Financing and partnerships
Creative Equity: The Tool I Used on 30 of My Last 31 Deals
The equity square I use to structure partnerships, define investor returns, and plan a buyout while keeping the apartment building.
Everybody in this business talks about creative finance. Almost nobody talks about creative equity, and creative equity is the more powerful of the two.
It's the single most valuable tool in my tool belt. With it you can buy literally any deal: creatively financed, conventionally financed, straight to the bank. You still don't need the experience, the money, the credit, or the down payment. I've used this on all but one deal of my last 30 deals over the last five years. Thirty-one transactions exactly, as of today.
Related reading: Creative Equity: How to Fund Any Deal Without Money or Credit
I'm Christian. I worked for the CoStar Group for five years, selling to banks, property managers, and owners, going over real estate data and acquisition strategies before finally taking the jump and buying rentals myself. I have over 400 units today, soon to be over 600. I did that primarily through creative finance, but more importantly, through creative equity.
When I say equity, I mean ownership of properties. And the whole point of this structure is that you can still end up owning the property yourself, with or without creative finance. Here's how it works.
Why there's no such thing as a good deal or a bad deal
When I look at a deal, I don't sort it into "good" or "bad." I ask one question: what do we need to make this deal work?
That reframe is the reason this strategy exists. A deal isn't a fixed object with a fixed answer. It's a set of variables (price, terms, debt, equity) and your job is to find the combination that satisfies everybody at the table. Once you can do that, the question stops being "is this a deal?" and becomes "which lever do I pull?"
The lever most people never learn to pull is the equity.
The equity square
Before you can structure anything, you have to understand what I call the equity square. There are two pieces of math you need to be able to do on any property.
First: what is the day-one cash flow? Second: what is the deal worth today?
Those two numbers are your day-one column. Then you project them forward to where the property lands when you're done with your project. That gives you four corners, and everything you can offer an investor lives somewhere inside that box.
Let's run a hypothetical million-dollar deal.
Day one, the cash flow is $1,000 a month. When we stabilize the property, we'll be closer to $5,000 a month.
On the equity side, day one we're buying it for a million. But based on its current numbers, it's really only worth $900,000. So we have positive cash flow, but we're overpaying a little for the cash flow we actually have today. When we're done with our project (increasing income, decreasing expenses) we get a valuation of $2 million.
That's a very simple deal. Super simple to do, and anyone can replicate it. We've doubled the value on multiple properties, including the very first deal I ever did.
Structuring the payout: cash flow, equity, or both
Now look at that map. A thousand dollars of cash flow isn't a whole lot. If day one is all I've got, I don't have room to bring on either additional debt or additional investors. That would be a really hard deal to do.
But we're doubling the value. That's where the room is.
So here's the structure. I'd like to reinvest most of the cash flow into the property, and at some point I'd like to pay myself, so we'll distribute a little as we go. Let's say a very small preferred return of 2%. The first 2% of cash flow goes to my investors. Any cash flow above that we agree to split 50/50 between me and them: I get some, they get some, and they get a little extra consideration for having brought the initial capital.
At this point, I'm in this deal for $0. We have two investors who brought our required 20% down: $200,000 total, $100,000 each. They're making a measly 2% on the day-one cash flow.
Now go to the other side of the equation. Day one there's not much equity to give. But we're going from a $900,000 valuation to $2 million. We're buying at a million, they brought $200,000 in, and we're going to have over a million dollars of equity parked in this deal.
That's a deal where it is very simple to double their money.
Call it a four-year project. I put an option in the operating agreement that I have the option to purchase all of that equity from them for double what they put in. From the investor's side: I put in $100,000, I get a measly bit of cash flow, and around year four Christian does a cash-out refinance. Christian gets paid. I double my money. I did no work other than write a check, attend a few meetings, and make critical decisions as an active member of the LLC.
