Why we never wholesale or subject to - Creative Finance Live

Forget about it. Let's just do this.

I want the video.

We don't need to be late. Okay, well, now people are going to hear that.

No, no, no. We're live now as of this second.

Yeah, but it's 20-second delay.

Hello, everyone. It's Christian and Cody.

We are back for episode 13 of Creative Finance Live, and we are trying to figure out how to go live again on different platforms and failing at it. So if you know how to do that, that's our Whiteboard Wednesday question for you. That said, we have got some questions in the chat already. We appreciate everybody being here right away. And I think we have a couple questions from our YouTube channel.

That we do. I'm logging into those right now. We did have one that I highlighted for this event, which is, uh, came through from Sam in the chat, and it is, why do you guys— and we've said this on multiple videos— why do you guys not wholesale or use subject-to? There are two things that are very, very popular right now, and two things that we have never done and never plan to do.

So I'll start out with the wholesaling thing, and then Christian will jump into an actual real-life time story that we, we get a lot of DMs on Instagram, a lot. And there's a story that popped in that Christian will share without sharing specifics, but wholesaling, you get something under contract and it's a great deal Or at least it should be if you're planning on wholesaling it. What if you could just spend enough time, a little bit amount of creativity to just buy it? It seems like just case studies over the last 100 years, the people that own the real estate seem to do better than the people who just make their fees, which is why the real estate investor is typically wealthier than the real estate agent. People are just making their couple percentages. Now that the thought process is you can bang out a whole bunch of transactions, you can make a whole bunch of money really quick, Get liquid and then you can invest. But you don't need to have cash to invest. You need to be able to find an opportunity and get the debt for it. And so if you've got a fantastic deal, which is the first part of the equation, deal, then debt, then equity, there's nothing stopping you from just figuring out the debt piece or bringing in an equity partner. We bought a deal, it was 38 units. We could have made $300,000, $400,000 on a wholesale fee, or we could have bought it and we did buy it. And instead of making six figures, multiple six figures, we made seven figures and soon to be multiple seven figures. When you can buy great deals, you're doing the long-term game. And yeah, you're going to get some tax benefits, which is phenomenal once you start getting your earned income up, but it takes the same amount of creativity to wholesale something as it does to buy something. And if you just say, this is off the table, not going to touch it, not going to even do it or think about it, it's no longer an option on the table. Well, now you can actually focus all of your energy on how to buy it. And how do you buy it? How do you never lose it? There's only 2 steps, right? And how do you buy it? You've got deal, you've got debt, you've got equity. Once you find the deal, you just need to figure out the debt and the equity. That's it. Most people are making it more complicated than that, and it's not. You need to simplify it down to, how do I buy it? How do I never lose it? Well, I need to figure out the debt. If I need equity, I need to figure out the equity. It doesn't have to be your equity. But you can 100% leverage stuff, and it comes down to making sure that that cash flows on long-term fixed-rate debt. Don't worry about the short-term, "Oh, I'm just trying to get a whole bunch of money wholesaling." Play the game with the most upside and become the most knowledgeable in the game you want to play. Don't play some side story quest just so that one day you can play the game you want to play, because you can start wherever you want, but you don't have to start at the bottom.

And what happens with wholesalers, especially when you're getting started, is you're going to get a little bit nervous about a deal and you're going to go, "Oh, you know what? I can just get an assignment fee. I have not yet met a wholesaler who has not got addicted to wholesaling. They get addicted to the quick money. They go, well, there's a little bit of a problem with the paint. I don't know how I feel about it. I'm going to go ahead and wholesale this. And every time they find a problem, they wholesale it. Well, the end of the day, they're just never buying anything.

Well, they buy nice cars, Gucci, and Prada bags, but you shouldn't start there, right? No. Figure out how to build a cash flow machine that builds life you want to live. Money in the bank doesn't mean anything right now. It's depreciating because they're inflating the money supply. When they do that, all the money just gets worth less. And wholesalers get addicted typically to quick cash, and that is a bad business model. We're addicted to getting rid of our cash, and we don't want to get drugged or dug into that. We don't want to get stuck in the concept, in the mindset of, oh, I just need more money, more money, more money. We want to buy more cash flow because at the end of every month, whether you run out of money or not, if you have more money coming in on the first, you're going to be way better off. And it doesn't take any extra creativity to actually go buy it than it does to wholesale it.

Absolutely.

So why don't we like the second piece of this? We got wholesaling.

Subject to. Now subject to is not a strategy. It's a clause in a contract for contract for deed. Now, contract for deed is something that we've done on several properties. Love contract for deed.

Real estate contracts are great if you structure them right. Yep.

However, a huge if on the structure, right? By the way, if you haven't used them before, make sure that you have the right lawyers and you understand what you're doing. It's a little different than conventional seller financing. Now, if you have a subject-to clause, it basically means it's subject to the buyer continuing to pay the mortgage. There's a few problems with this. First of all, yes, you can get insurance against this, but it's hard to find. It's expensive and you're operating in gray areas.

Why is it hard to find?

Well, it's hard to find. So let me define it a little bit. When you have them paying their mortgage, you typically will not alert the bank that someone else owns it. They just keep paying the mortgage and everyone just pretends, hey, it's still owned by the same person. They don't alert the bank. Otherwise, the bank can do what's called a due-on-sale clause and they can call the loan due immediately. Usually have 60 days to figure it out, or they can force you to need to assign the loan. Now, if the loan was assumable, you probably wanted to do that instead of subject to in the first place. So the reason people don't want to insure that is because the risk is very, very high. The collateral is the asset, but if you get an insurance company and say, yeah, we will guarantee that the seller will continue to pay their mortgage, if they don't, and the bank forecloses, we'll back that. That is a very expensive payout for an insurance company.

