Why we don't always do $0 down - Creative Finance Live

All right. And we are live. Cody, welcome back. I am here in Redstone. Cody is at the Robin Hood Village Resort coming to you guys live for more of our Creative Finance Live. Cody, today has been hectic for me. How's your day been?

Today has been a day. I've been on the road a lot.

I for once envy you. My admin work has been less fun from home than, uh, I think just straight up driving. It's been a day and a half, but we are excited to be here with all of you. And as people load in, um, our question for today is why we don't buy every deal $0 down. I got that question this week and I actually kind of liked it for the content, so I flagged it. Um, so we're gonna answer a few of the questions from this week, but as we go through Um, we get a few people into the chat, we'll get into our main question for today, which is occasionally you do actually want to spend your own money on deals. Why do we do it? Why don't we do everything zero down? We're going to get deep into it as we go.

Yeah, we got some people. Hey, hey, Dividend Dave and Cameron. We got Justin. Justin, welcome. We appreciate you joining the program. I've If you didn't get details on how to access our live interactive meetings, make sure you send us a message.

And I just— and I remember talking to you very recently, so thank you for signing up. If I have not sent you that email yet, I will audit my emails at the end of the day and you will get a welcome directly from me.

Cool. We got Marco. So, hey, Marco. Well, should we jump into the questions?

Yeah, I'm getting them to load on my phone. So to stall for 10 seconds of time, Cody, tell us about some of the projects you're working on on the road.

Yeah, well, I mean, there's a lot, but I had to go pick up paint. So what we're doing, we're going to be painting the white triplex next door to the Robin Hood. That's going to start to look a lot more like some of the cabins here on campus. We're completely painting the interior. For those who don't know, the triplex house that we bought next door, we're calling it the sauna house because it's got a sauna. Make sure to come book with us. It'd be fun to have you here. Every wall in that house is a different color, and I've never seen a house with so many colors. But the thing is, they ran out of color ideas, so they started using wallpaper. So the crew here is stripping down the wallpaper. We're going to get it all to gallery white. We've got some fun charcoal gray and black accents that are going to be super fun. We're getting furniture ordered and all that fun stuff, but had to go pick up a bunch of different paints for interior, exterior. And, uh, the team is over there landscaping right now. It looks a lot better than it did. Really appreciate them helping out on that. But that's what I did on the road. Wow.

Well, thank you for getting all those projects coordinated, Cody. I appreciate that a ton. My stuff's boring because it was all accounting and legal, so we won't get into that at all. I will get into our first question in the YouTube chat here. This is on our video, $12 Million in Debt at 22 Years Old. Danny, if a broker brings you a seller finance deal, how much do they usually get out of the deal and how do you structure it?

Yeah, so there's a few different ways, but the standard way is it's just a line item on a settlement statement. So when you buy real estate, you have what's called a settlement statement or a HUD statement and outlines all the debits and credits for the transaction. And so if you're buying it, then the seller is going to have an expense, part of a line item, which is going to be the commission. And so if a broker helped facilitate the deal, they're typically getting 2 to 3%. I've seen as high as 5%. I've, I've done deals as high as 10%. Depends how hard it is to sell and how much money the broker has to spend to get that deal done. But that gets reimbursed out of the down payment. And if there's not enough down payment upfront, then they can get paid out over a long period of time. That's actually what happened on the Robinhood. The, the broker who represented the seller on this got paid a portion upfront. There was enough to pay them, but they, they, the previous owner likes to align the compensation model with the successful outcome of everything. And so they structured it where that broker gets paid a little bit upfront and more and more for the next 8 years. So they're just going to get paid over time as we make our payments. But you can do it all upfront as a line item out of the down payment, or you can do it over time as you make more payments.

Yeah, the interesting thing with that is in creative finance, you can also get as creative as you want with the broker payments. But in general, it typically falls in line with what a normal commission in a normal structure would be. If it's a listed property and the broker is going to get paid 3% unless they negotiate something else, that's what they're going to get paid. If it's not out of the sale, or you say you did zero down, well, that money has to come from someone and that's going to be the seller almost every time.

Yep.

We got another question. What is the biggest risk to the buyer in a seller finance deal? Can they take back the loan, trade it to someone else? What are our biggest risks when working with individuals instead of banks?

Yeah, I mean, you always have risk when you have debt and when you have more debt. When I talk about doing seller financing, I'm doing high loan-to-values typically on the purchase price. Then you have more risk than people who don't have the debt. And so number one, I mean, you're going to have more risk if you have shorter-term balloons. You're going to have more risk if you don't have a professional draft all your documents. You want to use professional legal documents, not some template on the internet. You want to make sure that you're using great legal counsel. People who try and wing it usually get bad docs and then it says, oh, there's a seller call, which means they can call your note due if you don't want to have those. And so it's best to have legal counsel help draft all your documents, make sure it's bulletproof for your situation, because the people who borrow a bunch of money and don't get good representation are at more risk than those who aren't. And there's always going to be risk when you borrow money, even if you borrow from a bank. There's always risk when you borrow. However, if you have solid documents and you pay your debts and you get great legal review, then you're going to be at less risk than those who don't do that.

