Cody and real-estate investor Christian Osgood discuss when to raise private capital for deals. Don't raise money if you don't fully understand the deal, lack a mentor in that asset class, or are operating beyond your budget. Raise it only when you have deep knowledge, a reliable contractor network, and would invest your own money in the deal.
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Hey YouTube, this is Cody. Christian is back for this week's video of Corporate vs Entrepreneur. Today we're talking about raising capital, when we would raise capital and when we wouldn't. So that said, Christian, can you give us a little example of when we wouldn't raise capital?
Yes. When we would not raise capital is when we do not understand the deal. I think a lot of the 9-to-5 crowd is going to resonate with this. For a while, I was stuck in the mindset of I have X amount of money. And that means I could only buy so big of a deal.
So we're looking at buying on a budget.
Buying on a budget. I'm actually fine with it. For a lot of people, especially if you are not a full-time professional in the multi-family space or wherever you're investing, if you're not full-time in this, it's not a bad idea to buy a smaller deal that is on your budget so that you can learn the fundamentals. For me, I bought a duplex that was well within my budget basically turnkey. I put a couple thousand maybe into repairs on it, basically completely turnkey property. I got comfortable with having tenants, turning over a unit, the closing process, how I was going to put insurance on it, just the basics. I felt comfortable after doing that. So my next project, I got a little bigger, and I had a rehab component. I had to have multiple players, contractors, I grew a little bit by doing one deal to another deal. On deal 3, I'm doing with you the 38. We're raising private capital because our combined experience, we know the deals, we know the players, the contractors, the same one I've used out there. So we're comfortable. Now I know my deal, I understand my deal, and at this point I'm starting to use private capital.
And that ties into keeping it simple. If an opportunity, a property, a deal isn't simple, you probably shouldn't do it. And more so than just raising capital, if a deal isn't simple, that means there's some underlying risks associated with it that I don't want to be a part of. And I wouldn't recommend you be a part of it if you don't really understand it. On his point of, okay, this is really simple, this is how we make money, this is how our money or investor money is protected, then I don't really want to touch it. And another point on this is if you are learning something new, meaning that even if it's, it's simple, but you don't have somebody in your space who's doing it. Like, I've got mentors in the multifamily space, but I don't have a lot of mentors for commercial and retail. I don't have people that I can just call up and say, hey, I don't know how to do this. What do I need to do? If I was in like in this office building I'm sitting in, I wouldn't know how to justify this to myself, putting my own money into it. So I can't really justify raising capital because I don't have a business strategy and I don't have someone that I can call that's absolutely crushing it in this space that can mentor me through it. And so if you're going to raise capital, you should likely have someone in your space, a mentor who has done it before on the asset class that you're looking at, that can help coach you through the pitfalls because there's a lot of pitfalls in real estate if you don't know what you're doing. Rule number 3, Christian, when would we raise capital?
When would we raise capital? Well, when we do understand the deal, we have the pieces in place, we have the team in place, the knowledge, we're comfortable, we have something that we can present. You can start to look at, is this a deal that we want to raise capital for? First thing I look at is if it's more money than I have, if I had the money, would I put it in the deal? I think it's a really easy box to check. If you needed half a million dollars, if you can look at the deal and say, "Huh, if I had this, I would be comfortable putting this in because I love this deal. I understand it enough to make a personal half-million-dollar bet." If you aren't willing to put the money in if you had it, I wouldn't look at it at all.
Yeah, and if you're not willing to lose that money, if you're not— and not more so willing, but if you're not able to afford to lose that money, you really shouldn't be putting that into an opportunity. When you're looking at a property, like, I've raised money that I could not afford to pay back at the time, but I was 100% sold on the opportunity on that property that I'm getting this for a great price with great terms that if I had to fire sale, I would more than double the investor's money. 100% confident, hands down, I could lower rents 40%, still break even. Those are the type of deals where if I didn't have the money, I knew that I wasn't going to lose it. Even in a recession, if rents went down 40%, still covered.
So in summary, you need to know yourself and what you can do, what you know, and what you're comfortable with. You need to know your numbers. You need to know what your costs are going to be, where your risk lies, and you need to know your market like the back of your hand. Currently, we invest very heavily in one targeted area in the state of Washington. We don't go far outside that on most deals. We are very comfortable here. Know yourself, know your numbers, know your market.
And when you do that and you really hone in on your skills and your knowledge base of an area, it allows you to simplify the situation, which makes every deal a little bit easier to stomach and justify. If you have all these different variables, because you're looking at Georgia, then you're looking at Seattle, then you're looking at Maine or Maryland, you're looking at all these different areas, you've got too many variables, too many different laws, too many different management companies, and you're going to get out of your knowledge base.
And you don't want to use someone else's money to learn that. Learn it yourself or work with people who you know have the knowledge base.
All right, so that's today's video of corporate versus entrepreneur. Let us know in the comments below what you think, and if you've raised money, let us know an example of the property you raised money for, why you needed it, and how it worked out for you. Till next time, like, subscribe, comment, and I'll see you next week.