The maximum foreseeable loss is huge.

And the probability of that occurring is actually pretty significant. There's a lot of people, they sell the property like, man, I hate paying this mortgage, I'm just going to stop. And you end up in a really messy situation. I got messaged this week by someone who said, hey, I seller financed a deal and the seller is not paying their mortgage.

I was like, That doesn't make sense.

That you can't do that. I mean, I've seen, I've seen it done where you have a seller finance first and then they— it's a suitable—

yeah, there's something that's subordinated and you can get down in the weeds on that, but generally, yeah. And so we dug into it, found out that they did a subject-to clause in a real estate contract, and now they're getting the raw end of the deal.

The original owner stopped paying the mortgage the second the transaction went through. They cannot reach them. And they just learned that the property that they own is being foreclosed on because the original seller did not sell the more or did not pay the mortgage. Now you, since you don't own that mortgage, it's not assigned to you, you can't just come into the bank and say, hey, I'm going to get this current. Doesn't fly.

Yeah. Just putting this out there to share with you that If you can do it, it doesn't mean you should. There's black and white, and then there's gray. This is very, very gray. And if you're just going to play loosely with the rules, if it feels wrong, it probably is.

Now, the subject-to gurus— because it's not illegal, it's not illegal to do subject-to at all. It's an enforceable clause. It just plays in a very gray area with the seller or the bank. It's basically, as the buyer, You can really mess up the seller by not performing, and the seller can really mess up you by not performing, and the bank can mess you both up. So when you're putting this together, there's so many ways that the partners are adversarially against each other instead of working together. We do not do that. That's the wrong shade of gray for how you want to build our business. Now, the online gurus, a lot of them, the people who are biggest in the space already own a lot of real estate, they have a whole lot of cash flow and earned income.

They can bail themselves out.

Because they might, and a lot of them buy smaller properties. So if their house goes under, they can write a check and bail themselves out.

Can you? And that's the question you need to ask yourself. And if you can, you probably shouldn't do that in the first place. You should probably just buy it. So keep that in mind. If it feels wrong, it probably is. And if you ask someone, oh, well, how do you protect yourself? Oh, you just get the right insurance. Well, no one wants to insure it. You have to, you know, you can't tell this person this and then you can get the insurance. Well, if you have to get that complicated, it's probably not a good business strategy because the simpler you can keep it, the more repeatable it is. And that's not super simple. Mm-hmm.

Someone just asked a question directly related to this. So I am gonna skip the line just for a second. Jackson Davey. Would utilizing a servicing company fix this issue between the buyers, the buyer and sellers for subject to? You still cannot force the original seller to pay their existing mortgage. That would provide the seller—

That would be great for documenting your payments.

Absolutely.

But can you make them just pay? No.

Good question though. And you should have those in place for your deals when possible.

Yeah, we service all of our notes through servicing companies. I mean, that is the right, way to do it. There's a couple deals that I bought from my second property owner ever that I just pay them directly, but everything else is through a note servicing company. The problem is when you pay them, you can't make them do anything. I mean, it's their money at that point.

And we also did that on the, the 7-plex. We do that one directly.

Yep.

However, the seller financer has over 22 years of commercial banking experience. I'm pretty comfortable that he understands how the AM schedule works.

Yep.

But good question. You should put that into effect. It would not protect you as much as it would the original seller.

So just make sure you're keeping it super simple. If something gets too complicated like that where you have to not tell something, omission is still lying, by the way. Yes. If you're omitting data, you're not telling them a lot, that is still lying. If you have to do that to get a deal done, don't do it. Not worth it. Promise. Yep.

And just don't cheat. There's nothing cool about telling your story when you cheated to get there. It's not repeatable.

No.

And it's not—

nobody's going to relate, nobody's going to like it. You'll probably lose some respect from a lot of people.

Yeah, especially your bank if they find out. From Dave G, could you guys please explain your philosophy on having property management from small multifamilies all the way up to your 38, self-managing versus professional and on-site manager? I will start and I'll let you take this one out. We recommend when you start out self-managing your properties. Now, if you're managing all the way across the country, I wouldn't do that. If you live in San Diego and like one of our mentees did this week, uh, Caleb and Chuckie, can I name drop them? Congratulations, 19-year-olds just bought a 10-plex for a signature in Texas. Now, do I recommend that they self-manage their property in Texas while they're under contract for their next, uh, I think they have 2 different 8-plexes under contract, 8 and a 10, so they'll be at 28. I would put that under professional management immediately because they just can't have hands-on on that property. If you are within driving distance of your portfolio, it's a very small property, 100%, 10 units or less is very, very easy to self-manage. And you're going to learn a lot about what you want your manager to do managing yourself. So small multifamily, I would say get started as long as it's local enough, get started managing yourself, with a plan of one day growing the business to a point where it makes sense to bring in a manager. Now with a 38-plex, Cody, what did we start to do as we closed on the 38?

Well, I mean, we actually started building out our own PM company and not everybody's going to do that and that's fine, but we saw the trajectory of where we were going and it was going up. So we decided, okay, well, we, we should probably start building this out because our last property manager ended up stealing a bunch of money, security deposits, rents. It was less than ideal. A lot less than they do. So we started our own PM company. That said, not everybody should start a PM company. Not everybody wants to start a PM company. Whether we wanted to or not was irrelevant. We had to. So we started doing that. But I had 68 rentals that we were self-managing. I was self-managing my 30, and then we started self-managing the, the 38, put us at 68. And then we started our PM company, and boom, that's where we really started to focus on managing ourselves. And it wasn't profitable day one, which is the problem with starting your own. It's hard if you only have a few rentals, which is why you should probably self-manage. And after 10, 20 units, you can throw it into third party if you're not going to start your own thing. But for us, we had to keep buying to get PM to be profitable. We made that profitable on our own real estate.

