Whiteboard Wednesday - Creative Finance Live

Okay. Should be live. Well, good afternoon and happy Wednesday. Every single Wednesday, Christian and I, and this week just me, but we come live to you to answer your questions. So as you start getting into the chat, feel free to start dropping in your questions, your thoughts, and I'm just going to start ripping out questions from the YouTube channel. So the first one is from Kathy Mitchell. What does a capital partner get out of partnering with someone like you? Well, uh, and then the segue from that is, do they get to stay on the property forever? No, typically they don't get to ride the property forever. There's how do you buy real estate, there's how do you never lose real estate. And if you never want to lose your real estate, you need to eliminate your variables, and people add variables. So if you don't have any money in the beginning, you're just getting started, it's okay to introduce some of those variables because you need other people's money to buy some of the real estate that you're looking at. However, what they get out of it is typically some sort of cash flow, some sort of write-offs, and then a buyout agreement in the future. Hey, I see Dividend Dave has entered the chat. Yo, yo, good to see you. But as far as the actual partnership goes, whatever gets you to where you want to go will not necessarily get you to the next level. Once, once you actually hit that first goal, you need to be able to look into the future and say, how do I simplify my universe? In the beginning, you may have to get a little bit complicated. You might have to add a couple partners. You might need to bring in someone that can help you with the down payment. But what we do to eliminate that— we being Christian Osgood— eliminate the risk down the road is we have a fixed buy agreement that says if I can write you a check for X amount, that could be any means necessary— through a refinance, you could earn it, the property could pay it— but I'm going to use that cash, give it to them, and then they sign over their ownership so I can own 100% of that deal. Next question from here talks about property management. I agree with you on hiring a property management company. However, what happens when they burn you instead? What's your opinion on that? Well, I've been burned by property managers before, and that's not fun. Um, whenever someone takes money from you or delays renting out units for you, it just hurts because you're left holding the bag. You got to write the checks regardless of whether you get the checks coming in. So that sucks. However, that's not a reason not to do it. That's a reason to start self-managing first to your first 10 rentals. And after you've scaled and you got your first 10, then you can look at putting it into a third party, and you're going to be able to better manage your managers. Dividend Dave, how do you get others to front money for a deal when there's a lot of fix-up and rehab? Well, it depends on your debt product. It goes deal, then debt, then equity. If you're looking to get someone to fund rehab, the deal needs to either be good enough to support it— we've done that before where the property cash flow would pay for all the repairs over time, they weren't all necessary up front but we could cash flow plan them— in other cases we'd have to just write a check. And so if we didn't have the money for that, that would just be an additional cost of doing business that you're going to have to bring in from a partner. If the down payment's $100,000 and you have $50K in closing costs and repairs, probably best to bring in the $150K rather than just the $100,000. You got to look a little further than just that down payment. From Dylan, how do you deal with closing costs on your first deal? Did you borrow it with hard money lender or did you get a seller to assist? So I didn't get a seller to credit me anything. The seller wasn't doing that because the money has to come from somewhere. If they're financing, it's not like if they're just writing me a big check. They're just holding back what's called a note. So no money actually transfers for that. So I did borrow extra from a hard money lender. This is similar to what, uh, Dividend Dave was asking about. My original down payment on my first deal, $112,500. I borrowed $125,000. That paid for my closing costs and left me with about $5,000-ish in the bank account just to start it and have a little bit of money to fund repairs. You can borrow a little bit extra, but you have to make sure that the real estate can take care of the real estate. Don't over-leverage your assets. Do you make it— from Dividend Dave— do you make it so they pay the fix-up cost too? Also, how does reserve for future repairs in this situation work? You absolutely can. There have been deals where we've had an investor partner who's come in and they funded all the repairs up front, especially when we're getting started, if we didn't have the money. There's also been times where we've just had to write the checks. But when you're getting started, you can't always just write the checks. That's in the beginning. I just had to borrow a little bit extra and then stack up as much cash as possible so that I could pay for repairs as they came up. If you're just getting started, you just have to borrow a little bit extra or you have to earn a little bit of money from your job. And those are really the options. You can bring in a partner where they bring in a little bit extra and they realize that's going to be the reserve fund. But the— it comes back to that deal first. The debt and the equity are the second and third piece to the equation, but that's just the money. The most important piece is the real estate. So make sure