And remember, on a seller finance contract, you have a lot of things that are negotiable. You want to make sure that their clauses make sense. There is an issue that I have seen multiple times where the seller doesn't seem to really realize that when they sell the property, they're no longer the owner. Cody and I have had that on one deal. And we had someone in our mentorship program this week share, hey, the owner wants me— in their actual contract, the owner wants them to get a sign-off from the owner for every single repair. They have to approve the repairs. And the reason that the owner gave it is, oh well, I need to approve of every repair so that you guys don't slumlord the property. I want to make sure my collateral is taken care of. Now, while that makes some amount of sense, they want to know that their collateral is well stewarded by the new owners, they're selling it. And you get in a situation where something— where the note's written like that. What happens if they have a necessary repair and the other, say, that old owner who is now the lender is out of country or unreachable? Or what if he causes them to fail to pay him off because it's impossible to lease it because they can't do repairs? You have to be very careful on these that you are working with a seller that you trust and you have the legal to give you full control over your deal. If you don't have control, that's a huge risk and that is a way that you can lose the property. Then our flagship question for the day, and then we'll get into the, the actual chat for this video. Why are we not buying every deal zero down? We have the skill set. We talk about how to do it online. Why don't we only do zero down deals, Cody?

Well, we don't only just do zero down because eventually if you buy enough real estate, you just end up with money. And if you have money, your options are you can either blow it. We don't do that. We have, you know, nicer than beater cars, but it's not like we're driving around in Ferraris. We don't just blow our money. Christian lives in a a nice medium-sized house, but in no way is it a mansion. So you can either blow it, which we don't opt to do, or you can invest it. And those are the reasonable options. You could, of course, sit on it. But I mean, why would you just keep it in the bank? So we opt to invest it, and usually it comes down to either buying something new or improving what we have. We don't pay ourselves much to anything. And say we're not even on an actual salary yet. We're going to do that in a couple of months for next year. But we just take all the extra money and people are like, well, why wouldn't you just buy it zero down? Well, what's the money you have for? It's for reinvesting, making things better, creating opportunities other people won't create. And so while we can keep buying stuff without any of our own money, we're already doing that. So in addition, when we get cash, we might as well put it down on stuff. Or we make improvements for making improvements on the triplex over there. We're doing a lot of improvements to the 38-plex. Eventually we— I mean, we just got approval on our first bank loan. We'll talk about that in the future when it closes, assuming it closes. But we got to— we're going to have to do a $750,000 remodel on that. So do we take the $750,000 and buy more real estate or do we improve it? Like once you get money, you should put it into something. Shouldn't just let it sit around because it's going to lose value. And so we're buying stuff zero down all the time. We've bought— I mean, I've never had any real money, and so I've just kept buying real estate zero down over and over and over. Now that we get a little bit of cash in the bank, we just throw it back at the projects. And if you keep buying everything zero down, your odds of imploding are very high because you don't have the systems to justify and to facilitate what you bought. It's really easy to buy stuff, very difficult not to lose it.

And in the long run, what are the ways to increase cash flow? You bring in more income or you have less expenses. It turns out if you have less debt, your expenses go down. So if you have cash and you can put that in a deal and you're not borrowing that, that's a payment that you're not making on that money. Instead of having idle cash, don't be shy to deploy it. The one other reason I can think of where we really don't to do that is sometimes the deal just requires that you put money down. And if we eliminate those opportunities, there's a smaller pool of opportunity that we can look at. So when you have to put money in on a deal, uh, my big thing is don't make some weird rule like a lot of people online do. If I only do BRRRR deals where I can pull all the money out— I know a lot of friends who try to do that who are losing a lot of money right now. I met people last week, I'm like, oh my gosh, they're in a bad spot.

They, they stopped looking at all the money they've lost.

You don't want to be there. And if you focus on that, I'm only doing deals of this kind, that is where I see the most burnout and the largest failure rate in real estate, hands down. If you want to try to get rich only off of other people's money and you get addicted to OPM, that is the— that is where people make poor ethical decisions, is where they make poor business decisions. They forget whose money is whose. I've seen that happen many times. So that's why we're not shy to put our own money in our own deals. It was an excellent question, so I flagged it as our flagship one. Now going into the chat, which is filling up, we will go through the chat until we run out of questions. Uh, our first question is from Dividend Dave: Are lenders okay with giving you money for a balloon payment? Would that be secured with the asset the balloon would be paying on?

So a balloon payment is when you have to refinance. You have a balloon, it goes pop, and now whatever you owe is due. So if you're just saying a lender is going to give you money to refinance an asset, yes, the balloon is just when it— like, that is a point in time when your debt obligation is due. And so the way that you solve for that is you either get new debt or you pay it off or you get a loan modification. But typically people don't want to do that. And so you get new debt or you write a check for it with money. That is the preferred method on our end. However, that's not reasonable when you're getting started and it's not reasonable exactly for where we're at today. So we have to refinance on occasion. So yeah, we take it private. We work with Flynn Family Lending. We're working on a commercial loan right now. We'll see. It got approved. Been there, done that before, though. So we'll wait till it's done. It's not done till money's in the bank. But that is, that is how you do that. You go get new debt from someone else.

Yep. That's a pretty standard way to do it. The refi is the bank giving you money for the balloon payment. Let's see here. We have from Antoninus. How do you pay off the down payment when you raise it as debt, especially when it's due in less than a year? Well, I would start on that on the back end. I would not raise money that's due in less than a year.

That is better done that.

Yeah, I've done that once. I haven't done that. We've done one year. I haven't done less than one.

I've done a lot of one-year debt. I've done 4-month debt. I've done 1-month debt. Don't copy me.

You had to get extensions on a couple of those, didn't you, when you first started?

Yeah, on the first one-year notes, I got extensions on those. I didn't have to get an extension on the 1-month debt. I also didn't have to get an extension on the 3-month debt. We still have to pay off our 4-month for the Moses Lake XII.

