales contract or a land contract or contract for deed. There's a million names for it. For those who have heard about subject to, is on a land contract. That's why you're allowed to basically wrap around the debt. You can do subject to on there because you're not placing a new lien against the property. You're wrapping around the existing liens. There are also some fun things you can do on a land contract because you have no lien against the property, or at least not against title. You both show up on title. There's some creativity you can do with your debt products when there's no clause that says you can't further encumber the property. You can put first position debt on something that you owe money on a sales contract for, which is kind of interesting. That being said, that's the one where you worry about missing a payment because those are a non-judicial foreclosure. On most of our seller finance, and by most I mean all, there is a grace period typically of 15 days. And even if we miss those, you have a 30-day to cure any defaults. So if we messed up, something happened, Loan servicing drops the ball and a payment was missed, we don't just immediately lose the property. They serve notice that, hey, you are in default and we have 30 days to cure. Normal things, it's very similar to how you'd run a bank. There's very few differences between seller financing and bank financing except that you get to negotiate everything. Anything that can be negotiated can be put into a deal as long as your lawyers both agree on it. How would you pull out equity from the property if it's seller finance and there is an investor that covered the down payment? There's a few ways. One, refinance with a bank. If we bought it for $1 million, it's worth $3 million today, we can pull out more than enough to pay back the investor and pull out additional capital. One of our LLCs, perfect example, 12-plex. We put a new roof on it, we increased the value by a ton, leased it up. We pulled out money for all of us, even though the investor brought in all the money. We pulled out money and we used that to expand. So we pulled out capital into the LLC and we bought a 10-plex and a duplex with it. So we doubled the size of our LLC through a cash-out refi by bringing it to bank financing. Another thing you can do is if you increase the value enough, you can go back to the seller and say, hey, I would actually like us to increase the amount of the note, and they can actually write you cash against the property. Now, does that happen all the time? Absolutely not. But some of your seller finance people, they have a lot of money. That's why they didn't need you to pay them off in the first place. We've gone back and said, hey, we're working on a project. If you are open to lending, we can increase the value of our note. Here's what we've done with the property. You show them the books and you show them the new value, and you can actually get a cash-out refinance with a seller. These are all things that you can do. All right. Change of the game. Thoughts on leaving some value-add for sellers so you can sell with the value-add lots of owners looking for appreciation? You actually want to do that. That's actually really interesting. Very interesting. Not enough people ask that question. If you plan on selling a property, which I almost never do, I did sell a 7-plex recently. But if your plan is to exit the property, you do not want to finish everything. It is so much easier to sell a project if— I'm going to use an example. You have 25 units. You needed to renovate 10. You've done 6 of them and you've got them to market rent. That is probably the best time to sell because you can sell to someone else without finishing the project, without spending the money. You can say, look, We've proved concept here. We are getting rent at what our pro forma is. We've done this on 6 of the leases. There are a few more units that need renovation. It is so much easier to sell someone on a project when it has upside. Are you going to max the value of what you're going to get for it today? No, but you don't have to spend all the expenses to get it there. I have found it's much easier to sell someone on a project if there's a little project left to do than it is to say, hey, the project's done, this is turnkey, You're going to pay market rent for it. There's nothing to do. That doesn't interest people. People look for value added, for opportunity. And if you can leave some opportunity on the deal, you can exit sooner, spend less time, and they can still get some additional upside by being a good manager of the project. And they get to do it their way. They get some ownership of it, but it is a much easier sell. It's actually very, very smart to leave some value add to get the deal done if you know you're going to be selling. They actually did that on the Tuckerville property. We renovated a lot of units, we leased a lot of units, but there was one vacancy and there was two units that still could use a heavier renovation when the tenants move out. So they had a project that had some upside on it. We sold it. I think that's what got the deal done, to be completely honest. How do you pay off your debt quickly? By going through your business phases correctly. By the way, I'm gonna do a very slight adjustment on the mic. If I lose too much volume, someone tell me, okay? Adjusting the gain. We're gonna see if we get this just right. How do you pay off debt quickly? Go through your phases. You build first. Buy the assets that you want to own and build that base. That is the most important piece of the beginning, is you need to lever to acquire. It's just what you have to do. So you lever