Related reading: The Option Contract: Buy Multifamily With $0 Out of Pocket
As long as you're in the driver's seat and driving the deal forward (and your partners are active members) you can put an option agreement in place to buy them out at a future date at a fixed price.
I sacrificed some cash flow. I sacrificed a chunk of the future value. And the real estate bought the real estate.
That's the answer every single time for creative equity: come up with a path where your real estate can buy the real estate.
What to do when you don't win on price
So what if the upside isn't there? What if you bought for a million and it'll be worth a million two at the end of the project? There's not enough to pull out a bunch of money and pay back your investors.
Then you pay them out of cash flow instead. Which means you need a deal with more cash flow up front.
And if you have a deal with very low cash flow and no upside? Guess what: you haven't found a deal yet. That's a terrible deal. Don't raise capital for it. Go work the deal first and figure those pieces out until you have something that's actually a deal.
There are basically three ways to get there:
- You win on price
- You win on terms
- You have a path to make the property worth a lot more: what we call a value-add project
Inside that little box we drew, you can slide anywhere you want for how you pay out your investors. If it's equity-heavy, skew that direction and pay them a multiple on their money. If it's heavy on cash flow and lower on future multiple, pay them more cash flow in the form of a preferred return. But always leave yourself an exit.
The relationship is a seesaw: the multiple gets lower the more cash flow you give, and the cash flow gets lower the higher the multiple you give.
If you want a general rule of thumb for where the goalposts sit at a minimum: you pretty much need to double their money every five years. If you're sharing no cash flow at all, within five years you must at least double their money. That's the minimum people tend to accept. If you're doing no multiple (you buy them out for exactly what they put in at year five) your cash flow is going to have to be somewhere around 9 to 12% depending on the investor. That recurring income has to be attractive and stable, it's backed by real estate, and you have the option to buy them out at face value. At that point you're basically treating equity like debt.
Borrowing the balance sheet you don't have yet
There's another advantage to these structures that people miss entirely.
If you're not bankable today (you don't have the net worth for the loan, the experience for the loan, the credit for the loan, or the money to put down) you get to borrow all of those from the team you build.
Go back to our example with two investors at $100,000 each. Both of them have more experience than I do.
The bank asks who's buying this. I'm managing day-to-day operations. My name's Christian, I have no money today, and I don't have a lot of experience beyond my time at CoStar. So I write the best resume I can: I've been around this industry a while, I'm trying my best to break in, and what I've done is put together the team and the board of advisors for my LLC.
Is this some crazy company? No. It's three people buying a piece of real estate.
But Investor A has five rental properties, is partnered on two other opportunities, has a 56-unit portfolio, and a net worth of about $2 million. He's on the loan with me as a partner. Investor B is an even bigger player: a multi-hundred-unit portfolio, years and years of experience, and basically a perfect credit score.
We get to use the branding of the entire team to qualify for the loan.
If I'm the bank, I'm looking at the young guy with no credit, no experience, and basically no money, not too inspired, other than I really like his energy and his vision. I'd love to invest in him, but the fundamentals aren't there. Then I look at the rest of the team co-signing. Investor two, we like him a lot. Investor three, we love this guy. The box is checked. The bank places the loan.
And look at what just happened. Your net worth went up. Your income went up. Your experience went up. You've taken the next step toward being the next big investor, and you've bought yourself time to keep building your portfolio and your financials.
So when year four or five comes and you want to buy them out, you're now bankable. You do the cash-out refinance. Magically you have the liquidity. You've had years of experience managing this exact property, and if you had credit issues, you've had four years to fix them.
Deal first, then debt, then equity
The order always has to be deal first.
You create an opportunity where you get everything you want (cash flow, long-term fixed-rate debt) and the seller gets everything they wanted, whether that's price, terms, or special clauses. Lastly, you work the equity. But the equity can make the deal.