Oh yeah, we do have one. I forgot about that. See, my memory's not perfect. You don't want to do a lot of short-term debt. However, that was a perfect example of— that was, it wasn't an acquisition, but it was an addition to a property. We used money to finance a roof. It was an improvement to an existing property. That loan does have to be paid back through a refinance. Now, I will say we built into that note an option to extend for 1% of the note. So we have a little bit more time on the 4-month note than 4 months for a little fee. The more time you can give yourself, the better. That being said, you pay it off with money. So if you're doing that, you need to know on a short-term debt, here is exactly how I'm going to pay that off because you have very little time to maneuver. We'll take this one as a perfect example. On a 4-year note, if there was no extension, our time to maneuver is this big. We tried to do a refi. Looks like we're signing for it. It was what, Cody? Are we at month 8 of that process?

Month 8.

If we had 4 months and it took us 8 months to refi, who thinks that we would be in trouble?

I do.

I vote yes.

Dividend sent us enough money to buy a Subway sandwich in 2012. Thank you.

That is very kind of you.

We appreciate you. All right. From Marco, question for y'all, and you must have answered in another video, so I apologize if I missed it. What would the steps look like after you find a seller to agree to seller financing? Christian Osgood.

Let me see here. Sorry, my whole screen just went— I was reading alongside you and then it disappeared. There we go.

From Marco.

Okay, there we go. I see it. What would the steps look like after you find a seller or agree to seller financing? Well, that's a great, great, great question. So the first thing you do, if they agree to it, you have the first step. There's deals and there's debt and equity. So you have the deal. The last piece of finalizing the deal is if you've agreed on it verbally, you write it up. Now, this can be with a lawyer or with a broker. We typically use local brokers, but you write it up and you go under contract for the property. Then you're gonna move into a period called feasibility. We're gonna verify everything the seller told you is true. From experience, it's not ever. All sellers lie about something at some point through the process. Or sometimes they just don't know. Some people don't know how to keep good books. Some people don't know everything that's wrong with the property. Either way, you have that period to make sure that the deal that you agreed on verbally is the deal that you're closing. In the meantime, after it's under contract, then you start figuring out how are we gonna put together the debt? And if it's seller financed, you have a huge head start 'cause you've figured out probably a bulk of the debt is seller financed. Is there additional debt needed and is there equity? Where's the rest of the money coming from to close the transaction? Cody, I miss anything in there?

You're good. Cool.

That's what she said. Says if the seller wants 20 to 25% down, how do you try to negotiate/convince them to carry little to no— to carry at little to no money down? So basically, if they want a bigger down payment, like conventional, like a bank, 20 to 25%, What does that conversation look like to bring that down payment down?

Yeah, I mean, there's a few general approaches that you can take. And the first thing is you got to understand why they want more money down. Sometimes they just need cash or they want cash. Often it's just because they don't want you to walk away from the problem, which is the property, and they just don't want to take it back. Some people don't want to take it back like the Robin Hood the, the previous owners, they wanted $1 million down. We tried to go less, but they wanted $1 million because they didn't want to worry about having to take it back. They're in Costa Rica, they're having a blast. I get photos from them all the time and all the birds, and they don't want to come back and have to manage it. And at least I don't, I don't think they do, but most sellers don't want to. And so they want to make sure that you have enough skin in the game, and that revolves around trust. If they trust you, they'll typically allow you to do less down. I work with some folks that will do 10% down for me, but 25% for other people just because they have a level of trust with me and vice versa. However, if, if you want to approach it a different way, it's like what we did with Tequila. You can just say, hey, look, I understand you want this much down. How about we do, you know, 5% down year one, and then in 12 months we'll do another 3%, and then another 12 months, 3%, another 12 months, 3%. We'll just start tacking on additional down payments in the future to get them cash. But it incentivizes you to make the property do well, and that helps build the trust for them. Because if the property doesn't do well, you can't afford to do that.

Now, our next question: when you guys underwrite deals, you mentioned you use conservative numbers. Yes. Do you typically see that 8 to 12% cash on cash where the principal and interest are included in the market, are included with market interest rate?

No, you're not typically going to see that. And I don't really care what market interest rate is because my notes are so long that market interest rates are irrelevant. If you get 50— oh, good. I was just going to say, if you get 15, 20, 30-year debt, it doesn't really matter what the market's doing. If you can get the deal to do well for you and you don't have a balloon, you're set. Yep.

The— like when we started, Cody was— had notes like 6% and rates dropped all the way under 3% with banks. And people are like, wow, you guys are crazy.

You're—

this is really high debt. Well, now interest rates are 7% and we have 6% debt, 5% debt, and 4% debt locked in for a long period of time. It's irrelevant as long as you have cash flow on long-term fixed rate debt. Debt markets will change over time. If you have a 1-year note, yeah, you're competing against other stuff, but it's a 1-year note. Your debt stack's going to change anyway. Interest rate is not very important as long as the deal cash flows. And that 8 to 10%, while that's the minimum that we look for and we say that pretty publicly, every deal we've done is a lot more than 8% cash flow. A lot more like astronomically.