up, you acquire, you get it done. You're going to stabilize. So you're going to make sure that all these properties are rented at or near market rent, that you've done the safety and the livability pieces so that you have no to very low vacancy in your portfolio. Stable to me looks like 95% occupied on a portfolio consistently with no breaks of that. Right now, by the way, we're at 96% occupancy if you don't count the hotel conversions, which are mid-conversion. Turns out an empty hotel doesn't rent very well until you actually get the project done. But outside of that, our multifamily portfolio for our purchased properties is sitting at about 96% occupancy, which is where we want to be. That's excellent. Means you're not so under market rent that people aren't, you know, moving through, but you're pretty much just stable and optimized. Once you're there, you do the things to really push rent. So you Paint the exterior of the building, you push values, you might pave parking. If you have septic, you might connect to sewer. It's the little things that bring it to the next level. You can increase rent again from there. And with that new increased rent, you've built what we call the debt hammer. You have enough income to just start railing the debt. What you're going to do is you're going to take your lowest dollar amount loans, so properties you own the least amount on, and you're going to pay those off first. A lot of people go, well, just pay off your highest interest loans. Realistically, if you have a really expensive property and a large loan, you're probably going to refinance it before you pay it off to get a lower rate anyway. You want to save up to pay off a debt in full. You write a check for it. Could be on a little duplex you owe $120,000 on. That's the first one you pay off, and now you have more cash flow. And with that more cash flow, you knock out the next one and the next one, the next one. Build the debt hammer. Then use it to hammer the debt. That is the only way to pay off a large portfolio. Otherwise, it just takes more than your lifetime to pay it off by earning it. Okay, everyone, thank you. You're doing a fantastic job on asking questions faster than I can answer them. So here I go. If an owner seller takes back their property Do you lose any added equity? Yes. And down payment? Yes. What happens to the investors? Loss of capital. If you lose a property, you lose the property, which is the collateral 99% of the time, unless you personally guarantee your debt to your investors, which I rarely ever do. I have a few personal guarantees in the portfolio. What happens to the investors? They lose their money. Do not lose real estate. Now realistically, what happens? Is something goes awry. I've seen people sell at a loss. You rarely lose all of the capital, especially for the investors. You're able to salvage something. But yeah, if you fail your project and stop paying your mortgage, you don't get to keep the equity or your down payment. That money is gone. That is, that is what leverage is. It is risk. In the course, I heard of one of your mentees who bought a 12-unit, but only 3 were paying on day 1 because he didn't verify docs. Hahaha, yes, I know the deal. I think it was actually a 14-unit, if I recall correctly. Uh, how did he manage to get past this problem? He leased it out one at a time. Sometimes things do not go your way. Sometimes things don't go as planned. That is fine. That is a solvable problem. That was one where things did not go as planned. You look at the pieces you have and go, okay, what do I have to do? He got in there, he actually worked on 3 of the units himself. So he was in the building doing some of his own renovations, got a team to do the rest, leased out almost all of the building, and then he could not find a tenant for the darn restaurant downstairs, which we told him was gonna be the hard part. What he ended up doing is he finished enough of the project where it started cash flowing, But it was more difficult than he wanted it to be. He sold it creatively financed. He actually seller financed a good chunk of his equity to the next person, paid off the original note. He walked away with $100,000 and $200,000 on a note from the new buyer. So he ended up making about $300,000 on the deal. Technically did not answer the question of how do we own it, how do we never lose it? So eventually did not keep the deal. However, got creative and had a very profitable exit. He could have kept it had he done more due diligence. It would have made more money. But again, you don't just lose because things don't go as planned. You adjust your pieces. We've had tons of things that didn't go to plan. Robin Hood Village Resort— we bought a whole resort on the water. Turns out way harder to run and more expensive than we thought. We've had to adjust pieces. And the deals worked, but way harder than we thought. Sometimes you pivot, you adjust, you change your plans. Just don't give up and you usually do fine. How much do you spend on marketing? How do you market your apartments? Not YouTube channel or mentoring. Yeah, YouTube channel. YouTube and mentoring costs a lot to market. Those are expensive. Marketing apartments, how do we do it? Marketing doesn't cost me really anything. The best marketing we have is on— honestly, it's on Facebook. Facebook Marketplace, post it, gets rented. Our property management software basically pushes everything out to a whole bunch of sites: rent.com, apartments.com, Zillow. It shows up everywhere. They call it syndicating out to different sites. Generally speaking, the free versions of that and making sure that we show up on Facebook Marketplace and our posting, and