the real estate you're buying can support however you're structuring your debt or equity partners. If you were to bring in an equity partner to front all that, you just have to make sure that they know where the money's going. That is the biggest thing I found for investors. They want to know where the money's going, how they're getting paid, and how it's backed. You answer those 3 questions, it's usually pretty simple. From Ben, meeting about a creative finance option on a 10-plex, owner prefers negotiating through the listing agent. Do I ask for docs right away or do I give an offer first? What's the order of operations? So what I would do in that, if you have a general understanding how the deal works, you have an understanding of the income and you have an understanding of the expenses and what the debt would look like. I would put together an offer. You have a due diligence period through your feasibility contingency if your agent's putting that in for you, which they absolutely should. And that'll give you time to trust them but verify once you're actually under contract. That way they can't go out and sell to someone else. From Julie: just had an agent trying to sell me a 12-unit. He's new and I recommend he start watching you. When I, when I told him about you, he was clearly shocked. Well, that's awesome. Congratulations on looking at the 12-unit. If that starts to pan out, let us know. We could do a live deal deep dive here. All right, let's see if we have more questions in the chat. And if anybody else has other questions, feel free to drop them down below. Uh, let's see, from Dan Cohen— oh no, that was a statement. We got a lot of statements this week, we didn't get a lot of questions, so, um, this may be a super short video. But if anybody does have questions, I'll give it another little bit to put in here, and if not, as always, we go till the questions stop. So today might be an early one. Do you guys have a video going through a good example modeling the math with seller financing, a balloon at 10 years or so, cash-out refi, etc.? We do not do a whole bunch of 10-year modeling because 10 years ago I was 13. There's no reason for me to model because if I had thought about all this 10 years ago or someone thought about 10 years ago, they'd be wildly wrong where they could have ended up. The, the whole goal with the long-term fixed rate debt is you're controlling your variables. And as far as modeling it, just make sure that you're cash flowing with margin today on a long-term 10-plus year debt product that is fixed rate. You're not doing variable rate mortgages. And the theory, working theory that's never been wrong, is that over the course of 10 years, rent will be higher.. And if you have the same expenses as far as your debt, which is typically your biggest expense, then you're going to be all good to go. As long as it works today, it should work in 10 years. All right, Julie said not buying it. It's interesting though, 12 units, $4.3 million in Everett. I think I saw that one. That one, uh, is that on the MLS? That sounds familiar. They were like townhome style, very cute, two story walk-up building. And then from Landon, when are the lives each week? The lives are Wednesdays at 3 PM Pacific Standard Time, and we come every single week for these calls. Christian is feeling a little under the weather, so he is at home, but, uh, we're still rocking and rolling every single week regardless. And then for the mentorship, I've still been doing my thing, just making sure times are the same as before. Yep, mentorship is Monday and Tuesday at 4 PM Pacific and then Thursday at 10 AM Pacific. From Paris, do you have opportunities for people to volunteer and intern through your business to have more hands-on experience? I don't have any businesses that have intern opportunities. Christian Osgood might for property management. That'd be something to reach out to him. I know he's actively hiring more people, so you could look at doing that. But I sold out of property management a while ago, so I don't do that. And, uh, other than the real estate, don't really have any other businesses other than our multifamilystrategy.com, where we're working with people multiple times a week. So that's about as hands-on as you could get. But as we've always said, if folks want to connect with us on coming out to Washington, touring the Moses Lake portfolio, you can reach out and we can set something up. From Ben, referring to the previous question, I only know the stated monthly income, so should I still write an LOI based on that number? I don't do LOIs. You're welcome to, but I, having bought the real estate that I bought, I've never needed to. And having worked with a lot of bigger players that are in the $100 million space, they don't use LOIs either. So I think that is a waste of time If you know that they're going to accept a good offer and you're making a good offer because you figured out their goals, they know what you're working on, if you've done that little bit of upfront due diligence on the people that are involved, you don't need an LOI. I would just proceed with the purchase and sale agreement with the feasibility period and then just make sure that everything checks out during that. All right, do you need a good thumbnail designer? Well, I feel like if I got a new thumbnail designer, my current one wouldn't like me, so I think we're all good, but appreciate the offer. From Grow In Homes, do you use any software to keep track of the equity in your property, refis, debt owed, something that helps you keep track when you are moving money around to buy more deals? Yeah, I use Excel and that's it. I like simplicity and I just put in it's called an SREO. You have a schedule of real estate