Whiteboard Wednesday #13 - How do I buy my first Multifamily Property?

Hey YouTube, it's Christian Osgood and I am back for Whiteboard Wednesday, Episode 13. Now Cody's still in Hawaii, so it's just me. However, stay tuned because these are 5 of the best questions we've ever had. Now if you haven't yet, like and subscribe to our channel. We do this every week, answer 5 questions from the comments. This week is spectacular. Lastly, I apologize if I look down during this. It's only me today, so all the questions are taped to the bottom of my camera. So, without further ado, question number 1. This is from Isaiah Gill. Long question, so I'm going to paraphrase. Looking to house hack either a duplex, triplex, or fourplex to get started. There's 3 options that Isaiah's considering, and he's wondering what you should do. First of all, there are so many people competing for house hacks, small multifamily in his market there's no deals that make any sense. So, option 1, do I wait? Do I just wait for the market to change or for more inventory to appear? Option 2, do I expand my search and maybe just move a little farther away? Option 3, do I start looking at other markets? I'm going to start with the 4th option. The house hack is a great opportunity that a lot of people take advantage of. However, it's not the only way to start multifamily. It is a strategy and should be a tool in your tool belt. If you're finding that option's not available for you and you want to live in a certain area, my recommendation is house hack might not be the play. For myself, I have a really hard market here in Seattle. I actually ended up buying a single-family house, and then I bought the multifamily that supports my mortgage. I bought 2 duplexes that cash flow more than my monthly payment, so my real estate pays for my real estate. Now, if you're going to do this correctly, I would go back in time and I would have bought the 2 duplexes first and then the house with the passive income. However, I can't do that, so that's what I did. I would look at an option like that. Um, for option 1, do you wait? The answer is no. If you are waiting, you're losing time because we don't live forever. Time is really, really valuable. The most important thing about becoming an investor is getting started, and I wouldn't delay doing your first deal waiting for just the right opportunity exactly how you want it in the fashion that you want it. Number 1 is off the table. We don't retreat, we don't hold back, we're going to play offense. So that brings us to question 2: do you expand your search? Absolutely. If you are really wanting to house hack, you really want to get started and you just can't find a deal exactly where you want to be, expand that radius a little bit. If you're willing to make a little extra commute and factor in the cost, then a little extra commute will have a little bit more money. There'll be more gas, so you have to find the right deal. But expand that search, see what comes up. And that could mean that you're starting in a market right next to yours. For myself, I started— a lot of my investing is in Moses Lake, Washington, 300 miles away. It all depends on your strategy, but for what you're doing, that is a viable option. The other option is, do I look at other markets? Well, if you're looking at other markets, you're probably not house hacking unless you want to move. If you are going to look at other markets, you can do exactly what I did and start buying the multifamily to support yourself. I would recommend renting your way through that until you build the passive income base to go ahead and buy your own property. Or maybe while you're buying multifamily, you do find that deal in your market and you do pull off your house hack. I know it's not a very direct answer to your question, but it's a great question. If inventory crunch in your exact strategy is the issue, shift strategy, expand markets. Just don't let that slow you down. Excellent question, Isaiah. Number 2, I'm really passionate about. This website, this YouTube channel, is not an ad for anything else that Cody and I do. That being said, this question needs to be addressed. Really? A paid website? $300 a month? We have a mentorship course that runs A to Z, streamlines how to build your multifamily strategy. And while this isn't an ad for that, that is something that we've been requested to make many, many times. Two problems with that statement. First of all, We built this because people wanted a streamlined way outside of everything we put on YouTube for free for you to run through their own strategy. This cost thousands of dollars and hundreds of hours on top of all the experience that we had to gain actually driving around, finding mentors, learning the content so that we can put it all in one place for you. You can find everything that you need to know for free on the internet, and we try to make sure that you can find everything you need to know on this channel. However, this channel is not just about making a streamlined education product on A to Z how to buy real estate. This is a holistic channel trying to cover as much content as we can. The second problem, $300 a month. If you are scared to invest $300 a month in yourself, you're never going to invest $300,000 in a property or $3 million or $30 million. Real estate is expensive. The knowledge can make you millions, but I'll tell you right now, if you are someone watching this and you are afraid to invest $300 in yourself on our course, on a group meeting, on someone else's platform— again, this isn't about our platform, but the mentality of $300, I can't pay for content, it all has to be free. If you have that mentality, you're going to have a lot of trouble and you're going to slow yourself down. Buying real estate. This is a capital-intensive game. Cody and I invested tens of thousands of dollars, that were probably hundreds of thousands of dollars now, in our education, going to different conferences, absorbing different content, buying books, buying courses. Whatever you do, don't let something like $300 slow you down. Very critical, so wanted to address it here. Number 3, from The Green Koopa, from "First of all, I love your name. Second, if the seller finances 90% and another investor finances 10%, as long as the deal cash flows, I'm good, right?" Well, not quite. There's a little bit more to it, but that is the right train of thought. When we're asking the questions, how do we buy it and how do we keep it, you've answered the fundamentals, right? You're going to buy it 90% seller financed, you're going to bring in 10% other people's money, and the cash flow is going to help you keep it. The one thing you need to target is the exit for the property. Now, you either pay it off, sell it, or refinance at some point. Unless it's on a 30-year amortization, which is uncommon in seller finance, there's probably going