then it goes direct on the website, is all we need to quickly rent all of the units. It happens consistently, and I've seen this happen in multiple markets. I own in Washington and Texas. The same strategy works the same just about everywhere. The actual fee— so if we assume that even though I own PM, assume that you're paying your property manager to do this— I do a flat $500 to lease a unit. Regardless of what the lease is. I don't do percentage of stuff, I think that's bogus. $500. So your cost to have your property manager spend their time, pay for a little bit of advertising, spend employees' time on getting a marketing package together. If you're going through me, it's gonna cost $500 to market it, find a tenant, get a lease, screen them, get it done, get them placed and keep them placed. $500 gets it done. From Matt. Matt, good to see you, my friend. Talk about someone who's actually good at hospitality. This guy knows how to play the game. Matt Barge is worth a, uh, worth knowing if you don't know him yet. Did you have to submit architectural plans to the city to get approval for the conversion? We did not. Now, if you are doing a newer hotel or you're building, you're going to need to have really expensive sprinkler systems. On the— which does require some architectural and is quite expensive. These are grandfathered in and pre-approved by the city. So the city actually asked us to put in sprinklers. I said no, and they said, well, we really don't want this junky failing motel in the middle of our main area. So if you— their deal is that you can commit to making it look nice on the outside and not be an eyesore, we'll grant you what you want. That goes back to the Chris Voss book, Never Split the Difference. Just be a good negotiator. Not every city is willing to work with you, but this one, we're solving a legitimate problem for the city. They asked for something, I said no. They came back and said, okay, well, you got us, let's, uh, let's go ahead and roll. So that's how we did that one. What would be a good framework for the pitch to investors? What should I include? Pitching to investors is the simplest thing in the world if you have a good deal. That's why we do deal debt equity. Investors look like this every time. Don't tell them the math, tell them the project. They're gonna be bought in and want to join you on an adventure. Investing should be fun. If you have a picture, bring it up. I wanna buy this building in this area. This is why I love the area. This is why the building would be really cool. Like, this is what I love about the building. Then you go pitch all the problems because you make money solving problems and you're gonna overcome all of their objections before they can make them. So you go, here's the building, this is what I'm excited about, this is why I love the area, this is where I see opportunity. Now here's the actual opportunity. It's under market rent and there is a serious problem with the roof. We're going to have to get a new roof in the first little bit. And when we do this, I think we're going to push the value to X. And when they show some interest, you go, let me show you why I think this is going to work. And then you bring up the numbers and you're answering a few questions here. First, you're getting buy-in. And you get the buy-in before you answer all their questions. The questions that an investor needs to know is, one, is my money safe? Like, how is my initial capital coming back? And so you need to have an answer for that. When you put in $100,000, here is how you are backed, and here is how this money is coming back to you. Second, they're investing. How are they getting their return? How does that make sense? You're going to show that in the math. Here's the cash flow day one. Here's the cash flow. By the time we exit the property or by the time we finish the first set of projects. This is how your return is going to happen mathematically. If you can show someone, I have a property that is interesting and you would like to own, I have an adventure you want to go on, your capital is safe, and I'm going to make you money. If you can communicate those things, which are very easy to communicate, that's, that's everything you need to include in your pitch. What I'm buying, what what is wrong with it, how we make money by fixing the things that are wrong with it, show them the math, done. We have raised $1 million in capital in a 7-minute presentation. No slides, no pictures. That was the Robinhood Village Resort. We have a resort. We've never done a resort. I think the owners are doing a crazy bad job of— not crazy bad, just crazy different job of managing it. And I think the way we would manage it is going to make it a better and more profitable asset, which we did. We raised income on it significantly. And we just massively increased expenses in January. We almost exactly halved our payroll expense with a change where we actually pay our best employees more and our worst employees less. We had a structure that worked and we saved a bunch of money. But as you become a better operator, we communicate, here are the operations things that we're changing. 