Deal, Debt, Equity: The Creative Multifamily Model I Use to Buy

Original automatic captions. Names, numbers, and punctuation may contain transcription errors.

0:00 All right. So, the goal for this mission, I actually altered it very slightly because so many of you guys
0:06 from the mentorship group made it. I've made this just very very very slightly
0:11 more advanced just just a little bit. I kicked it up a little bit over the last few days. Uh so, I'm going to intro with
0:16 the basic thesis, but no matter what level you're joining coming in here, we are going to go in detail through the
0:23 entire process. How like my rules for real estate. We're going to share a ton of actual stories. I have some awesome
0:29 guest speakers coming through. You guys are going to hear from Cody multiple times. Rumor has it Cody might actually close the deal while he's talking. So,
0:37 we'll we'll capture that on camera. Um, that's going to be fun. But there's a whole
0:42 bunch of fun that's going to be happening. We'll have Eric here later today. Uh, schedule is right up here, but Eric's gonna I've done a ton of
0:48 transactions creatively financed with Eric. And so, we're going to have a little Q&A with him talking about, you
0:54 know, how do you negotiate creative finance with a broker? How does this look? if we're able to. We're going to
0:59 do live calls. If the internet doesn't want us to do that, I have a backup plan. But today is going to be really fun. We're going to get into the
1:04 analysis. There's a lot of meat and potatoes. Tomorrow, I'm going to do something a little weird. Tomorrow, I'm going to
1:10 open with some of the mindset pieces and some of like the the what I found really
1:16 motivational because it was really hard. Usually what you're supposed to do event is like open with like, "Hey guys, let
1:22 me get everyone pumped. This is going to be I'm just going to dive right into the actual content today. I want to make sure that everyone learns what they came
1:28 here to learn. And then we'll kick off tomorrow with the story of the Robin Hood and why this project was really
1:34 hard and how I do it differently and how you guys can save a ton of money doing this correctly. I was closing tomorrow
1:40 with Phil who basically took everything that I did wrong and then didn't do it,
1:46 which I think your life looks really cool when you do exactly the thing. So, Phil's probably the best example of like
1:51 I just did the only things that were the correct things and not any of the other steps. So, uh we'll hear about how to do
1:57 it correct. We'll hear about how to do it incorrect. I'm really excited to kick this off. So, uh we got the clicker
2:02 working, which is a huge win. You have no idea how hard that piece was. Thank
2:08 you, Chris. Which, by the way, if anyone heard Chris sing last night, Chris is on camera in the back. Chris is amazing.
2:13 Thank you, Chris. And now that he is embarrassed, we're off to the races.
2:22 All right. So guys, welcome to uh welcome to day one. So the target is the same as my target
2:28 is for every time I speak about anything. Welcome on in everyone who's here today, regardless of
2:34 if you're in the mentorship, not in the mentorship, within six months of today, I would like you to buy at least one apartment complex. I think this is a
2:40 reasonable goal. We're going to go through all the steps again. Just quick show of hands. How many people have
2:46 bought their first apartment complex in the crowd currently?
2:51 Perfect. Cody and Ashley, I believe you guys have bought some apartment complex at some point. I believe I believe that that is
2:58 true. About a third of you. So, this is perfect. So, there plenty of people here have done the thing once. Some people
3:03 have not had a chance to do that yet. Either way, I'm really excited to share what I think
3:09 is the simplest method to buy apartments and then not lose them, which is, as I
3:14 was talking to Phil last night, Phil's favorite part, the not losing them part. It's a it's a really revolutionary idea.