owned, and you can have a schedule of assets owned where you outline if you have any precious metals, what your liquidity position is. You can look at what's my debt stack. So what are all the mortgages I have? What are they associated with? When are they due? What's their payment? And then you have all the rental properties with the income and the operating expenses. And it's just one spreadsheet. It takes a little while to build, but when it's done, It's done until you buy more stuff. All right, from Zach, how long did it take you to get your first building from searching to getting it under contract? Well, when I got licensed as an agent, I wasn't really searching to buy anything. And about 9 months after that, I had bought a building. The first time I had really heard about seller financing would have been around April or May of 2019. And I closed on my deal in September, so however many months that is. From Casey, what is the minimum years of balloon with interest only that would be too risky for you? Well, it depends on the opportunity, because if you're buying a deal for $1 million and it's worth $2 million, I would be fine doing a 3-year balloon. If I know it's worth 2 and I'm buying it for 1, then yeah, I'll do a 3-year balloon because I can just refinance it in 12 months, 6 months. I'm not worried about it because I've got the equity position. If you're buying something at market value, then I'd probably opt to go 8 to 10 years. So it really comes down to the deal because right now you're talking about the debt, but deal, debt, equity comes in that order every single time. There's no exception to that. So if, if you're buying really close to market value and it's not a super high appreciating area, you're going to want to push it further down the road. If it is like a great deal, I'm going to opt to do a shorter period if that's the only way to get it done. If it's a really small amount, let's say you're doing a deal and it's like a $40,000 house, and I have friends that have bought houses for $20,000, $30,000, uh, they get really cheap houses. A 3, 4-year note, not a big deal because between the rental income and your job, you can probably earn through that over the course of a few years. So it's, it's very deal specific. And then it also comes back to just, again, risk management. How much do you make? How much does property make? Are you buying it undervalued? There's just a few inputs you got to think about there. What do you think about the Tri-Cities market? Well, I'm open to buying in Tri-Cities. I just haven't found a great deal over there yet. But yeah, I, I would definitely be open and receptive to picking up properties there, 20 to 80 units, without a doubt. From Troy, are there any areas that you're looking to invest other than Moses and Walla Walla? Yeah, so I buy in Ephrata, I buy in Quincy, and we own in Union. Other than that, I'm receptive to going out of state and somewhere in Tennessee, but next place I go will be more landlord-friendly. Unfortunately, the only people that get punished in real estate long-term are the people that stay small. So we can't stay small in Washington. We do have to keep scaling even though it's not landlord-friendly. Have to outscale problems. But, uh, so we'll continue to buy here. I would be open to looking in Centralia or Chehalis, but Olympia, Lacey, places like that here in Washington, I do have interest in. How do you get capital for the down payment when a seller wants to be in first position? Well, you'd put the capital in second position, or you bring them in as an equity partner? From Nuri, do you prefer to use a project manager, or do you prefer to put the teams together to work on your building? Well, I, I don't really have a project manager, at least I didn't in the beginning. I was just overseeing everything, and I was doing a lot of the work myself. But as you start to get teams, You have, you may have your project manager, but you still have to manage them because they're not going to care for your building like you do. They're not going to think about all the same things that you will. So, um, regardless, I'm still going to oversee all of it until we get to a point where there's too many projects to physically do that. Does the increase in interest rates impact your strategy? No, but it does bring more attention to it. The, the name of the game is you buy and hold real estate on long-term fixed-rate cash flow positive debt. You get your positive cash flow with margin on long-term fixed-rate debt, whether the rate's 6%, 7%, 10%, 2%, it does not matter. You just have to make sure that the dividends the property produces are higher than the total cost of the money. And if you can do that for long periods of time It's not that difficult to make money in real estate. You just have to be patient. But a lot more people are looking at this as far as seller financing goes, just because it's more relevant now. This is what everybody used to do, but then rates went so cheap that it wasn't a big deal anymore. Now when rates go back up, it brings more attention because this is a way to keep buying deals. We're still buying deals and Some of our seller notes, we just put an offer out on it. Well, I just have an offer out on a property over in Moses Lake, 15 units. Interest rate's going to be 7%, but it'll still cash flow. It's a long-term fixed rate mortgage and it will cash flow with margin. So, um, seller financing is a nice tool, but, um, the increase in rates doesn't change how we are doing business. Do you have any multifamily you're trying to sell in Central Washington right now? We'd be open to selling some of the smaller stuff. We, we built a model where you don't have to ever sell anything, but you can sell if you so choose. And