All right. From Divergent Minds Podcast, there are deals to where I can flex on terms as low as 10% down, 4% interest with a 12% cash on cash. But when it comes to numbers after I refi, it's lower. Like to hear your thoughts. Well, the nice thing is when interest rates go up, I mean, you're talking about time going on. I'm guessing you've got some time between where you're at today and your balloon. If you got 5 years, your rents are probably going to be higher. So while you'll pay more interest, you'll also make more money. Our mortgage— we're going to put a video out assuming our commercial debt closes. If it doesn't, then I mean, I wouldn't be surprised if it went either way, but our interest rate is going from 4 to 6. It's only 2%, but it's a 50% bump. And, you know, that's, that's ridiculous. However, our asset makes more money than it did when we bought it. So our actual cash flow will still be higher than it was when we bought it. So you just have to look at it as can you get the income up high enough to even when you have to refinance in 5, 10, 15 years' time helps a lot of people in real estate. You just got to make sure you can push the balloon far enough to where the rent bumps over time will assist with the adjustment in the interest rate. All right.

The Divergent Minds has a continuation to that. It's asked to you, so I'm going to ask it also. Cody, I'm not sure if I heard correct or wrong in another video. Did you, did you use private money for the down payment on your first deal?

Oh yeah. Yeah. I didn't use bank. It was all private seller. Seller for the 90% and private for the other 10%.

See, Danny asks, how do you determine how much management fees should be? Well, for us, we get to cheat because we own the management company. So management fees are what we say they are. But typically for us, it's going to be $75 a unit and it might change for a larger building like 38-plex. Um, but that would be typical for us. It's going to depend a little bit market by market. What I would do is ask a few brokers who've worked with property management companies and interview a few property management companies. Depending on your market and how competitive it is, I see anything from 6 to 12% on management fees. If I have to estimate, I usually use 10. Um, that's my rule of thumb. Cody, any additional thoughts on PM?

Yeah, I mean, I would just ask the local companies, but typically you're going to be, you know, super big assets, 3 to 4% on a lot of the stuff people typically start with. You're going to be between 7.5 and 12.5%. Depends what it is. Short-term rentals are going to be higher by a lot.

Think 20 to 30%.

Yeah.

Oh, this is a continuation of the private money one. So did you— yes, you did hard money. If you did, how would the lender for that deal get compensated? And do all lenders require skin in the game in order to work with investors?

The short answer to that is no, they don't all require skin in the game. However, you do have to know what you're doing. And I didn't know what I was doing, so I'm going to put that out there. However, I did negotiate a great deal. If you can position debt products, people love debt. It's crazy. We're in a debt-addicted society and the debt that I negotiate on the seller note is 30-year, fully amortized, no balloon. It is incredibly difficult to get that on seller note on a 12-plex. You can't get that as a conventional product. So it is, it's kind of a unicorn. And so the way that it's positioned is, hey, if I can't pay you back, I don't want you to foreclose. I'll just sign a deed in lieu of foreclosure so you can take over my LLC and keep this debt product in place because you can't get this with anyone else. And so the person that's lending the money is incentivized for— they want me to win, but if I don't, they get a great product, they get a great asset. That they got to bet and they have a debt product that they don't have to worry about. Typically on a 12-plex, you're going to have a 5 or 10-year balloon. There's no balloon on this one. They can set it, forget it, rent it out, and not have to worry about a refinance, which is incredibly hard to do. So I negotiated a great deal which allowed me to get a product with zero skin in the game.

So Elijah asks, Does every state allow seller financing? Answer: Yes, you can do this anywhere in the U.S. and there's most countries you can do this. The rules will tweak a little bit and how you put these together depending on what state you're in and even what county you're in can change a little bit.

Yeah.

So one thing that you need to know is where am I investing and does my lawyer who's drafting the docs understand the rules in the area that I'm playing with. It will be different doing a seller finance note and filing in the state of Washington than it would be in Texas.

And if you're in Washington, you can't seller finance 5 notes in a year, in a 12-month period, without having to register. I believe it says a bank.

Yeah, you are legally considered a bank if you place more than 5 seller finance loans in Washington anyways, as of right now. We're mentioning No one actually audits that. I'm not encouraging anyone to break the rules, but I have seen multiple people do more than that many notes and not get called for it. That being said—

Oh, me too. Yeah, yeah, yeah. There's a lot of people that do that.

That being said, best practice, there are rules.

Yeah, there's a lot of different rules for different states. You can do it, but you need to work with people that have operated in the state you're trying to invest in.

And if you do it wrong, make sure that you have enough money to pay the fines for doing it wrong. That's just the fact. It turns out if you can afford the fines, you can do whatever you want. We're not there yet.

Um, we're broke.

Yeah. Janelle Diaz: Hey guys, great stuff. How do you generate leads for finding these seller finance deals? I love this question. We get it all the time. Google Maps.

Maps.

You find the, the property wherever it is, whatever city you want. We drive it. If you've ever heard the term driving for dollars, people drive streets. Turns out Google's already driven the streets for you, which is fantastic. You can hop in, scroll through the streets. What we like to do is actually look for the larger roofs in residential areas. When you find the first fourplex, duplex, 12-plex, what most cities have is the other buildings just like that are usually in the same general area. So if you know where a couple— say you're looking for a 12-plex— if you know where a couple 10- and 20-unit buildings are, start there. Look for the longer roofs, and that's where you're going to start finding the buildings. From there, we have a whole bunch of videos online. Cody just put on a short on our YouTube channel that I think it's like 20 seconds that goes exactly through how you're going to find someone's contact info once you find the property on the map.

Yeah, I dropped my phone number in there again. People keep telling me not to put my phone number on the internet, but I do it in case you have questions. All right, what's up Cody? Got any details for the upcoming Robinhood event? Super excited, would love to attend. Well, the Robinhood event for December booked in like an hour. We have another one in January and we did say we'd release a link on here first, but that'll probably be next week. So if you want to come to that and you want first dibs, make sure you are in the YouTube live because we'll drop the link next week. And I'm putting this out there so that we have to make it.