So when I underwrite, I'm not just looking at the price of the property and deciding there's no deal here. I'm asking: what's the opportunity, and how do we get there? What debt products are available? Treat it like a little dropdown box. Click it: on this one we can do bank financing, private capital, DSCR, direct to Fannie Mae. Pick the one that makes the most sense.
Then whatever money has to come, simply choose the money and the team that make the most sense for the deal. If you can find a way to compensate them (either out of cash flow or out of the future value of the property) you can close any piece of real estate.
Now you own the building. All of your credentials go up. That's creative equity, and it turns out to be easier and more powerful than creative finance.
Key takeaways
- Creative equity has closed all but one of my last 30 deals over five years; creative finance alone couldn't have done it.
- Map the equity square first: day-one cash flow, day-one value, stabilized cash flow, stabilized value. Everything you can offer an investor lives inside that box.
- If the deal is equity-heavy, pay investors a multiple on their money. If it's cash-flow-heavy, pay a preferred return. The two move opposite each other.
- Minimum expectations: double their money in five years with no cash flow, or roughly 9–12% cash flow if you're buying them out at face value.
- Always write yourself an exit: an option to buy the equity back at a fixed price at a set date. That's how the real estate buys the real estate.
- Partners don't just bring money. They bring net worth, experience, and credit you can borrow to qualify for the loan today.
- No cash flow and no upside isn't a hard deal: it's not a deal. Don't raise capital for it.
The full breakdown, including the whiteboard version of the equity square, is in the video at the top of this post: worth watching if you want to see the structure drawn out.
If you want to go deeper, you can learn about my mentorship at multifamilystrategy.com, and there's a free course on getting started in multifamily investing available there too. And if you want to be around people actually running these structures, join the free Skool community: thousands of investors around the country networking, talking through deals, and using the same calculator and AI tools, all free. Link's below. I'll see you there.
Read the episode transcript
0:00 Today is going to be an awesome episode. 0:01 I'm going to share the single most 0:03 valuable tool in my tool belt. This is 0:05 more powerful than creative finance. 0:06 This is called creative equity. And with 0:08 it, you can buy literally any deal. 0:10 Creatively financed, conventionally 0:12 financed. You can go right to the bank 0:14 and you still don't need the experience, 0:16 the money, the credit checks, any of it. 0:19 You can close any single deal. I've used 0:21 this on all but one deal of my last 30 0:23 deals over the last 5 years. Hello and 0:25 welcome back to the channel. My name is 0:26 Christian, your channel host. I worked 0:28 for the Co-Star Group, selling to banks, 0:31 property managers, owners, and the like 0:33 for 5 years, going over real estate data 0:35 acquisition strategies before finally 0:37 taking the jump and buying rentals 0:39 myself. I have over 400 units today, 0:42 soon to be over 600 units. I did this 0:45 primarily through creative finance, but 0:47 more importantly, creative equity. I'm 0:48 going to show you how these structures 0:50 work and why it's so simple. This is why 0:52 when I look at a deal, there is no such 0:54 thing as a good deal or a bad deal. 0:56 There's just what do we need to make 0:58 this deal work? And I'll show you how to 1:00 use this. And when you understand this, 1:01 if you can apply this, you can buy 1:03 deals. And when I say equity, I mean 1:06 ownership of properties. You can still 1:08 buy the properties in a way where you 1:10 own them yourself with or without 1:12 creative finance. How do you do it? 1:14 Well, let's get started. First of all, 1:17 you have to understand the equity 1:19 square. Now, you have two pieces of math 1:22 that you need to