we're open to offloading a couple triplexes. We've got some small stuff, triplexes and duplexes. If someone wanted to buy those, we wouldn't be saying no. From Zach, do you still work as an agent or do you rely on the cash flow from your portfolio to support your lifestyle? Well, I don't have much of a lifestyle. I'm not an active agent, but the only furniture I really have is a bed and two camping chairs. So that is a lifestyle, I suppose you could say. But no, we pay ourselves a tiny little bit of cash flow out of the real estate and then we stay broke. We being Christian Osgood and I, we don't pay ourselves a lot of money out of the real estate. We reroll everything And we're doing what people don't typically do so that we can do things people typically can't in the future. From Julie, I believe that for sellers retiring, seller financing is a great opportunity. Plus, uh, who wants to fund the banksters? Fact is, it's a good deal for people that want to slowly exit the game. If you have multiple buildings getting renovated simultaneously, do you use one contractor or do you prefer to use different contractors? I've got different contractors for multiple sites because I own in multiple cities, but there are also multiple buildings out in different cities where the same crews can knock out both projects. It depends on availability, cost, and their willingness and, and want to really do those projects. If they don't really have a desire to do 'em, then they're going to charge more at that period of time. And if they have more desire to knock it out because they need money, then I can usually get better deals so I can put them on more projects. How do we contact you if we want to check out your properties in person and connect? You can send us a DM on Instagram. Mine is @doingcodethings. You can also put a comment on one of our YouTube videos that you're looking to connect that's not in a live chat because these don't stick with the video after the fact. From Paris, how did getting your real estate license benefit you from the start? Do you think it was necessary for the knowledge so you can see where you are now? What's— it was necessary for me because I didn't have any people in the real estate space. I didn't look up to anybody really on online that was telling me what to do. What I did that gave me the knowledge was not the real estate license. It was meeting with people that owned real estate. I got the nerves one day to cold call an owner and meet with them. And then I started developing my strategy, which became Cody and Christian Osgood Multi-Family Strategy. But it was just me getting over my nervousness and making phone calls and meeting with people, not to sell their property, not to buy their property, but to learn how they got to where they're at. They taught me through stories, which I realized quickly are quite powerful. And that is how the world of business happens. It's through stories and those relationships and connections. So, uh, it helped me because it put me in that position where I realized I could call owners. But for folks who are watching this, absolutely no need to get your license. All right, from OB. I found a 36-unit senior care facility that just got out of first right of refusal. Minimum price is $315,000. Appraisal is $1.2 million. Sounds too good to be true. How do I determine if this is a deal? I would chat with the title and escrow rep— wow, I'm going to try that again. I would chat with the title and escrow rep. And see if, if you can get in there and actually get an offer out. But if you have the ability to get an offer in on that, just go through title and escrow and close out the deal. Sometimes those deals do pop up. It happens. You can buy significantly discounted debt products. You can buy significantly discounted properties., but make sure you're doing it the right way and going through, um, an attorney and title and escrow rep. All right. Do you pay them by a percentage of labor? Okay. So you're talking about the contractors now. Do you pay them by a percentage of labor plus materials, or do you pay in draws, or do you have written contracts with them? Uh, yes, I've, I've done all of those and different contractors work different ways. I, I've paid with draws on one of my buildings because it was a close to a multiple six-figure renovation project on one of my solo buildings I had without Christian. So I, I had to cash flow plan it, um, so they could do draws as they need things. I've bought materials before and then paid for labor as it was completed. And we always have a contract because we don't want to go over budget. Someone said not much to do in Moses Lake, but we'll make it fun, LOL. Well, if you haven't been to Moses Lake recently, check it out. It's a little different than it used to be. Noah says good debt ratio for a first pass underwriting. Have the details of a 30-unit property right now with the ball in my court. Deal seems best with 0% down and cutting Healthy checks monthly. Thoughts? If you can do zero down, if they're willing to do 100% seller financing, and I have seen that before multiple times— I've only done it once, but I've seen it— then absolutely. The problem that you're going to have is this thing called factor rate and your cap rate. And your cap rate expressed as a percentage is the dividends, the net dividends that a property is going to produce. Your factor rate is your true cost of capital. That is your annualized principal and interest, and divided by the loan amount. If you're borrowing 100% of the deal, then you're going to be looking at maybe a payment of X. Like, if you divide that into your total purchase price because you're 100% leveraged, you will have a true cost of capital expressed as a percentage. Your