The first one will be epic. And if any of you guys are going to the first one, I am super excited. The goal is every single one, we're going to get a little bit better at running events. So the first one will be epic, I guarantee it. The next one, while I'm guessing costs slightly more, will have more cool features. We'll bring in more and more speakers, and we will get better and better at being an events-based company. So very excited for anyone who makes the January one. I have a couple of ideas that are rolling out for that, uh, so more to be announced. I don't want to promise something and then not have it happen, but be excited. We have some really cool additions to our January one that we'll be announcing shortly.

From Mason, how soon do you typically begin paying principal with your monthly payments, assuming seller finance?

Well, it depends how your note's written. We have a couple notes that are interest only for 2 years and then they just convert to an amortized schedule. So we'll start paying some principal then. What we don't do is intentionally pay down principal more than we have to. The reason being is because cash does fix all of your business problems. So if you sideline all that cash and you need to use it for the property, well, good, good for you. You have a cushion. We will make an exception for that. When the cash exceeds the total note value, we can pay off the note in full and now there's no lending risk and we massively deleverage. That is when we pay off principal intentionally.

And the reason we would pay off all the properties is at that point we become a debt-free company. We become like a Dave Ramsey of sense. And that allows you to reinvest a lot more money into the asset. You can reinvest into the community, you can reinvest into the properties. And most people never get there in their cycle. They're just trying to get enough to cover their life. And our goal is to buy enough to where when we can start writing checks for it, We stack all the cash, pay one off, then do the next one and the next one. Eventually we have enough cash to where we're good and we can improve assets, over-improve assets to where no one's ever taken it before. And it doesn't make financial sense, but it's just cool to be able to do.

And there's a lot of people online, like a lot, lot that will just push like, hey, just lever and then lever again and you can get huge and you get all these massive buildings. And as cool as that can be, at some point you have to go, if I'm just leveraged to the hilt, do I really own it? At the end of the day, do I have it or does the bank have it? And at what point is enough real estate enough? If you've reached all of your financial goals and you have an excess of what you need, my thing is I think it's way sexier to own the whole thing.

Yeah. And not have the obligation. And that's, that's more maturing as an investor saying, okay, size beyond a certain point is irrelevant. Let's control everything, pay it all off. And then if we have problems, people are like, well, now you're open to, to legal issues. If something happens, they'll put a lien on the property. Great. You pay debts with money. If something actually happens, we'll solve it. And we can at that point pull a Dave Ramsey and have enough cash to throw at problems when they pop up. But you have to figure out your own business model. Our business model follows that, because that allows us to really do a lot of cool things that most people never think about.

Marco has a second question here. Another question that comes to mind is what are the most common objections you hear when talking to a seller about seller financing? I'll start with the most obvious one. Cody, if you want to just back and forth these, I have a few, but the most common one is I want to be cashed out. I just don't want to seller finance.

Yeah, I heard one recently when we were looking at a bigger deal. They were like, I don't know how I feel about lending a 22-year-old $5.2 million.

And to be fair, that was the first objection we had with the, uh, the Robin Hood. Wow. So we're gonna lend you guys $3.5 million. There's a lot of due diligence they had in the form of just meeting us and having us come out and live on the resort, right?

Yeah. And then I lived next to him for a little over a month. But yeah, I mean, that's legit. Like, if they've never done it before, how would they feel comfortable? Like, how could they justify lending someone $3 million, $4 million, $5 million? We're looking at a 580-unit storage facility. Not probably not going to buy it, but I will buy it if they say yes to our offer. However, They're like, I don't know how I feel about lending $5.5 million. It's like, well, how, how could you know what you'd feel like?

You've never done it before.

Let's grab coffee. Yeah, that's a comfort thing. That's building trust, building the relationship. And that one got sent to us by a broker, but it's legit. If they've never done it, how would they feel comfortable? And if you validate that, it makes it easier to get past it.

Mm-hmm. I've had people get really caught up on I want to do a 1031 exchange. Well, you need cash out for that. There's no— maybe they can carry a little bit, but they're not going to finance the whole thing because you actually do need to pull out a lump sum. But I get that one all the time. And so when you hear stuff like that, seller financing might just not hit their objectives, and that's okay. I was on a podcast. I'm not going to name it. If you saw the podcast, you know, good for you. But yeah, The verbiage they used was, how do you induce sellers— induce— to give you seller financing? I'm like, we don't do any induction of any kind. That's kind of a gross phrase. It's not about getting someone to do something for you. That's not how the game's played. The game is played by building a relationship and building confidence. If they have a property they want to sell and they want to sell it to you, and the deal works because of creative financing. Say, for example, they have a price that they can't get on bank debt. Well, if they want you to be the buyer and they trust you to be the buyer, they're going to have to get creative on the financing. That just could be a reality. And that is why they'll do it. There's a lot of objections that people get stuck on. I don't know how we're paying the broker. Okay, well, I can explain that.

That's fine.

Sometimes you'll meet their objectives, sometimes you won't. On someone who just wants to be cashed out, payments over time isn't going to be the answer. But also, all right, we're not not a fan of conventional financing. You can go out and just buy a property at a stellar price. We don't do a lot of that because I find there's more opportunity in negotiating terms. That being said, if there's a $300,000 property and someone wants to sell it for $100,000, Go to the bank, get it done.

All right. Greenwood Boss, when going for— we didn't read that one, right? Just making sure.

No.