know how to do. First 1:23 of all, when you analyze a deal, what is 1:25 the day one cash flow? And what is the 1:27 deal worth today? We need to know this. 1:29 This is our day one column. So, right 1:31 here, we have day one cash flow. Let's 1:33 say it's $1,000 a month. But when we 1:36 stabilize this property, we're going to 1:37 be closer to $5,000 a month of cash flow 1:40 on our hypothetical million-doll deal. 1:43 Now, better than this, on the equity 1:46 side, day one, we're buying it for a 1:48 million. But let's say based on its 1:50 current numbers, it's really only worth 1:52 $900,000. So we do have positive cash 1:55 flow on one side, but we're overpaying a 1:57 little bit for the cash flow that we 1:58 have fully stabilized. When we're done 2:01 with our project, we're going to 2:03 increase the income or decrease the 2:05 expenses. We're going to bring to a 2:07 place we're going to get a valuation of, 2:08 let's say, for our example, $2 million. 2:12 A very simple deal. Super simple to do. 2:15 Anyone can replicate. I've seen this 2:16 happen on many, many deals. We've 2:18 doubled the value on multiple 2:19 properties, including the first deal 2:21 that I ever did. So now we have this map 2:24 here. Well, $1,000 of cash flow isn't a 2:26 whole lot of cash flow. And so if I'm 2:27 going to buy this thing with or without 2:29 creative finance, if this is our day 2:31 one, I don't have a lot of cash flow to 2:34 bring on either additional debt or 2:36 additional investors. That would be a 2:39 really hard deal to do. However, we're 2:40 doubling the value. So we have our 2:43 square here. Yes, we have more cash flow 2:45 as we go. However, I'd like to reinvest 2:47 that into the property. I also at some 2:49 point would like to pay myself. So maybe 2:51 we can distribute a little bit as we go. 2:53 So let's say we'll do a low amount of 2:54 cash flow. In this case, we'll call it 2:56 2%. We'll do a very small preferred 2:59 return of 2%, which means the first 2% 3:01 will go to my prospective investors. 3:04 Well, wait, Christian, you said you may 3:06 not need to have investors or you can 3:07 own properties without them. Hold on. I 3:10 promise we'll get there. So, back to our 3:12 deal. The first 2% of cash flow goes to 3:15 investors. Now, we'll agree that any 3:17 cash flow that we decide to pay 3:18 ourselves above that, we'll split. We'll 3:20 call it 50/50 between myself and the 3:22 investors. That way, I get some cash 3:24 flow, they get some cash flow, and they 3:25 get a little extra consideration for the 3:27 fact that they brought in the initial 3:29 capital. Now, at this point, I'm in this 3:31 deal, $0. We'll say we have two 3:34 investors who brought our required 3:37 20% down. So, 200,000. Two people both 3:40 bought it at $100,000. They're making a 3:43 measly 2% but they're getting a little 3:45 bit of that day one cash flow. Now, 3:47 let's go to the other side of the 3:48 equation. The equity, well, there's not 3:50 a whole lot there at day one. There's 3:52 really not a whole lot to give. However, 3:54 we're going to more than double the 3:55 value. We're going from,000 to a $2 3:58 million valuation. So, we're buying at a 4:00 million. They brought $200,000 in. We're 4:02 going to have over a million dollars of 4:05 equity parked in this deal. This is a 4:07 deal where it is very simple to double 4:09 their money. Let's call this a 4-year 4:12 project. I'm going to put an option in 4:15 the actual operating agreement that I 4:17 have an option to purchase this property 4:20 from them, all of the equity for double 4:22 what they put in. I'm an investor. I put 4:25 in $100,000. I get a measly little bit 4:27 of cash flow. But around year four, 4:30 Christian's going to go ahead and do a 4:31 cash out refinance. Christian will get 4:33 paid. I will double my money. I have 4:35 done no work other than I wrote a check 4:38 and I attended a few meetings, made 4:40 critical decisions. I was an active 4:42 member of the LLC. However, I didn't do 4:44 that much. Christian handled the 4:46 day-to-day operations. As the investor, 4:48 as long as you were in the driver's seat 4:50 and you're driving the deal forward, you 4:52 have active partners, you can go ahead 4:55 and put an option agreement to buy them 4:56 out at a future date at a fixed price. 