Yeah, so it depends on what you want to do. The other big reason that we started our own property management company is the few other property managers in town were not bringing anything to market rate. They were people who were in the game a very, very long time. Most, not all, but most of them didn't own any real estate of their own. We didn't have contacts in that market to manage the way we wanted to, so we were kind of forced to be in a position where we had to do it ourselves or not optimize it.

Yep. All right, also from Dave, what do you feel about purchasing buildings where the utilities are included in the rent? Well, I've got some of those. I've got buildings where electric's included in the rent and it's phenomenal because it's in the one of the cheapest cost of electricity cities in the United States.

I believe Grant County is number 2 or 3 for cheapest cost of electric.

It's crazy. It's phenomenal. And so on, on my stuff, if I include that, tenants may not have to pay $50, but I can add $100 to the rent. So I'm netting an extra $50 a month. By being able to charge more by paying it. So you can find a benefit by doing the rubs method where you push it out, whether you do a flat fee, you do rubs, you know, depending on what size the building is, or if you just include it and then charge a higher premium on your rent, which can be nice. Now granted, they may use more if you're paying for it, and by may I mean they probably will use more. They'll not worry about turning off the lights because they're not paying that bill, they're just gonna pay that rent. However, if you know what your expenses are when they use it all the time, yeah, it's inefficient. However, if you can just lock in your numbers and underwrite for those numbers, make sure the deal cash flows today. And that's really it, because whether you have to pay the expenses or they do, it's just going to fluctuate between expense or income for your balance sheet. And as long as it cash flows, do it. Nope.

If it flows, it goes. Well, let's see here. What do we have next? Would you be willing to go over what to say to a more experienced investor, inviting them out to lunch or coffee? Do you want to live roleplay this right now? No.

Yeah, sure.

Okay, cool. I'll do the hard part. I'll be the, I'll be the one calling you. I'm going to go from a point of time that's going to be relatable to people. So I'm going to say this is when I had 2 duplexes. This is pretty much what the script looked like. Just bought in a new market and Cody owned a 6-plex across the street.

And granted, I brought him to Moe's Lake, so we're going to pretend that I didn't, but he bought a duplex. In Mother's Lake on Peninsula Drive. I own a 6-plex across the street on Peninsula Drive. If you do a little research, you can find those deals. There's not many.

I think those are the ones we actually use as an example for our video of how to find any owner ever. So if you guys are looking for that video, I'll include a link below. But we don't do live calls on this channel because we're all about relationships. I do not want someone seeing themselves pop up on our channel for a live owner call I don't want them regretting even if we ask. I don't— I just don't want to complicate that relationship or make it public. That's my private relationship. So this is the best that we do. Here we go. So if I'm calling Cody, I have a duplex, uh, ring ring.

Hello, this is Cody.

Hey Cody, this is Christian. I actually just picked up the duplex across the street from you and wanted to reach out. I just learned that we are property neighbors.

Awesome. I'm not selling, Christian.

That is great. I just spent all my money on a duplex and I'm out of capital, so I I have no idea how I would buy your 6-plex. However, something like that is the next step that I want to take. I was actually reaching out because one, I want to know the owners in our community and we own properties right next to each other. But two, I'd really love to learn how you got to a 6-plex. I haven't figured out a scale beyond duplexes yet.

Okay. Well, I mean, I started with a 12 and then bought another 12 and then bought a 6.

So this is the smallest property you bought.

This is the smallest property I own, Christian.

Okay. I guess a better question might be, how did you start with the 12-plex? Did you, if you don't mind me asking, I mean, was that a family money thing or did you start more liquid? I started without much capital and got a duplex.

Well, I bought it seller financed a few years ago, but just been scaling up from there.

That's crazy. So you're at 30 units.

Mm-hmm.

You sound young. Can I kind of assume that you haven't been playing this game forever?

I've been playing for a little while.

Okay. Okay. You have 30 units today. Were they also financed?

Some of them were.

Okay. I'm trying to figure out how to scale up. Is that a strategy that you felt really helped you scale and get bigger in the, in the space?

Yeah, it definitely was.

Okay. I'm trying to learn that right now. All I know how to do is play the bank game. I'm going to be working on my duplex across the street from you. Are you local to Moses?

I am.

Awesome. Would I be able to grab you coffee just for 30 minutes? I'm in town on Wednesday.

I mean, you said you blew all your money on your duplex. Can you afford it?

Oh, you know what? I got a credit card. We can do coffee.

Okay. Yeah, we can do that.

Love it. It can be as simple as that. And that's off the cuff.

And Christian did that on a 5-plex owner. You talk about the relatability. Well, there's actually a 5-plex one block over from his, from from my 6 and his old duplex that he ended up selling to buy into my 12. So there was a 5-plex owner just down the street, little teal building, and Christian called on that. And it's just how the conversation goes.

And where a lot of people get stuck is like, that was pretty realistic portrayal, by the way, Cody, excellent acting. Most people aren't gonna be just super bubbly and really forthcoming, right? They're not gonna give you everything that you need to build a super strong relationship. All you're trying to do is give them enough reason to meet you face to face, because that is where relationships are built. That's how it worked for us, but that's how that script works. It's different for every person, but general feel, that's what you're doing. Give them a little bit about yourself, where you're trying to go. They're probably going to tell you, hey, I'm not selling. So just be ready with, okay, it's not why I'm calling. We're neighbors.

That's it.

Let's see here. I have from—

when you self-manage, what apps or programs do you use? We use AppFolio. So AppFolio is actually pretty awesome. You need 50 units or more to utilize it. However, great software. We use that for rent collection. That helps us with the advertising piece. We've got tenant portals online so they can send in maintenance requests and we can have it for ourselves, for all the reporting, all the accounting and expenses, incomes are all logged there.