Okay. When going for an on-market property, would you hard money the seller required down payment and the agent percentage? Well, you can. I mean, you can use hard money for the down. But that's just one way to come up with money. More often than not, I mean, the reason we built the business we did instead of just trying to buy stuff, learn how people play the game, is you, you build a tool belt and you got your little tool chest and you can look through the tools. If you're a hammer, everything's a nail. And so the goal is to have more than just a hammer in your tool belt. And so what we did is we met with a whole bunch of owners, learned how they played the game, and hard money is a tool. JVs are a tool. Syndication is a tool that we haven't opted to use. But you get all these tools in your tool belt, you know how to use them. And when you look at, okay, I need equity down, I can either structure it as actual equity, I can structure it as my own cash, I can structure it as debt, JV. There's so many different ways to do it, but that is one way you could do it. And that's one way that I've done it is taking it private where you get 12% money and then you pay it back over time.

And by the way, we've hit the part of the, the chat where it looks like we're on the last few questions. So if you have anything that you're thinking of, ask the question. If you have friends who want to join this chat, this is the part where you hit share, you hit like. So YouTube recommends it to more people and get some more questions. However, we're on our last couple. So if you have any burning questions, now is the time to post them. Looks like the next question's to me, so Cody, I'll let you read that one.

I can do that. Christian, I see a few books behind you. Are there any books you recommend on reading?

Um, let's see here.

The—

well, actually, the top one that I have really been getting a lot of in our current— out of on our current business cycle is Ray Dalio's Principles. And it's not on the shelf because I have it in my bedroom because I'm rereading it for the third time. Uh, Principles is a great book because everything Cody and I do is principle-based. And if You watch our YouTube channel on Mondays, we actually share our rule of real estate and the principles that we go by when making investment decisions. Being principle-based and being very public about the principles that you live by is a great model. The book is fantastic. It shares what Ray Dalio did to build his multi-billion-dollar hedge fund and principles that he does not violate and what happens when he does violate his principles. Another great book up there, if you are a budding entrepreneur, is Shoe Dogs by Phil Knight, founder of Nike. Shockingly good book, very cool story, and some of his financial struggles are ridiculously relatable to, to Cody and I as he got started. Figuring out capital and figuring out banks was a big struggle for him, which I just found super relatable. Those are great books. The only other thing back here that I highly recommend is the full collection of Calvin and Hobbes. Not going to help you with business, but one of my favorite books on the shelf back there.

And then we have one last question from Dividend Dave. How do you get through to a homeowner that you found online that you're not trying to buy their house? How do you do it, Christian? How do you get through to them that they, uh, that you don't want to buy it?

Well, there's a few different ways to do it. I mean, specifically the house, I, I don't really do a whole lot of house buying. Um, I'm in a house that I bought, but that was on market. But if I'm calling anyone about their investment property, or if it's a property that they do in fact live in, I'm just always upfront with what my objective is, and I'm completely honest. When I had a duplex, it was You have a 12-plex? I've never gotten that big before. I bought some duplexes and I'm out of money, so I literally don't know how I would buy that. Don't use the word literally, but that's my internal track there is like, there's no way I could buy this without learning how you buy these assets. So I'm calling to learn how you got to where you're at. That is how we frame almost everything, is I am calling to learn. The biggest reason for me personally, besides the fact that I love the property, the Robin Hood Village Resort, the biggest reason we bought it was because we did what Cody and I set out to do in multifamily. We said, what if in 2 years we buy 100 multifamily units together? Well, we did it in 1. It's like, okay, we accomplished that goal. I can't go and call a 12-plex owner now and say, hey, how did you do this? Because that would be disingenuous. I can call a resort owner and say, hey, I haven't done this before. How do you make this happen? What would this look like? And that's how we bought a resort. We could do that with self-storage. Now we can do that with bigger buildings. Cody and I haven't bought anything above 50 units in one shot. That's a conversation we can have now with people who are playing with bigger properties. But that's the biggest piece for me is I am upfront with my reason for wanting to meet is to learn. And it is true every single time. Now, if I'm calling someone about a 12-plex today, I'd probably let them know a little bit about what I've done. And it's usually more of a conversation now around, hey, I own a few properties around your property. I want to get to know my neighbors. I want to know about your journey. Let's meet up and see if there's any room for us to collaborate. It's a little different conversation. We're going to be doing that next week with a fellow Moses Lake investor. He just wants to learn how we did what we did in creative finance. And I want to learn how he did what he did in bank and credit union finance, because he has a bunch of conventional debt and he's like, oh, I can totally help you guys. Now we're coming in as a sharing of ideas, but that's always what it is. Learning how they did something, or sharing thoughts. I, I don't know if you want to add anything to that, Cody, but that's, that's my thing for that.

I was going to keep it simple and say I just let them know that I don't know how I do it. You said that.

Yeah, that's getting less true now because some of these deals I do know how I would do it.

Yeah, but in the beginning, I bought 30 units before I even knew you. I didn't know what I was doing. That was real. And then we bought a 38 together. I didn't know how I was gonna buy that.

I didn't know how we're going to do a bunch of the stuff that we've done.

Yeah, but we did it somehow. All right. From Ethan, when making an initial offer on a seller finance deal where the seller has an agent negotiating on their behalf, who should I get to create that initial offer? Well, either your agent or their agent. You can do either. I've been— I've done dual rep before. Both personally as an agent and I've had other agents do a rep and then I've had it be separate. The little white sauna house that we bought over there, the triplex next to the Robin Hood, we had a buddy of ours rep us and they wrote it up and negotiated it through the broker. I negotiated on the front end and then I just told my buddy to write it up and we did it. But you can go through your own agent or you can go through theirs.