7 minutes into that conversation, we said, hey, we'd like to bring in no more than 4 investors with a minimum investment of a quarter million. Their answer? We're not comfortable having other partners. What would it look like for us to fund the whole deal? He said, oh, it'd look like a check for $1 million. And then they wrote a check for $1 million, and that's how he bought the Robin Hood. That is how you pitch. It works almost every single time. Matt, were there other building changes you had to make besides not doing the sprinklers, such as fire safety requirements? Um, electrical permitting. We had electrical and plumbing because we had kitchenettes, so we had to get permitting Well, the fun thing is we got plug-in kitchenettes. We got like plug-and-play ones that look really nice, and we were actually able to use the existing outlets, so we didn't have to get an electrical permit, which was awesome. I thought we would. We budgeted for it. Our new one, our 33-unit hotel, the one that's the topic of today's discussion, that one, panels have to be replaced. They're Zinsco, and the way they're wired, they have things double, triple tapped. The breakers trip all the time. You have crappy old breakers that are completely miswired. So that one will get new electrical panels in the whole building. That will absolutely be permitted. So not necessarily structural, but a big deal. That one also has the galvanized plumbing. So not a problem yet, but we know for a fact it will be a problem within the next 10 years. So we are working on the plan of as we renovate units and go through walls, if we open up a wall change the plumbing out. And then anything that we don't get to, once we get the whole building leased up, the first project we do is, hey, we've already done the electric, let's knock out the plumbing. It's another building that is, uh, concrete block. So you have these big— this big impervious building. If you fix the plumbing and electric, most of your problems are gone. Like, you, you pretty much have a finished building. Also have to do some work on the roof, which will need a permit as well. Not a lot, just they have a, a little valley area of one of the roofs that I want to redesign a little bit. It's a small portion of the roof I want redesigned, but it will have to be done. If you were going to a new market, how would you learn it step by step as quickly as possible? I would— this is going to be the most cliché thing that I ever say, because I say this all the time— I would find everyone in the market who's done what I want to do, and I'd meet them. I'd learn how they start their business. It is a relationship game. Everyone I have met doing creative finance and buying real estate did it through relationships. That is the name of the game. That is how you play. So the first thing I do in any market is I meet the players. I can guarantee you, and I've done this before as an experiment, I dropped into a market in Texas, found a deal. You could drop me into any market in the US, 100%, if I spend 1 month there, I can get a fantastic deal under contract with low-down seller finance terms. I could raise for it I can do it without any contacts in my cell phone, without any money at all. I mean, give me $200 to file an LLC. I have to be able to get the ball rolling. But realistically, I could open any market in a month, find some way to get someone to give me $200, wrap up the deal, close it. That would be how I do it though. Boots on the ground first thing, hands down. Hop on Google for free and figure out who owns the buildings that I would one day like to buy. Immediately book coffee meetings with all of them. We bring them up on the channel all the time. He's a very popular guest speaker with us, Caleb Hommel, one of our OG mentees. He dove into his— he's living at one of his properties. Within one month, he got a second deal in his market under contract. He has three more available. He met every single significant player in his market within 30 days. He did an owner meeting basically every day. It is not that hard to do. Anyone can do this. He's a young, young kid who learned to play the game with us, took the strategy. He did what we did in a couple years and a few months. Absolutely insane. I would do the same thing Caleb did. I know you preach deal equity. Can you always build out a contact base of interested parties beforehand, such as who, when, how much, rates to discuss partnership, etc.? Yes, I wouldn't discuss partnerships personally, but the rest of it, yes. You want to share— we talk about the circle drill on Multifamily Strategy. I think we've got some YouTube videos on it. It's a staple of the course and the mentorship. You map out your actual— like, you start with a relatable point. So you map out your life story, you map out where you're going, which is your goal, and what happens when you get there, which is significance. If you can map this out and communicate this in 45 seconds or less, you can really relate to and get buy-in from a lot of people. You want to do that with as many capital partners as possible. As you're meeting with people, you get very good at simply and easily relating to them, communicating, well, this is what I'm trying to build and why I'm trying to build it. And they get to know you and they get invested in you. And when you have a deal, your job is to be mapping out the circle drill of everyone else. And I keep this in an Excel sheet. I have a huge Excel sheet. When I talk to people, I map their circle drill. All my questions are based on, who are you? How did you get to where you're at? Where are you trying to go? Why are you trying to get there? I'm not asking it exactly like that, but that's the flow of every single conversation. If I have that mapped and I have a deal that matches their circle drill, you take the deal and go, oh, it has this much cash flow, it has this much upside, it's in this market, this moves them closer to their goal. Say they're trying to build $10,000 a month cash flow. I found a deal that's going to get them to $2,000 a month and it's in the area they want to invest in, right size building, and might have some really cool tax benefits attached to it. I can call them and