4:59 This means while I sacrificed this much 5:01 cash flow, I sacrificed a chunk of the 5:03 future value and the real estate bought 5:05 the real estate. And that is the answer 5:07 every single time for creative equity. 5:10 You need to come up with a path where 5:11 your real estate can buy the real 5:12 estate. So what if we didn't win on 5:14 price? What if we had a deal where we 5:16 bought it for a million dollars? Maybe 5:18 it'll be worth a million two at the end 5:19 of our project. There's not enough to 5:20 pull out a whole bunch of money and pay 5:22 back our investors. Well, you're going 5:23 to pay them out out of cash flow. So now 5:26 you have to have a deal that has more 5:28 cash flow up front. Now if you have a 5:30 deal that has very low cash flow and no 5:33 upside, guess what? You haven't found a 5:36 deal yet that's a terrible deal. Don't 5:38 raise capital for it. That's all you 5:40 have to do. So if you have to work the 5:41 deal first, yeah, figure those pieces 5:43 out. Get a deal that's actually a deal. 5:45 Either you have future upside or you win 5:47 on price. Those are pretty much what you 5:48 do. You win on price, you win on terms, 5:50 or you have a path to get the property 5:53 worth a lot more. We call those value ad 5:55 projects. We can pay them out of cash 5:57 flow. We can pay them out of equity. But 5:58 this little box that we drew, you can 6:01 slide anywhere within there for how you 6:03 want to pay out your investors. It's 6:04 equityheavy, 6:06 skew towards that side. Pay them a 6:08 multiple on their money. If it's heavy 6:11 on cash flow and lower on the future 6:13 multiple, then pay them more cash flow 6:15 in the form of a preferred return. But 6:18 always leave for yourself an exit. And 6:20 guess what? The multiple lower the more 6:22 cash flow you give. and the cash flow is 6:24 lower the higher the multiple you give. 6:26 If you want a general rule of thumb for 6:28 where those goalposts are at a minimum, 6:31 you pretty much need to double their 6:33 money every 5 years. If you're 100% 6:36 you're sharing no cash flow within 5 6:38 years, I must at least double your 6:40 money. That's the minimum people tend to 6:42 accept. If you're doing no multiples, so 6:44 I can buy you out for exactly what you 6:46 put in in five years, your cash flow is 6:49 going to have to be likely 9 to 12% 6:53 depending on the investor. It has to be 6:54 attractive enough where that recurring 6:56 income must be stable. They're backed by 6:58 real estate and you have the option to 7:00 buy them out at face value. You're 7:02 basically at that point treating equity 7:04 like debt. Now, there's another 7:06 advantage that you get from doing these 7:07 structures. If you're not bankable 7:09 today, if you don't have the net worth 7:11 for the loan, the experience for the 7:13 loan, the credit for the loan, the money 7:15 to put down, you get to borrow all of 7:17 these from the team you build. Now, 7:19 remember in our example, I had two 7:21 investors with $100,000. 7:23 Well, both of those investors, in my 7:25 hypothetical example, have more 7:27 experience than I do. When the bank 7:28 says, "Who's buying this? I'm going to 7:31 be managing day-to-day operations. My 7:33 name's Christian. I have no money today 7:35 and I don't have a whole lot of 7:37 experience. Other than at this point, 7:38 I'd worked for the Co-Star Group for a 7:40 bit. So, I write the best resume I can. 7:42 Hey, I've been around this industry for 7:43 a while. I'm trying my best to break in. 7:46 What I've done is put together the team 7:48 and the board of adviserss for my LLC. 7:51 Now, is this a crazy company? No. This 7:53 is three people coming in buying a piece 7:54 of real estate. But investor A will say 7:57 that they have five rental properties 7:59 and they're partnered on two other 8:01 opportunities. They have a 56unit 8:03 portfolio and a net worth of about $2 8:06 