cap rate must be higher than your factor rate, otherwise you'll lose money. So if you're going to buy that deal zero money down, if let's say that you borrow 6% interest, 30-year ARM, your cost of capital 7.2%, you need to buy at a 7.2% cap rate or better before you break even. From Dan, do you pay for lead, skip tracing, dialer products, or outsource that? How do you find people willing to sell? I do neither of those things. Also, before I get any further, we have 33 people and 6 likes. If you wouldn't mind helping boost that number a little bit, that'd be fantastic. As far as it comes to leads go, I find people on Google Maps. That's it. I don't go super deep into the weeds trying to find people's contact info by paying for some type of like batch leads or anything. There's no reason to do that. Everybody's phone number is on Google. Mine's on the first page of Google, as is Christian's, as is Bradley's, as is, um, Kiyosaki's and the McElroys. And everybody's phone number is on Google. You can find it. It doesn't cost you money. We have a video how to find the contact info for any property owner ever. If you go to our channel, it's a big pink banner, but, uh, that is one of our most popular videos. Just go to popular, it'll pop up. That is how you find people's phone number. But you find the property for those people on Google Maps and you find out who owns the property on tax assessor. From Daylon, hey Cody, have you ever implemented waterfall structures for distributing profits with equity partners? No, simple's better. I don't like waterfalls. Let's just everybody earn what they are entitled to percentage-wise until we buy people out. What AI tools do you use right now? I don't have any AI tools. I, I haven't looked into it at all. I don't like using that stuff. From Ethan, when you say find the seller's story or what they're looking for, are you still asking them when the deal is on the MLS? And if so, How are you asking what they want? Well, if it's on the MLS and you're going through a real estate agent, then typically you're going to ask for their story after you buy the property. That's a good reason to keep in touch. You can let them know how the property is doing, what renovations you're doing on it, what you're looking at doing next, how that helped move you forward. But typically it's very transactional when they're actually listed until you close. And they're not a seller, they are an owner. From Obie, what would you consider a good market to buy multifamily in? High, low population, increasing rents, high appreciation, etc.? Well, I don't really care about appreciation. It's nice, but the way that you really boost your appreciation is by getting assets in good locations and then boosting the quality or the income on that asset. If it makes more, it's worth more. That is just the bottom line. If you can get it to make more money, it will be worth more to the next person. Now, as far as actually what kind of market to buy, I want to know what the employer diversity is. I don't want to buy in a location that has one employer. That would be a bad idea. I also don't want to buy in a place that has 200 people living in it. I've bought in small areas that have 7,000 to 8,000 people, but their surrounding area has well over 100,000. I'm just looking for a good amount of people because it turns out if you want to rent out apartments, you need people to rent it to. Then once you figure out the job diversity, I want to look at the average income in relationship to the average rent. If the average income is $36,000 a year and the average rent is $12,000 a year, those rents are not going up. If the average income is $60,000 a year and the average rent is $12,000 a year, those rents can go up. So I want to look at the delta there, because if you can get enough control of an area, you can push rents up. If you make all the properties a little bit nicer, take better care of the tenants, provide a little bit better facilities, you can justify the rent bump. If there's no extra income for people there's no reason to do all that because you can't justify it. No, I was hoping to dodge that issue by using simple interest at the start and cutting that in each payment. I'll have to go over that cap rate issue math again, but good thing it's on video. Absolutely. You have to make sure that the end of the day that your cost of capital— you've got an interest rate and then you've got a factor rate interest rate is not what you should focus on because your interest rate could be 6%, but if you're amortized, you're paying down the loan. So the cost of capital is actually 7.2% on an annual basis. So, um, just make sure that you're underwriting to the actual cost while paying down your loan is still building your net worth. It is still a cost on your cash flow. So just make sure if you're doing 100% leverage, 0% down, that you do good math so you're not going to lose money. From Anthony, appreciate all the nuggets. Do you leave voicemails if owners don't answer on a cold call? You can absolutely leave a voicemail, just keep it under 45 seconds and don't add extra words. Keep it short. All right, from Troy, are you guys doing a meetup anytime soon? Christian and I are speaking in Tacoma sometime in September. I have to check on, uh, I have to check my calendar when that is. I think it's mid-September, but we will announce that here shortly. And with that, we're out of questions. So it was good to see everybody, appreciate you jumping in. It's a shorter 30-minute live, but if you need anything in the meantime, you can text me, and my number is in the how to find anybody's contact info ever, because it's all public anyway. So it's in that video. Feel free to check it out, and we'll see you next time.