If you're looking to get started, when I was first managing my first rental property ever, I used software called Cozy that was later bought by the CoStar Group. So I think it's part of Apartments.com now, but very simple, easy-to-use software. If you're trying to get a little bit more technical, references from others, I haven't used it myself, but I have seen it. Buildium is apparently very good as well. Again, that's not an endorsement because I've never used it, but I've heard good things.

All right, from Ridley E. If you have $100,000 capital, what would y'all do?

Well, I'd probably buy about $1 million of real estate, 10% down.

Yeah, that's exactly what we would do.

And because I really enjoy partnering with Cody, if we both had $100,000, we'd probably both go 50/50 on $2 million of real estate.

Yeah, and we'd blow it all. I mean, we are more prone to doing this than most. My lender called me up, he's like, wait, The loan application you sent said you had X amount and now you have more. Like, well, yeah, but I'm spending it tomorrow because we're buying more real estate. I mean, we're working on buying over, it's close to like $5.5 million real estate right now with a couple other offers out on storage and apartment deals. So we're always going broke. So we will go to zero for cash flowing assets.

And when you start, you should probably— you need— you're still learning and you don't have a ton of cash flow. So if you're just starting out this game, you don't have any real estate, any passive income, you're going to need more reserves. We only buy assets that cash flow. So every single time we go to zero, our income goes up little by little.

Every single month it gets better and better and better and better. This month is way better than last month. Last month was better than the month before because we keep buying stuff that produces money. Now, if you watch the progression of our YouTube channel, even before I met Christian— I started doing this a year before I met Christian. I was a little inconsistent after a few months, but you can see the progression of how we've evolved. Originally me, and then as Christian came on, we've both changed in the way that we communicate, the way we look at stuff. The principles are always the same, but the way we talk about things has evolved a little bit, and that's because we're getting more cash flow. As you grow, you will make the same progression, but we are super comfortable going broke. So if we had $100,000 today, we'd spend $100,000, we'd go to absolute zero. We do that all the time, like all the time. We're doing it tomorrow, and then like, well, for our extra money because we're closing the resort, that'll take us to like zero, zero. Um, but we're doing cash-out refi to get liquidity back. So yeah, it's a constant cycle, but as soon as you get a little bit of money What we do is we throw it at deals that will throw more money at us the next month so that we can regenerate it faster. And when we have enough cash flow coming in, we'll hammer it. It's called the debt cannon. You build this giant debt monster. Yeah, this was Christian's thing, but it's freaking awesome. You use debt to build a giant monster, and then you use the cash flow to kill the monster, and then you have a debt-free portfolio.

Yep. The one thing people really get lost on— then I'm going to get to the next question— The one thing people really get messed up on is they scale forever because they love the game. And we love the game. I love buying real estate. It's super fun. And telling the story about it is just as fun as buying it.

It's more fun not to lose it.

Yeah, more fun not to lose it. Once you've hit your financial goal, 100% recommend Dave Ramsey that roll down the debt, make it invincible, and now you own your financial freedom.

Yeah. And some people will say, well, that's a misallocation of capital.

Yes, it is.

I'll be like, I don't care, I'm not going to play this game twice.

That is the right misallocation of capital.

Yeah, for us, you can do whatever you want.

From Dan Davis, what's the benefit of purchasing the lifetime access to your teaching platform versus monthly? Is there a community component, uh, or updating the content regularly? Okay, 3 great questions.

Um, yes to most of that. There is a community component, and that's just a free Facebook group, so you can join that, I think, regardless.

I think you need an invite from someone in there.

Yeah. But you can just find us on Facebook and we can add you into that if you want it. Uh, however, the lifetime, you actually get the mentorship for the 3 months. And so we've just been throwing that in because it's been fun having a lot of people on that call. It gets a lot more dynamic with more people. And so people who are doing lifetime get the actual live calls 3 times a week, Monday, Tuesday, and Thursday. If you just do the monthly, you just get the content. And granted, you can buy real estate with just the content. I mean, it's not that complicated. Now, whether you apply it or not is up to you because there's not going to be as many check-ins. And by as many, I mean, there won't be check-ins. You can always text us because we put our phone number on the internet. It's on our YouTube channel, How to Find Any Property Owner Ever. So if you have questions, you can reach out. You're just not going to get that same level of engagement 3 times a week for an hour long meeting.

And we do need to add that to our website. We rolled that out the end of last month for the 3 months free mentorship. We wanted to make sure that you get the information and more importantly, you work with a team of people on how to actually apply that. So we, we lead those 3 times a week and we're seeing deals close from that, from within the group.

And the last— exactly what we want. The last piece, we do add content. We have every month 5 more videos to upload for partnerships because partnerships tend not to float.

Yep, partnerships are the only ships that, uh, don't float unless you do them exactly Right. So great questions. Thank you for asking. If you guys have more questions, reach out to me on Instagram @ChristianOsgood and we can talk offline. From Esteban— Esteban, good to hear from you. Esteban Mercado, how do you set up future meetings after the first? What do you normally say? So after the first, you've sat down, you've met with them. Your mission on that first meeting is to quickly communicate your goals, who you are, what you're doing and why you're doing it. You then want to map that out for them. We call this the circle drill in our course. Um, but you have relatability, you have a goal, and you have the significance behind that. Your mission in that meeting is to map those out for that person. Where do you relate? What are they trying to do in real estate? And why are they trying to do it?