And if I had a preference between the two, I would start working with the same person more often than not, because then all your offers are going to be written by the same person the same way, and you're going to be more familiar with your own paperwork. When you have the opportunity to, I would use the same broker who you know and trust repetitively.

Other follow-up was asking if we use an attorney. We've used attorneys to draft our documentation, however, our purchase and sale agreement, we're not an attorney state, we're an escrow state. And so we usually just have our PSA drafted up by a real estate broker and then all the extra documentation by an attorney. Was the Robinhood an on-market deal that you guys came across online? If not, how did you find the deal, Christian?

Well, yes and no. It was an on-market deal. We had no idea it was on market. We found the deal. If you haven't followed him yet, you need to. Uh, Dion McNeely, he runs, uh, Dion Talk Real Estate something. I should know the name of his channel, but if you search Dion Talks, you're gonna run right into him. He runs a YouTube channel. He actually lives about an hour south of me, and he came across this deal from a friend of his, and he thought it was off-market and thought it was zero down, right? Or at least that's what he communicated to us. The fact of the matter is it was $1 million down and it was on market. That being said, we're still very, very, very grateful to Dion for turning us onto it. So when we actually first met with that owner, we thought it was off market. We had no idea it was listed anywhere. We'd never run across it. It came up in that meeting, hey, we'll need to talk to the broker who he listed this with. Now, if you are a broker, and it's a listed property, you need to disclose that. So that was something that Cody and I were very conscious on. We let them know immediately, oh, we're brokers. We didn't know this was listed. We have no interest in representing ourselves. We're working with your broker. We are only here as buyers. So that's how that came about for us. It was a gift from a friend. Dion is all about, and this is his motto, is investing in real estate the lazy way. It's passive investing, buying one smaller rental property at a time out of money you've earned. He doesn't have a bunch of partners. He has epic cash flow. He retired earlier this year. For him, an active project like the Robinhood would've been an awful project because he would've gone from having a job that he loves to having another job that he loves less. For us, where we are younger, trying to learn and have a whole bunch of energy and people on our team who are experienced in short-term rentals, this project made sense for us, which is why he passed it to us.

Cool. What issues are you guys facing going into stabilization mode?

Oh, oh my, there's so many. My biggest One is we bought a lot very, very quickly. And I've shared this throughout my journey and even with BiggerPockets, like learning accounting is hard. Learning creative accounting is ridiculous. What I do is about every other day I have an hour-long conversation with my accountant where we literally roleplay, where he goes, hey Christian, I'm going to play the IRS and you're going to play Christian and Cody. And he just grills me with what if they do this or what if this or what if this? And I have to be able to answer all these questions. If I get stuck on a, huh, I don't know how we would account for that. I have to drive over there and we have to go, okay, do we need to amend an operating agreement? Do we need to come up with a different statement or do we need to run this business a little bit differently than we have? Cody and I do everything to the best of our ability. It doesn't mean we do everything perfect. It means we try our hardest to. In the creative space, sometimes there's not a textbook answer of this is how you want to account. There's a, this is the best way we can come up with to account for what you're trying to do. So for me personally, I didn't realize that about 50% of my waking hours would actually be related to accounting. And that is hard. Once we set up our systems, This will go from half of my life to probably 1 to 2 days a month of making sure that everything happened the way it was supposed to happen. But stabilization, that is a bear if you buy 100 properties in a resort in a very short period of time with no prior knowledge of accounting. Cody, how about me? What was the hardest part for you?

Yeah, well, I mean, my, my main role is not stabilize. My main role was go build. So it's just been different figuring out what I'm doing now because in our relationship I brought most of the business, most of the deals, and most of the, the owner connections. I brought those relationships coming into it for the most part, and we built off of that. So I'd say systematizing everything. I know how to build very quickly. And now that I've learned some of the stuff from Christian, I know how to build even quicker than when I was doing it on my own. So stabilizing the, the monster that we've created, um, just systematizing everything is going to be the big challenge.

I think mentally making that shift from growth mode, like, I, I'm kind of a systems person. I think the transition is probably easier for me, but like Cody, you've only done acquisition for 3 years. I have to imagine, and I actually haven't talked to Cody about this, so this is just an organic conversation, but Cody, how is it for you mentally shifting from, hey, I'm the growth guy and our teams are actually pretty much maxed on tasks and we have to focus on systems? Is that something that you could turn off and just shift, or how does that work as the visionary of the company?

Yeah, well, it's less fun to not grow, but, uh, the— if the team can't handle it, like, that's, that's a problem. So we've got more stuff we can do, and I know how to put together just about any deal that comes across our plate now without any money. And back to the question earlier, why don't we buy everything? We don't have the systems, so it's a little difficult to shut it off, but if, if I kept doing what I was doing 2 years ago, then we would lose everything.

Yeah.

So that's about— that's a bummer.

Let's see here. Greenwood Boss, does your management company manage all of your properties?

Yes.

There's one I'm actually open to offloading to a third-party management because it's the only property we manage in that city. And I'm starting to feel that it might be a distraction to our team. But outside of that, currently yes. And outside that one property, they'll continue to manage everything.

From Ethan, follow-up. That would be interesting. I know which property you're talking about.

Yeah.

Should I ask the seller's agent if it— if they'd be interested in creating that offer potentially? I wouldn't structure your question like that. Would you be open to creating an offer potentially? I would just say, look, this is what I want to do. Can you make it happen? Yep. And yes, you, you're welcome to do that. Just make sure they're competent. Most people are not in this space.