say, hey, I remember you talked about trying to mitigate some tax, you're trying to build a $10,000 monthly income. I found a deal that's going to get you a fifth of the way there and I want to do it with you. This is what I think it would look like. And you go into what we just talked about. Here's the deal, here's what's wrong with it, here's the upside, here's what I would do with your capital. This is why I think we should do this together. It's like magic. So you want to be building those relationships 100%. I would not discuss partnership because you don't know what you're lining them up to yet. You map out all those pieces, then you find the deal, and then you match the deal to the people whose pieces match the best. Just got off a call today, raised $75,000 for a deal that I'm working on recapitalizing and switching out some partners on. On that deal, I found someone and it was perfect. They are selling this smaller building. We're trying to cash out— we have too many partners on the building, there's too many cooks in the kitchen. We also want to do heavier renos than we originally did, so I'm having a new investor buy in. He lives in the market that we're doing the property in, which none of the other investors do. I have a local person who sold out a building trying to get into bigger buildings, and I have a bigger building to swap him into. I just needed to bring $75,000 to the table, and so in that phone call We did exactly this, but I didn't talk to him about partnering before I mapped out a circle drill. This is someone I met a year ago. Something to note. And we're gonna probably make a lot of money together because it's a good deal. It's a really good deal. Eric, when you're trying to get the zoning switch from a hotel to apartment, do you have to have the architect approve the rezoning with the city? Generally speaking, yes. This one actually is zoned appropriately to be multifamily or hospitality, so we didn't actually have to change zoning. We did have to change the property's actual legal description definition, how they treat that property. For a hotel, you have to have a hotel license and a transient license and all sorts of stuff in Washington State. Hotels are kind of a pain to get considered multifamily. The city is going to have to do some permitting. So it's not necessarily a rezone for this one, but it is a repermitting. We did not have a large review of architectural plans, not for this one. You often do. The 33-unit, they were already starting the conversion and it is appropriately zoned. All it was was basically a notification to the city of, hey, we're going to do this, are you guys going to stop us? The answer was no. That's not always the case though. Don't skip going to the city, by the way. That's your most important part of due diligence for the hotels. Make sure you can actually do what you want to do before you close. We did not do that on our first 24-plex because stupid tax city actually wanted us to keep it as a hotel the way it was zoned. But they said that we're fine to do long-term leases and the bank said they're fine to finance on a hotel that has long-term leases like it's multifamily. That's called getting lucky. It's also being stupid. Don't do that. Check with the city way before you close. That's one of your first steps. Go there and let them know what the project is and see what hurdles you have. We actually did check with the city. They said it was fine verbally. And then once we submitted things in writing after we closed, they went, oh, actually, no, we realized you're one block out of the zone. We really want to call multifamily. We'll never approve that. Get it in writing from the city before you do it. That's the, that's the magic. Yeah, that's fine. Yeah, like basically the one of the next things here, Eric Burns said, my architect checked the state building laws and they would not allow it converted out of the apartment. So I just left it as a monthly lease extended stay hotel. Yep. That is the key. That is all the converted motels that didn't— a lot of people didn't even go through the rezoning or declare anything. They just did month-to-month leases in a hotel. We like to go all the way and do it correctly, and I love long-term leases and the stability, and it has been a really good thing to serve the city of Moses Lake specifically. But it's going to depend on where you're at, what the strategy is. A lot of people leave them as hotels. Your advantage there is you don't have to— in a lot of places, you don't actually evict on a month-to-month stay. You can just basically just have the police pull people out if they stop paying because it's a hotel stay. It's not a actual lease. So depends on where you're at and how the laws are, but there are advantages to doing it both ways. And I apologize, I skipped a question here. So how much do you look to spend on interior per room in Texas? What do you do about property taxes? If I'm doing an older building, which is what I've been working on mostly there, stuff built in the '70s, we're spending about $6,000 a unit right now to do the turns. That's flooring update lighting fixtures. We've replaced a lot of cabinets and tile backsplashes, and then paint the walls, maybe, you know, fix an outlet here and there. Very simple. $6,000 seemed to be the average. In Washington State, I usually spend a little bit closer to $10,000, but I also have done a little heavier renos in Washington because I'm nearby. I'm more comfortable taking on a higher lift for the value-add projects. But Texas, I found 6 is the state budget. We usually come in underneath that, which is good. Oh, Eric had more on his. This is what I get for jumping