Whiteboard Wednesday #0: Thursday Edition)

Hey YouTube, we're back. It's Cody and Christian. We are doing our Whiteboard Wednesday. If you are watching this live, it's a Thursday. We'll go back and edit this again, but turns out we forgot some of our recording software and the video did not post on a Wednesday. That being said, we're doing this live and we're just gonna one-shot this whole video.

We've got 5 more questions to rock and roll on, and the first one is from Nolan.

Nolan says, hey guys, I'm currently 16 and a junior in high school. I was wondering what things I should be trying to do right now in order to set myself up for investing in real estate?

When it comes to setting yourself up, right now you're going through where you're gathering a lot of information. There's a lot of info out there. We're in the information age. And really, you should just build on your skills to acquire certainty. At the end of the day, certainty is what's going to determine how far and how quickly you go in achieving your goals. And when you lack certainty, you have to slow up because you're going to question what you're doing. And so right now everyone around you is working on gathering information so that they can go to college, they're gonna get accepted. And if that's the route you wanna go, you should do that. However, when you're looking to get into real estate and you're really trying to become an entrepreneur, certainty is really what makes or breaks your success and the velocity that you can achieve.

Yeah, if you commit first, you can figure the rest out later. So right now, Learn, build confidence so you can commit. I would spend a lot of time defining your why in your goals for what you want to accomplish and why. If you have a big enough reason, you're gonna commit to it. If you can commit to it, you're gonna figure out how.

Then from Emerson Ridley, hey guys, do you have any resources for beginner investor to research different types of creative financing and terms?

Well, 2-part answer to this. One, meet people. Cody and I have— most of our agreements are completely custom. We have come up with our own creativity because we learned how others did it. The best thing you can do is get in front of other people, get in front of other investors, learn their story. Stop trying to buy all their stuff right now. Focus on them, how they did it, and what pieces of that you can apply to you.

You're not going to find a ton of this in a book. You're just not. Because there's not a lot of books on this. And that's what kind of makes our story stand out and why we really want to help you guys because there's not a lot of resources on this. One book that I did start with, and I mentioned this on the channel before, is Deals on Wheels by Lonnie Scruggs. Now that's just a book on microtransactions. It opened up my mind a little bit to the seller finance space. The idea was you could pay cash for something and you could seller finance it at a higher price, get a little bit of your money back, and get monthly payments as passive income as the lender. So there's a lot of creative strategies out there, but the main way that you are going to find success stories is not going to be in a book on this subject. It's going to be from meeting with people who have done the things you want to do.

Another book, if you haven't read it yet, it's a real thin book but excellent content on the basics. Brandon Turner has a book on buying low and no money down. That's one that I started with. It gets a lot of your initial ideas out there, and it will give you a good framework to start if you're brand new to creative financing.

And then we've got Cody Johnson.

Hey Cody, oh, I'll ask this question for you since it's directed to you.

I'm directing to myself, I guess.

Again, We're doing this live. Hey Cody, I've been studying and read a lot about real estate investing and have a question for you. How do you find the investor to raise up the upfront capital if you're looking to purchase a duplex?

Well, you might have a little bit of difficulty if you're looking to just buy a duplex, because a duplex can only produce so much income. I did not start with duplexes. I started a little bit bigger. But if we take a step back and we get rid of the target, which is the property, if we just take that out of the equation, investors are people. We are normal people and we own properties, and the people that you want to work with, you probably haven't met yet. The way to do that is to go out to social places where you could meet individuals, and you need to find a way to share your story to get into the room. Do you remember the, the three-pronged approach? Your relatability, which is where you've come from, is what's going to get you to the You're looking to get into real estate. Well, everyone that got into real estate was at that point sometime in their life, and they will connect with you at some level on that topic. Then you need to find a way to share what your targets are, and that's gonna be unique to you based on the significance of those targets, which is why you're doing what you're doing. You got to figure out, okay, where do I need to go and who do I need to talk to? Which you probably don't know these people. The people I'm working with today, like Christian, I didn't know Christian 2 years ago. I just didn't. Today we own a lot of real estate together. We own multiple 7 figures of real estate together. He's lent me money and we've spotted deals together, put them together. And a lot of the investors that have come alongside on other deals, because I've helped other people buy other properties, I didn't know them 2 years ago. I didn't know some of them a year ago. I met one of them at a local pizza place, and our first deal ever was done over a piece of pie at Sherry's. I love that story, and I'll share that more in a future video. But everything you want to do, someone else has done. Everything you want to learn, someone else has already learned within reason. And anything that you just want to go accomplish, there are people out there that will help you. They're normal people. You just have to go meet them. And a great way to meet those people, you can do Facebook groups, you can do real estate meetups. Sometimes there's investor meetups or 10x groups. There's so many groups out there. You just have to go be personable, be you, and have a clear objective when you're going into the meeting and have a clear takeaway when you leave that meeting.