million. They're with me on the loan as 8:09 a partner. The other investor is an even 8:12 bigger player. He has a multiund unit 8:15 portfolio, years and years of 8:17 experience, basically a perfect credit 8:19 score. We get to use the branding of the 8:23 entire team to qualify for the loan. If 8:25 I'm a bank, I'm looking at this like, 8:27 okay, well, the the young guy with the 8:29 low credit or no credit. So, I'm looking 8:31 at this. Hey, the young guy with no 8:33 credit, no experience, and basically no 8:36 money, not too inspired other than I 8:38 really like his energy. I like his 8:39 vision. I hope he does really well. We'd 8:41 love to invest in him, but we just don't 8:42 have the fundamentals. Now, the rest of 8:44 this team who are also co-signing on 8:46 this loan. Investor number two, we like 8:48 him a lot, but investor number three, we 8:51 love this guy. We want to put money into 8:53 this investment. The box is checked. 8:55 Bank now places the loan. And now, guess 8:57 what's happened? Your net worth has gone 8:59 up. Your income has gone up. your 9:01 experience has gone up. You've taken the 9:03 next step towards being the next big 9:05 investor and you've bought yourself time 9:07 to continue to build your portfolio, 9:08 build your financials so that when that 9:10 year five comes out or that year four 9:12 when you want to buy them out, you are 9:15 now bankable. You do a cash out 9:17 refinance. Magically, you have the 9:19 liquidity. You've had years of 9:21 experience managing this exact property 9:24 and you've had four years if you had 9:25 credit issues to fix said credit issues. 9:28 When you are finally bankable, you pull 9:30 the cash out of the property. The real 9:32 estate buys the real estate. Now, I have 9:34 done this on countless transactions. 9:36 Well, that's not true. It was about 30 9:38 transactions. 31 exactly today, so maybe 9:41 not countless, provided you can count to 9:43 31. 9:44 This strategy has allowed me to close 9:47 infinite deals, many with creative 9:48 finance, but the order always has to be 9:51 deal first. You create a opportunity 9:53 where you get everything you want, cash 9:55 flow, long-term, fixed rate, debt. The 9:57 seller gets everything that they wanted, 9:59 whether that was price, turbs, special 10:01 clauses, you name it. Lastly, you work 10:05 the equity, but the equity can make the 10:07 deal. So, when I underwrite a deal, I'm 10:09 not just looking at the price of the 10:11 property. I'm not looking to say, hey, 10:12 there's no deal here. I'm looking, okay, 10:14 what's the opportunity and how do we get 10:16 there? What debt products are available? 10:18 Look at it like a little drop down box. 10:20 Click that little drop down. Oh, okay. 10:22 On this one, we can do bank financing, 10:24 private cap. Okay. DSCR direct to Fanny. 10:27 May we have all sorts of options. Pick 10:28 the one that makes the most sense. 10:30 Whatever money has to come, simply 10:33 choose the money and the team that makes 10:34 the most sense for the deal. If you find 10:36 a way to compensate them, either out of 10:38 cash flow or the future value of the 10:40 property, you can close any piece of 10:42 real estate. Now you own the building. 10:44 All of your credentials go up. 10:45 Congratulations. You've done creative 10:47 equity, which turns out is even easier 10:49 and more powerful than creative finance. 10:53 Hope this helps. If you want to join a 10:54 community of people who are using all 10:56 three of these, the creative deals, the 10:58 debt, and the creative equity, join the 11:00 free school community. Link is below. 11:02 Completely free. Thousands of people 11:04 around the country are networking, 11:06 talking about deals, even using the same 11:08 calculator, the same AI tools, all of it 11:10 for free here in the school community. 11:13 Click the link below. I will see you 11:14 there. Like and subscribe. We'll see you 11:16 on the next episode.
Put these ideas to work.
Get support from Christian and the coaching team with your next multifamily deal. See how the mentorship works or start your application.
Apply Now