to be a balloon payment. Whether that's year 3, 5, 10 is going to be dependent on your actual loan. You need to make sure you have enough equity in the property to refinance it. Conservatively, you typically want to have a great set of books, and so know that you're going to nail your bookkeeping through this whole process, and you want 30% equity in the property. Otherwise, you're going to have to bring more cash to the table when you hit that balloon. As long as you can answer that last question of how am I addressing the exit of this financing, if you can do that, you are good to go. You have answered how do I own it, how do I never lose it. Excellent question though. From Frank Capaldi, how do you structure an equity deal? Great question. So when you're bringing capital to a deal, you can raise it as either debt or equity. Now debt is a loan, so it's going to be an interest-bearing product. Say you raise $100,000 at 8% per year. It's just a fixed cost, typically paid monthly, on debt. Equity, you're going to give a piece of ownership in the property. It's typically much more expensive to do it this way, but it's not going to hit your monthly cash flow. If I have a deal and say it's a little light on cash flow, I raise some capital. We'll do a hypothetical example. $100,000 purchase. I need $10,000 from someone else as a down payment because I'm low on cash. However, I'm going to use all the existing cash flow from this deal to renovate the property. I may write an agreement that says I will front any negative cash flow that we have right at the beginning. Again, be careful with this. If you don't have existing cash flow to cover it, don't do a deal like this in the first place. But in our hypothetical, I'll cover any negative and I will cover any renovation costs through this project. So now I have a cash flow problem. I can cash flow the property. However, the $10,000, if I don't have that, I can bring in another partner. If my contribution is the deal and all the variable costs, we might split that deal 50/50. You can have 50% of the ownership of this deal in exchange for your $10,000. As we bring up the value of the property, at some point there's probably going to be a buyout where I have an option to buy them out at a higher price than they bought in. Or if it's a close friend or someone who you plan on partnering with long term, they can ride that deal all the way through with you. If you find us a deal with $50,000 of upside, Well, they got a great deal on their $10,000 investment, and you got into the property zero down. You just take more of the risk. That's a hypothetical example, but equity means you're giving a piece of the ownership to another party. When Cody and I do this, we are long-term partners with each other on a lot of this. Any other partner who joins us on a deal will typically have a buyout clause so that we can buy them out at a higher price in the future. Thing to remember: equity is usually more expensive than raising debt. It just doesn't hit your day one cash flow. If you're a little light on the cash flow side and you need to raise additional funds, equity may be the play for you. Last question from Julie Anderson: "Who are your mentors? You two are the picture of success." Well, first of all, thank you. I don't know that we're the picture of success, but we have had a really, really good last 2 years. I appreciate the comment, and I will do my best to answer the mentorship question. So you need to have mentors when you are moving forward, or otherwise you're operating in theory. There's some point between education and mastery where you have to practice, and in that in-between, you're operating in theory. When you do this, you want to have a guide who's been there before. This is why if you're working with a broker, make sure it's someone who owns real estate. When you're working with a real estate lawyer, make sure that lawyer has owned or currently owns real estate and so on. You want to work with people who have been where you are going to help move you from concept to mastery. For Cody and I, this was mostly the sellers in our market. Because we focus on relationship selling, we met the people who owned the real estate that we one day wanted to buy. For a lot of them, we got in their trucks. I don't know why they all own trucks, but that's been a trend for us. We got in their trucks and we drove around the city and we looked at their properties and they told us the story of how they bought The people who taught us how to buy zero down are the people who we typically buy from. They are not as public as we are. I don't know if they want me sharing their names or not, so I, I'm not going to name-drop all of them. But conceptually, this is what you should do. You should find the market that you want to invest in, the area, and find the current players in that market. That is going to be the best possible mentor because they've done exactly what what you are trying to do exactly where you are. I promise you this works in every market. We've done this in Central Washington, we did it in Seattle just to prove you can do it in a big city. We've met with people in Texas, owners who own properties in Missouri. We, we've done this meeting in and out of this state, in rural areas, in central downtown areas. This works everywhere. All you need to do is find those players. For Cody and I, it's been those people who've actually played the game, taken the next step, who have got us to where we are. Moving forward, the people who got you to where you are today are likely not going to be the people who take you to the next level. At some point, you're going to master what they have to teach you. Make sure you identify exactly what it is you want to learn from them. Learn from them, apply it, build that relationship, And at some point, you're going to need to find your next set of mentors, and that's where Cody and I are at right now. We have a great set of mentors right now in our target market. As we look to grow and expand, we're looking for the people who can help bring us to the next level as well. So, I hope that helped answer your question. I'm sorry we don't have specific names on it, but that is what I have for this week's Whiteboard Wednesday. 5 questions that I, I really love all 5 of those, so thank you for posting. If you have additional questions, again, the information is free and we will put it all on this channel. It's very, very important to us. If you want something structured, you want to streamline this, you're welcome to check out themultifamilystrategy.com. I'll post a little link right here so you can check that out. But ultimately, if you want your questions answered, you want a little bit of help, this channel will do it for free. Post your questions. We appreciate you. If you haven't yet, like, subscribe, give us a share to your best friend, and we will see you next week.