Perfect.

Then from Derek. Derek from Tuscaloosa. Love the content. My question would be, what are the parameters for a good deal when you're using seller financing and also leveraging the down payment? I've always wondered how there is any meat left if someone is leveraged 100%.

Ah, that is a good question. It is really hard to do. Not impossible, but it is hard to do if you are using conventional bank debt, because you're 100% leveraged and you don't have flexibility on terms. You're gonna have to get an amazing price, and that's really the only way to make it work with bank debt. The price has to make it work. If you're using creative financing, all of a sudden you can negotiate not just price, but terms like loan, interest rates, how much principal payment there are. There are different ways to do it. The main thing is the deal has to cash flow day one in order to buy it. So that's what you're doing math-wise. For Cody and I, if we are not raising other, like a ton of other capital, like we're just gonna come in and have just a straight-up deal, there needs to be an 8% margin. When we bring in others' capital to 100% finance it, they need to make their 8 to 10% before we get paid. So the deal has to have more meat on it.

We're structuring that as a loan against the real estate. And if you're going to borrow money, I mean, you need to be able to pay it back. So if we don't have enough margin on cash flow, then we lose the property. Some people say, well, what happens if your cash flow dries up? Well, we lose the property. It's not a good situation. So we want there to be enough cash flow.

Yeah.

At the end of the day.

And usually about an 8 to 10% buffer on your cash-on-cash return is about the minimum we'll start to look at. If you're looking for a benchmark, but it will completely depend on the deal and what you're looking for. Our last question, Lewis asks, "I just watched Cody on BiggerPockets. What do you do when you pay your house off?" Well, it comes down to what you want to do.

I don't personally own a house, and I own a bunch of rental real estate that will pay itself off over time, but I'm not buying a house. Because I don't want to put all my equity into something that's not going to pay me. I learned this lesson a couple years ago, and it's from someone I'm actually meeting with here in Central Washington later today. But if you can just add $1 of passive income from every property you buy, you can buy an infinite amount of properties. And if you negative cash flow, or you don't make anything, you can't buy an infinite amount of properties. So which would you rather do? Very simplistic. The idea is you just start adding zeros behind the $1 and now it becomes a real situation. But I'm not gonna go buy a house right now because a house will not pay me unless I rent out the rooms or Airbnb, or— but I don't want to do that. So I rent where I live and I take all the equity I have and I put it into real estate that will pay me forever. That said, if you bought a house, I would use all your investments, I would pay that thing off, with cash flow. Build up an asset class that can pay you monthly cash flow, use the cash flow to pay off your house. You should not necessarily borrow on your house long term just to go invest. That doesn't make sense. For me, as a risk-reward perspective, I'd rather just go earn new money and then go make investments. But once you built up your cash flow through real estate, Take the cash flow, pay off the house, and then whatever you want to do, you can go do. You can live the life you want to live because your expenses are going to be lower. You don't have a mortgage payment anymore. And then maybe pay off your rental real estate. But while that is priority for people that have a house, I personally just didn't buy one.

Yeah, for me, I did start with the house. The first thing I had to do, and this set me back a little bit, my first two investments had the cash flow enough to cover my mortgage. It took me several months to find the right deals to build the cash flow for my investments to pay where I live. If you already own a house or that is absolutely your dream, I don't recommend anyone defers their dreams forever. Like, if home ownership is what you want, chase your goals. But you need to have a plan to adjust and know that if you do put all your money into anything, it could be a car, it could be a house, anything that does not pay you every month, you are gonna slow yourself down a little bit on growing your income. So just know that that is the trade that you're making if you want to buy a house. If you do buy it, pay that thing down to zero.

And just remember, whatever you're doing, it's not just about the what, it's about the why. Mm-hmm. If you've, like, if you've never had a house in your family tree and you really want to own a house because that is what you want to do, you should buy a house. Don't sacrifice your dream, as Christian was saying, just to go invest. Because what's the money for, right? What is the money for? So if you know why you're doing what you're doing, then the how is irrelevant. But if you want to buy a house, buy a house. That said, I'm not doing that today. I probably will do that in the future.

So that's what we got for today. If you found this helpful, please like and subscribe. We answer these questions every Wednesday, except for today, which is Thursday. But every Wednesday we will answer 5 questions from the comments on YouTube. Occasionally we'll throw one in from Instagram. But if you have anything that you want us to cover, respond to this video. We will read through those. We will post next Wednesday. This was Cody and Christian live, unscripted, unedited. Hope this was helpful. We'll see you guys next week.