Now, the thing that most people mess up on is they get to the meeting, that first meeting, and they try and just sit on relatability. They're trying to relate, to connect. That's not what you should do in that meeting. Most people just focus on that. Relatability gets you to the table. Well, congratulations. If you're at the meeting, you're already there. Now it's time to focus on goals because people will work with you based on the goals that you set. Now you need to map out their circle drill. You need to figure out where they're coming from, where they're going, and why. It helps build trust. It builds a relationship when you can do that and truly understand where someone's coming from. But most people, they'll go into that and they'll just spend the whole meeting trying to relate, figure out what they have in common, and they don't actually talk about goals— what the other person wants to accomplish, what they wanted to accomplish when they were getting started, what you want to accomplish. People will work with you based on the goals you set. If you just want to buy a house, sorry, I'm not your guy.

And a lot of people, a lot, lot of people reach out and say, hey, I don't have the, the social skills, I'm not— I'm kind of an introvert. Uh, so are we, and we had to develop that. So if you are one of the many, many people who just don't know how to socialize because you've learned from your phone, um, you're gonna have to learn how to talk to people. Once you have these meetings, talk about something of substance. You get the relatability out of the way, and let's actually talk goals and let's build something. To answer your question on how this relates to the second meeting, you're gonna ask a question on this first meeting, and it's based on what you told me, what do you recommend I do next? Your easiest in is if they recommend something actionable to you, you do that thing and you call them and you say, I did that thing. People ask for advice all the time. Almost no one— one follows it, two actually follows up and tells them they did it. Recently, one of our mentors just said, hey, I love the book, um, Seven Habits of Highly Effective People. This is how I built my business. In that conversation, I hit buy on the book. When I finished the book, I called him and I talked to him about the book and my takeaways. That's someone who we're buying real estate from today. So build off your first meeting, bring something relevant from that. Hey, I had an idea. I wanted to apply something that they gave you. That's your easiest in for a second meeting.

Simon asked, we throw up a link to the video of finding property owners.

I absolutely can. We will do that about 5 minutes after this post.

From Ryan Craig, what if we market for deals and then basically we can say our plan is to be their wholesaler if we find something good. If that's what you want to do, I mean, if that's your business model, if you want to tell them we'll find them a good deal, you could do that. That's not what we do. We don't actually like to wholesale.

My biggest problem with that is that you don't end up owning any real estate. So there's some wealth generators, there's 4 major ones in real estate, which you have your cash flow, You have appreciation, properties go up in value, depreciation, which is your tax benefits, and your tenants pay down your debt. You have a hidden fifth one, which is the government keeps printing money. So you also have debt devaluation. The actual value of that debt goes down over time. So if you're wholesaling, you're getting dollars, which lose value.

We get rid of our dollars like they're trash.

You don't get appreciation. You don't have tax benefits. In fact, you have tax liabilities with that. That being said, if that's what you want to do, that's what you should do. If your goal is to hit those 4 income generators, multiply money while getting paid to wait, I would figure out how to buy all those deals that you're just about to source. There's a follow-up question from Ryan.

I was thinking about being 100% honest and saying I'm marketing out to hopefully get a seller finance deal. Well, first off, hope's a bad business model. "Uh, but if I find something good and you're still buying, I can refer it to you." You could do that. That's not— we would never do that. It depends, you know, everybody's strategy is a little different. Our multifamily strategy is to call people, learn how they got to where they're at, and take the best pieces from the story and apply them, and learn from the worst pieces of the story and use that as a lighthouse of where not to go. Because if you're in a boat and you go to a lighthouse, well, you crash on the rocks. So we take the best pieces and add it to the strategy and we get rid of the worst pieces.

By the way, I appreciate you asking a wholesaling question on the video that we said why we never wholesale. Um, it's just a good question and I appreciate, uh, some people would shy away from that. So thank you for posting that.

Yeah. And if you want to ask it, like, feel free if as you're watching this to ask us questions. If you want to grill us on our strategy, you want to grill us on why we do things a certain way, please do. It'd be fun to go live.

The one thing I wanted to say about this with the part in parentheses, I'm marketing out to hopefully get a seller finance deal, but if I find something, what I don't want to do, and this is with investors, relationships, deals, I don't want to call people about a what if, can I try to find something? Because what happens if you don't find what you're looking for? You've just wasted their time. If you want to do the wholesaling game, and you want to close deals, I would meet people, figure out what they want, and I would not propose anything to them until you have that deal and you give them a call and say, hey, based on our last conversation, I think I found the deal is just right for you. It might not be right for me right now, and this is why, but you mentioned that you were looking for something that's really high cash flow, that's in long-term seller finance debt. This deal does this. Are you interested? That is a deal that could land. And I would buy from— I think all wholesalers should buy their deals. But if a wholesaler called me and they hit my goals exactly, you better bet I'm fine with an assignment fee.

Oh yeah, I don't care if you make a million dollars on assignment fee. Doesn't— you know, how do we buy? How do we never lose it? That's all we care about.

So I would make sure that your pitch is based on a deal. I think you still follow deal, then debt and equity. Now, if you're not buying it, you still have to start with a deal, and they have to figure out the debt and equity. Yeah, but if you're bringing a deal Make sure you have one before you pitch it. One more question from Ryan.

What is in your program which isn't on here? Well, I mean, you want me to start this? You want—

let me rapid-fire the course, then you just say what's different about the mentorship. We'll, we'll tag team this.

Okay.

The course. So YouTube, we put everything, everything for free. I don't need the world to pay us for a course. That's not the goal. The point of the course is we spent a few hundred hours and we want to market it out to as many people as possible, A to Z, how we went from point A to point B, from having absolutely nothing and no experience and no money and no family and friends in the business to over 100 multifamily units and a resort. So we put it on the course as the most linear path. This is how you talk to owners. This is how you talk to brokers. This is exactly how we analyze the deal. This is exactly how we submit an offer. We put it all together. If you follow that, you can do what we do. We couldn't find that anywhere online. And a YouTube channel is a collection of a bunch of topics. It's not a linear path. You wanna follow for free content's great, but you're gonna go all over the place like this. The course is boom, boom. What's different about the mentorship?