around. So he did not get the building permit to go from hotel to apartment because no handicap access and ability of sprinklers. Will bank reappraise it as an extended stay hotel? That is one to work through with your bank. I actually have a really good, really good mortgage lender for myself in Washington State, a mortgage broker. They will find the right product. So depends on your bank, depends on what you put together, how they want to lend. But some of this, there's actually a classification for it in Washington State. It's not called affordable living. What is it called? It's like economical units. That's not the exact right word, but it's something along those lines. Banks just are eating them up right now. They love these micro unit things to lend on. It's really weird. I think it's strange, but I have a few banks who want to add this type of thing to their portfolio, and they're willing to be creative on how they put it together. Interest rates on them are about half a point higher than conventional, you know, if you're going to go do a multi-family loan, but their LTVs are the same. So I can get I'm getting the same valuation as a multifamily building. I'm getting a very similar loan-to-value. It just affects DSCR a little bit because it's slightly higher interest. At least that's what I'm seeing in my market. I am not saying for a fact that that is everywhere or consistently everywhere. What utility efficiency upgrades do you get? Utilities, one of the first things is I always build back utilities before I raise rents. If utilities aren't being built, that's one of the most efficient things to do. But if you're looking for like actual like upgrades we do, I like septic in my area just fine. It's cheaper than sewer by a lot. So there's no problem with the septic. I leave that. I don't worry too much about utilities though in Washington State, Green County specifically. We have some of the cheapest water in the, in the country, and we have the cheapest electric period in the country. There's no other county that has less expensive electric. We're really close to the Coulee Dam. It's all hydroelectric. It is very efficient, very, very, very inexpensive. So I worry less about it. What I do is try to bill that appropriately to tenants. If you are separately metered, that helps. If you're master metered, Sneezing on the live, my apologies. If it's master metered, then we just look at what is the average throughout the year and we just bill it into a utility fee into the lease. That's generally how we do it. Pretty simple. Do we use different local property managers for all of the different properties in different towns? No. Not manage everything in the state of Washington, which is a majority of our portfolio. I do have a different property manager for my McCowan, Laredo— or my McCowan property and my Laredo property. So I own on the border of Texas. Each of those are far enough apart. I do not advocate for buying small properties in different markets. However, that's how I got started on the border towns. I bought into an existing portfolio, replaced a partner on a failing partnership, and that is how I entered the Texas market. So it's just how I got started. I don't recommend that as the strategy. I like having everything in one house. If there is a good PM that manages both markets, I will change in a heartbeat. You want as replaceable parts, you want as few individually unique parts as possible. Consistency is key in scaling. How do you keep up to date with new regulations and laws? In Washington State, every time they release something, I know about it. We have something called RAWA. And it is a— I can subscribe to it, but it is a huge legal database. They go through all the updated forms, the news, they represent landlords in court. We are very active in that group. We advocate for great laws, things that protect tenants. We're not just trying to do everything that's landlord-friendly, but we have a state that does some ridiculous stuff. Example, Washington State keeps pushing for rent control. Rent control hurts tenants. This has happened in every single market everywhere. Landlords either— if you buy a fixer-upper building and you can't increase the rent because of rent control, you end up with very slummy properties that fall apart. There's no one who will buy it and it ruins the unit. So you end up with slums. Every other upkept building will raise to the maximum. So say you have a 5% max for rent increases, landlords are too scared of falling behind. They can't afford to fall behind. So everyone in the market will increase by the maximum amount of rental increase allowed every single year. And they'll always push really hard to do max rents because if you miss maximizing rents, it will take you forever to catch up. Rents skyrocket when you do rent control. It is bad for tenants. So we always advocate against those things. It would help us, but we want the best things for tenants. Then we also want some just common sense things like we can't evict, or we can't screen for a lot of criminal things in Washington State. We obviously don't want to rent to dangerous criminals if we don't have to. So we work on those things. But RAWA keeps us up to date on laws, they advocate, and we're very, very active with that particular group. When you buy seller-financed multifam, do all of the deposits come with it? Yes. If they have separately held account deposits like security deposits, prepaid rent, anything else that is not the owner's money is going to be transferred just like any other sale. With the Robinhood, we got some of the gift card stuff transferred and any of the prepayments for weddings. It's just part of the