And sometimes I'm just reading the back end of this. They've been great to work with. Sometimes that works out great. I find more often than not, unfortunately, people who have been great to work with suddenly aren't. Either you outgrow them or they're just really nice people who are wildly incompetent. It just happens so much. And if you haven't bought a lot of real estate, you're just gonna find this out for yourself. There's no way to effectively communicate how incompetent vendors are. Brokers, typically bad. Property management, almost always bad. Um, Title companies. I've seen so many mistakes at the title company level. Cody and I've had two properties that weren't even transferred into our name correctly. We had to go back, and that's why you have title insurance. I've had tens of thousands of dollars just totally forgotten about in seller credits on some of my deals where I have to do due diligence to every single page, every single line item of the seller statement, and I have to know what my numbers are before I go in. Because if I just read the seller statement and sign it, you're out tens of thousands of dollars. So it is hard. That being said, if you like him, he's the best you got, use him, and maybe he's fantastic.

Looks like we have one last question for today. What is one of the most cha— uh, what is one of the most What are some of the biggest challenges you guys face when working with brokers who represent sellers? I haven't really had any, um, but at the same time, I know what I'm looking at. If there's something wrong, I tell them, and I've done that before where they're just flat out wrong, and I am not afraid to tell people they're wrong. Christian will be the first to tell you that I am willing to do that. And so they've made mistakes like saying that it's going to be a 30-year fully amortized interest-only loan. And I was like, no, wrong. And that just comes back to the, the not super knowledgeable piece about understanding what amortized loan versus interest-only loan is, what prepayment should be. If you can read the contract and you know what you're looking at, it's easier. If you don't, then it's probably best to get your own counsel.

And I can think of two brokers that we worked with recently who do not know the difference between interest-only and 30-year amortized.

Yeah, it's going to be a 30-year fully amortized interest-only loan. And I was like, no, it's not. And then they said it's going to be an interest-only loan on a 30-year.

No interest only and AM are mutually exclusive. Fact. One more thing that I have found with brokers who represent the sellers. We had a large deal come up around the time of the Robinhood, if you know what I'm thinking of, where not only did the broker do bad math, but the broker just change the terms even though he knew there's no way we'd accept it because they have to represent the seller. He was a seller's rep. So the seller said, I want to retrade everything. And he had to present with a straight face, well, it has the same upside. It's like, no, it doesn't, because we have to pay a heck of a lot more money. It's the one thing that I do notice. If they're representing the seller, they do have a fiduciary duty to the seller first and foremost. They have to do what the seller of the property wants them to do, and it is not always in your best interest. So it is something to keep in mind with dual agency, especially if they're representing both parties. If both parties are at odds, they can't truly serve both parties' best interests. They can do their best, but typically They started with the seller. Their duties are to the seller of the property.

Okay. We got another question. What's the best way to raise funds and how exactly do you pay investors back? Well, with money, you pay people back with money. So you need to build a plan to where you can get said money, either through cash flow, selling an asset, earning the money, or borrowing it again. But I would stop trying to raise funds. I think that is absolutely the worst place you could start. Because that's at the end of the equation. It goes deal, then debt, then equity. First, you should find a property. And really, before you find a property, you should find someone who owns property and learn how they got to where they're at. The fundamentals that they can teach you are worth more than the real estate that they own. Typically, you know, some people own billions and billions. Some of the fundamentals aren't worth billions and billions, but they can help you get there. However, I'd go meet with people, learn how they got to where they're at. Then when you're buying stuff, you'll find an asset, you'll find an opportunity, then line up the debt and then look for trying to find the money. But don't try and find the money first. Then you end up like syndicators.

Well, here's a question for you, Cody. What are they making faster? Are they printing dollars faster or building new homes faster?

They're printing dollars faster.

So which of the two are easier to line up? Is the opportunity— or yeah, which one's easier to line up, the opportunity or the capital?

It's way easier to find the money.

So if that's the easy part, you need to have the deal first. Because what happens is if you raise all this money for a fictitious deal that doesn't exist yet, one, you have people just waiting to spend their money, or worse, you raise it and start paying points on it before you even find the deal. And I see people do that all the time.

Time.

But now you have this money burning a hole in your pocket. And you have to find a place to spend it. What people end up doing is they buy subpar deals, especially when they're starting. They'll buy deals that don't actually make sense because they have to place the capital they raised because they're paying interest on the capital. That's where you get really burned on the syndication game. There are actually good operators who syndicate. It is a technical business. It is not a Hey, begin in syndication, raise all your money, you'll be fine. Syndication is technical and you need to be really good at this game to manage those funds. Unfortunately, most people aren't. So don't start with capital. The deal is the harder part. When you find the deal, the capital will find you 100% of the time. Cody and I have never seen an exception to that. There's been no dollar amount that we've needed to raise that has not come in to close a good deal ever.

Sweet. Well, that's it. We're out of questions. So happy Wednesday. This is going to be an eventful weekend for postings. I don't know. We'll do our best for the Robinhood video. We're going to be in Fresno and then I'm going to be in Texas and then I'm going to be in Tennessee.

I will be skipping on the Tennessee part. Trying to figure out how to travel from Fresno to Tennessee sounded awful, especially in Chattanooga. So, um, we will post from Fresno. Cody will post something from Tennessee, and I'll hold down the fort. So if you guys like seeing me, which I hope you do, um, I'll be here start of the week. We'll fly Cody back as soon as we can, and we will definitely both be back for next week's Whiteboard Wednesday.

Alrighty, see ya.