Well, the mentorship's live, it's interactive. And the goal behind all of this, you know, we put everything on YouTube for one reason. And number one, I mean, we, we want people to, to see that this is possible. But the main thing is there's a lot of people that are super introverted out there. And I know this because I'm one of them. There are times in social settings where I'll just walk outside because I get overwhelmed. I guess it still happens a lot and I'll just leave and I'll come back later. But most people that are introverted are unwilling to make the phone call to meet with owners to learn how they did it. So we put our story out there on YouTube so that you don't have to go make the phone call. You can just watch our story in real time. That, that is the main reason that we're doing this, because if you just see the story, you can learn from the best pieces and you can get takeaways from the losses. I've had many large losses. You don't need the course to go do this game. I didn't have a course to go play this game. The application is more important than the information, and I've been saying that for a long time. You get a little bit of info, and as you start growing, you're going to get a lot more information from a lot less people. But the course was designed for direction, and when people have direction, then they can do the mentorship. And that's really what that's all about. But you can do everything you want with or without the YouTube page. I mean, there's so much information online. The problem is you get so much information and you lose sense of direction. And that's why we put everything in order online.

If you're an analysis paralysis person like I am, and I feel like a lot of people are, but I got stuck from I want to invest in real estate to 7 years later, I finally bought a darn duplex.

And then I had to slap them around after buying another duplex to go buy bigger.

And within 6 months of buying my first duplex, I had a second duplex. Within 2 months of that, I had a 38-plex, a 7-plex, and a 6-plex to add on to those. So one thing that really helps is when you're in a group, there's some accountability, there's some creativity, you're actually talking with people. And the difference between that and this is We've actually seen transactions found, funded, and closed from inside the group, and that's the biggest difference. Uh, let's see here.

Simon, question: how do you guys get people to trust you enough to sell to you? I'm having a difficult time doing this, having no past experience to show them.

It's always hardest in the beginning, I will say that for sure. If you don't have experience, it is going to be harder, a lot harder.

But the main piece that I had to focus on is, okay, well Well, where did you come from and where are you at today? Because regardless of whether you have a track record in real estate, you got a track record on planet Earth, which just so happens to be the biggest plot of real estate you're going to be on for at least a while. Maybe we can go conquer other planets. I don't know, but we're not there today. So you have experience on planet Earth. Now you need to go relate with people. And the way that you build trust is by listening to other people and then applying what they share with you. If you call us up, someone called us up and asked to meet and they flew in from Texas and then we just got coffee this morning. If he goes and applies what I share with him, it's going to build a lot of trust. Now, do I think he's going to do that? No, I, I actually don't. But he has everything he needs if he wants to, to go buy a duplex in his home state, home city, and start his journey. He has all the cash he needs. And it's not like he has a ton of cash. It's not like he's uber rich. He's got $10,000, but that's enough to buy a duplex where he is living. FHA, 3.5% down. He's got the credit, he's got the job, the W-2. He can do everything if he just goes applies it. Now, if he applies it, he's gonna build trust and I'm gonna be more likely to work with him. If he doesn't, and he has everything he needs, the application being more important than the info, he knows what he needs to do. Whether he does it or not, I don't know. But if he does it, it'll build trust. And so back to your situation, Simon, If you can go meet with people and not try and get them to sell to you, but ask for applicable next steps and then go knock those out, that is where you start building trust when you have nothing. And that's how to play that game.

So we're at the point where it looks like most of the questions have been answered from the chat. I had not gotten to quite all the YouTube questions here because you guys opened with questions early, which I appreciate.

We appreciate it.

So I'm going to answer a couple of these and we're going to do a last call for questions. So if you have any questions that you want answered, post them below. Yeah, so, uh, a question that I got actually on one of our like 10-second YouTube Shorts, we talked about, uh, borrowing at 18%, and Antonius II said, how did you make, uh, $500K through cash flow, or did you sell after a year? Well, I'll tell you, it wasn't the back half because Cody and I almost never sell. I have sold a condo that I lived in duplex. Those are the only properties that I've owned that I've ever sold.

And he traded them into more properties.

And I traded them into bigger properties. Do you need to roll everything up every time? No.

Um, that $500,000 that I made, that was on the 38-plex. We borrowed expensive money and we got that knocked out, fortunately. However, the, uh, the upside was in the equity growth, and that's on an actual as-is appraisal. We've got the equity And today we are at $1,670,000-ish debt on a $3.4 million asset. You can do the math on that. It's a very conservative loan-to-value. And so back then we hadn't made as much equity, but we did still have significant equity. We both made about $500,000 on that deal at that time. Since then it's gotten better, but it was also a lot of work. So the way that we're quantifying making that is we're adding that as actual proven equity based on market comps, market statistics for what things are trading at in relationship to the debt we owe on the asset. Yeah, we don't sell, but we do need equity if we want to keep growing because we earn dividends on the equity that we have in real estate.

Worth mentioning, that's what we did in the first year with that asset. We still have 2 more of the 4 buildings to finish painting and doing some exterior, exterior renovation.

And market rents over $1,000 and we didn't take people there. We took people from $380 and $410 up to $600. Is it a jump? Yeah, but we're still $400 lower than market, which is, you know, it's not a lot in a Seattle deal, but that's 40%. That's, that's pretty significant.

Now, are we going to jack everyone up all the way to market rent next year? Absolutely not.

Nope. Probably take it to $700.

That's, that's my guess. And we'll, we'll figure out when we get there, but next year this asset's going to be closer to 4 million plus, we'll make more money on it. So you make money in real estate by holding real estate. So answer that question. I think in that video we just mentioned 18% is really expensive debt. When we've borrowed for 18%, we usually make more than 200% on those. Would you borrow really expensive debt if you make a heck of a lot more than you borrowed?

We would.

I would. Do we have any more questions? Simon super appreciates it. I appreciate it. Uh, Esteban says, uh, he has a suggestion. If you save your favorite YouTube videos, um, and mark those favorites, you can get a pretty linear scale. Great way to do it if you want to do this for free. Put together your own favorites list. I don't know if you can share those, but that'd be cool.

Everything that you want to learn is online somewhere. It's there. Now, if you need to learn how to wholesale, well, there's courses on that, there's YouTube pages on that, there's books on that, there's It won't be our course. Yeah, because we're not going to tell you you should wholesale. We, we think it's a bad idea. You can do whatever you want because it's your strategy. We just wouldn't do it personally, and this channel is all about what we do. It's just an illustration of the story so that in case you are super nervous, you're not comfortable talking to other people, you can just learn from our story. But, um, you get anything you want typically online, and it doesn't have to cost you anything. You don't have to do the courses. We did not need a course to get to where we're at today. We had to go meet with a lot of owners, so you get to pick your poison. But you know, that it's really simple. Just find a way that you can organize it and keep it simple. If you get super complicated, it's not repeatable. And if it's not repeatable, it's not as fun.

And then, uh, Dan Davis just mentioned here, uh, paralysis by analysis. Uh, starting out in the same boat, have a duplex, trying to get over the proverbial hump to find the next deal slash relationship. Well, if you want to talk to someone who, uh, who got stuck there for a long time, I'd be happy to connect. If you want to reach out to me, Instagram is the easiest way to reach me, but if you just @ChristianOsgood, um, we should connect and chat offline.

I would—

I was stuck there for a really long time.

Do it. What got you guys over that initial hump after your first deal or two? Well, I had done 3 deals, 2 12s and a 6-plex Christian and I actually partnered. We bought a 38-unit and that was a lot of work. And another seller finance deal popped up that we could buy zero down. So we bought that. And then we bought the 7-flat, zero down's in the budget, especially if you cash flows. And then we bought a deal where we had $25K out of our pocket, 10 and 15.

For me to get over the hump, I had to do a better job of defining my goal. For me originally, it was, hey, I believe in real estate, I want to buy real estate. So my wife and I came up with a generalized plan of like, okay, what if we bought like a duplex to fourplex every other year until we had enough cash flow we could save up to buy a duplex or fourplex every year, and we'll max out our 10 Fannie Freddie loans and we'll figure out what to do from there. So that was our original, you know, 10, 15-year plan of buying multifamily, but there was no actual goal. There's no why behind it. There was a kind of undefined timeline. So what got me over the hump personally was I went, hey, um, I want to retire my wife because the politics at her school got really weird. I'll leave it there. Um, she wanted out. We didn't know what we wanted to do. That was the only job she's ever had. So for me, I was like, you know what, I want my wife's work to be optional. And I know exactly what that costs on a monthly basis to cover our needs. So I mapped it out and I went, okay, uh, we live on $6,000, so $10,000 a month is above and beyond what I need to sustain my lifestyle.

So we built the portfolio that crushed that.

Yes, we surpassed it. However, the first thing we did was we got there, and as soon as we got there, we— that really just kicked my butt into gear of I can't do this one duplex at a time and help my wife with what she wants to do with her life. So that's how I did it. I don't know if that's exactly what works for you, but that was it for me, is writing down, putting a timeline on the goal, and putting an actual dollar amount of I have to do this by this period of time.

More questions? Yeah, sure.

When you refinance— it just moved— when you refinance the seller-financed house on a 30-year fixed-rate mortgage, do you structure that new loan for 30 years as well?

Well, if you're refinancing, you're getting new debt and the debt terms are set by the lender. So if you're taking it to a traditional Fannie Freddie loan, then you could do 30, you could do a 25, a 15, a 10. You can do whatever they're offering, but you gotta conform to whatever products they're offering.

This studio, by the way, is in my house. We're sitting in my house right now. This building I bought on 30-year fixed rate debt. On year 3, interest rates dropped a whole percent and a half, and I wanted to pull a little bit of money out of the house, so I refinanced. And it's a new 30-year debt, so resets that debt timer another 30 years. That's exactly what I did here.

Yeah. Hotshot also asked, what's your opinion on a debt service coverage ratio loan? Well, I mean, I like it. That's like commercial loans. They're going to go off debt service. They're looking at global cash flow. If you don't have great debt service, then you probably shouldn't get the loan regardless. So I mean, they're pretty straightforward. You have $100,000 in debt payments, you want a minimum of $130,000 to $140,000 in net operating income. You want margin. And regardless of whether you're doing specifically what's called a DSCR loan or you're getting commercial loan or traditional loan, you should be looking at debt service coverage because if you don't positively cover the debt service, Why are you buying it? Are you buying it for fun? Well, then that's something else that could be for recreation. But if it doesn't cash flow, you probably shouldn't borrow for it.

Now, if you've put together a small portfolio and you have multiple properties that are on 30-year fixed rate and you're looking for a way to increase your monthly cash flow, DSCR could be a really good option because you end up with some interest-only packages. We have a friend who bought in Ballard, Washington, bought a portfolio out there with the DSCR and is high appreciation market, and now he's getting high appreciation, cash flow's a little low. You drop that principal payment off, now he has high cash flow, high appreciation. You're not getting debt pay down.

However, you're getting debt devaluation and the property's going up. So your equity position's still growing. Is it riskier? Well, it depends where you're buying.

Yes, that's, uh, you definitely want to be in the right market for that. But that's my opinion on DSCR.

It has a boom flicks if there is no upside in a deal, but you can get it for 10% and it cash flows, what are some strategies you guys would use to get the money for the down payment and how would you pay it back? Well, you're going to pay it back with cash. It could be from cash flow or it could be from earned income, could be from getting the upside. But there's absolutely no upside on the deal. Why do you want to buy it? I mean, you got to figure out the strategy because if we're talking about a house, well, I'm not going to buy it if there's no upside because I'm not going to hold the house forever. However, if you're buying a 100-unit complex and the cash flow is 20% a year because you put so little money down, then if you can figure out how to pay that down payment back over 5 years, you just have to figure out how to structure that with your attorney and whoever's lending you the money.

I would say the cash flow is 20%, 5 years would be exactly enough time to pay that back out of cash flow. Math. Assuming that you never raise rent throughout the whole thing. So that's a good way to do it. The easy answer, and we've heard this from some of the bigger players consistently, The easiest money to get is money that you earn. Um, if you're looking to pay back debts, there's nothing wrong with going out and earning money, whether that's through a job or services or starting your own company. That's up to you. But at the end of the day, great way to pay back debt is to just earn it instead of recycling the debt.

Now, as you get bigger and bigger, you get more cash flow. Well, now it gets easier to pay off your obligations. Are real estate could buy out our obligations. We can just do a couple of refis to extend our balloons 10 years down the road, and the real estate will pay for the rest. We built to the level of critical mass where it's big enough to do what we want. But in the beginning, you have to figure out, okay, I can't just borrow money I can't pay back. So you need to have a plan to either refinance your obligations, pay them off out of cash flow, or pay them off out of earned income. It's not like you're going to get some lotto ticket. You can't count on that stuff. So you need to build out a plan if you're going to borrow money, because whenever you borrow money, you add risk. And that's it for our questions. So we appreciate everybody joining Whiteboard Wednesday. We are going to be posting Monday, Tuesday, Wednesday, Friday, Saturday.

Yeah, since we've added a few new series, let me just give you guys the quick breakdown and then we'll, uh, we'll part for the day. But, um, Mondays, we do our Rules of Real Estate. I think we're on Rule 22 next week out of 35. So we're a little over halfway through that series, or, you know, a little north of halfway. Uh, those are going for a while. Tuesdays, we're doing some real estate basics. We get a lot of very simple questions we don't always answer on our Creative Finance channel. So Brandon Vuklich is joining us on Tuesdays every week. Wednesdays, we're in Wednesday's call. Welcome everyone. Um, Fridays we are doing— usually that's just our big topic of the week. So it's either something extremely relevant to what's happening right now or a topic that we are very, very passionate about. But those are fun ones where you try to do a catchy topic. And Saturdays are now my favorite.

That is Saturdays from my home, and those are typically— I'm gonna have fun figuring that one out for this week because I actually haven't been at the resort this week. I was I was in Forks and Western Washington, and I'm going to be back starting tomorrow. But that's where I share my learning lessons, stories from the resort for the prior week, and give you a little intro to where I'm living.

Yeah, if you guys ever want to join Cody out in Forks, Washington, he covered himself in glitter and reenacted the entire Twilight Saga.

Not true.

Fact.

Kidding, not the factuals.

But, uh, we will see you guys.

Well, we have one more question. Okay, and we'll finish out with Dan just because he shares my last name. Can you guys explain first, second, and third position liens? Yes. Yeah. So if you're in a lien theory state, and that's what I'm going to explain because I live in a lien theory state and I haven't mastered title theory because I don't live in a title theory and I don't buy there yet. One day, but not today. If Dion was here, I could clip in his "but not today" video. If you don't get that, check out Dion's channel. However, first lien and lien theory, the order that you borrow money in is the order it's recorded and it's the order that is paid off. So if you get a first mortgage with a seller and then you borrow the down payment, well, the down payment is in a riskier position. They're going to be in what's called second lien, if that's how you choose to record it with the title company. And you can, you can flip-flop those depending on how the parties, how comfortable they are with you and what you want to do. But they also get paid off in that order. So if the seller's in first, then if you sell it, they'll get paid off. And there's, if there's any money left over after you sell it, And the second lien gets paid off. And if there's a third lien, then they get paid off. And you can see it gets progressively riskier because if there's no proceeds to pay them off, well, they settle.

Well, this is why the farther down the chain you are, typically the more expensive the debt, because the collateral gets weaker as you go down the chain.

Yeah. And typically you want to keep it clean. First lien. I've talked with some of the creative finance people online. They're like, oh, I do a third lien all day long. It's like, well, Yeah, when you're talking in theory, but in reality, that sucks.

You've been on a podcast with someone who has 5th position.

Yeah, that is what we call gross.

Dave Ramsey would call that stupid on steroids.

That's like stupid on a lot of different steroids. Yeah, if— don't listen to people that are doing that. That's garbage. You know, that, that's bad. Just because you can doesn't mean you should. Uh, third lien's getting in the weeds regardless of the loan-to-value. Just because you can doesn't mean you should. Keep it simple. First lien, a lot better than third, a lot better than fifth. But make sure that you're structuring things where if you're borrowing money, everybody is protected. You get great legal counsel for all parties involved. You're not trying to beat around the bush, hide things from people. And don't put someone in third lien unless you just know them and they know you and they know you will not screw them over. Make sure you protect everybody.

Or if there's just way more than enough equity, if you say you're borrowing, 3 people are each putting $33,000 in a first, second, and third lien position, but you have $500,000 in equity covering that, I mean, that would be fine.

Yeah, but at the end of the day, just keep it simple. The order that you borrow is the order that it gets paid off, as long as it's recorded in that same order. And make sure you protect everybody involved greatly with counsel. But that is it for today.

Hit like before you leave.

Appreciate ya. We'll see everybody on Friday if we can end the stream. Yes.