3:20 And if you guys have watched the media lately, uh, a lot of the people who bought in 2020 and 2021 who have been
3:25 large influencers, uh, did not do the don't lose the real estate part. So that'll be a huge focus of this is how
3:31 do you buy in a sustainable way that works virtually every single time. We will talk about what happens when it
3:36 doesn't work. But for the most part, if you follow these steps, it's going to be really, really, really, really hard to
3:41 run into significant problems. So excited to kick this off. So if you guys
3:46 are starting in multif family or you guys are expanding your existing portfolio beyond where it's at today, a
3:53 huge focus today is going to be how do you get creative? And a lot of it's going to be based on well how are we doing this conventionally in the first
4:00 place. One thing I'm going to be teaching consistently is how do you set a baseline of hey we underwrite every
4:06 deal the same way. I need to understand where it works conventionally so that when we get creative the creativity
4:13 makes sense and we have a way to pivot out of it. One thing that Cody and I did very interestingly our career is since
4:18 everything was creative the question was how do we close it? The problem that we were trying to solve is how I actually
4:26 remember having this conversation with Cody in our office. These uh our boss
4:31 had said, "Well, you can't buy every deal." And Cody and I were like, "Well, what if you could?" And so, that was the problem that Cody and I were trying to
4:37 solve. How could you close every deal that you want to close that's in front of you? What I've learned and what I'll
4:43 be sharing is you really need to understand and factor for if we had no
4:48 creativity, how would we do this deal? And from that baseline, when we add creativity, how close can we get to a
4:54 deal that would have worked conventionally as well? It gives you a standard of underwriting your deals. So,
5:00 if you guys are like, "Wait, I came here for all creative finance. A lot of this feels a little conventional." Good. That's our that that's our starting
5:06 point. That's our baseline. We'll talk a ton about how to get creative throughout the entire event.
5:12 So, little bit about me for the very few of you guys who don't already know me. I'm
5:18 Christian. Hello. uh founded multi family strategy. I've done two PM companies. One of them I sold here in
5:23 Washington. Uh I own the Robin Hood Village Resort. So guys, welcome to uh welcome to the Robin Hood. [applause]
5:29 We shouldn't have bought this, but we have it now. And I love the Robin Hood. Uh this is a project that I will
5:34 probably never sell. We structured it completely wrong. That's going to be a sneak preview into day two. Uh tell
5:42 about how we bought this wrong and how that uh that pivoted the entire strategy. Um, but I own when I made the
5:48 slide over 500 rentals. Now I think just over six. Uh, we went under contract officially yesterday for 372 more units
5:55 in Long View. So that's a thing. [applause] I don't share that to brag. So thank you
6:01 for the applause. Uh, but I don't share that to brag. I do share that to say that we are actually actively doing
6:06 this. I a huge inspiration for this event in multif family strategy is I get
6:12 really frustrated the few times I actually get on social media and I see people talking about like oh yeah you
6:18 should do all this with your rentals and then you like look at their portfolio and the last time they bought was like 2016. Uh just want to say we actively do
6:25 this all the time. This is my actual job. This is what I do. We love buying rentals. We love managing rentals. I
6:32 love providing great housing to great humans and like a few not as great humans, but mostly really great humans.
6:38 You have a thousand person portfolio. You know, you have a couple bad apples in there, but I love providing great
6:44 housing to great people. It's really fun to come into different markets and actually provide a legitimate service.
6:49 There's one thing about multif family, it's really easy to talk about, of course, we're going to get into it. It's easy to talk about the cash flow and the
6:56 rentals and the the growth. What I've found most rewarding personally is it's
7:02 really fun to go into a town beyond just buying single family and houses to go from apartment complex to apartment
7:07 complex and be like, "Wow, we actually had a material impact in this town. We were able to keep rent affordable, still
7:14 make money, which is still important, but we increased the value or the quality of life for all of these
7:20 people." Not the value of life, that'd be a crazy thing to say. Their value is there. the housing. It's really fun to
7:25 come in and see a campus that was struggling or had management problems, lease problems, and we come in and fix the problems, which is very much what
7:31 the Long View project's going to be. So, I love getting to do that. Uh, that's a little bit about me. Run the YouTube
7:37 channel, Multi Family Strategy. Many of you guys originally found me there. Uh, I appreciate everyone following the
7:43 journey there. This is really fun seeing this culminate in a bunch of humans here, especially because I recognize so
7:49 many of your faces, which is fantastic. also wrote the book on creative finance. I have a couple of coffees. I'll I'll
7:55 hand some out as we uh as we go through this. Uh but wrote the book on creative finance because I was really jealous of
8:00 Brandon having the book on rental properties. I was like, you know what? I like this naming scheme. We're going to take that. Uh and amazingly, no one else
8:07 has technically wrote the book on creative finance. So, uh that's also a thing that we did. But this is literally
8:12 all I do. Most important for me personally, I didn't start with the Dave
8:17 with with the Rob Kiasaki, the the business creative. I started conventionally. Now we have speakers who
8:23 are going to come here who started just as entrepreneurs. Uh people who only had like a couple hours of grocery store
8:29 experience as their only real job. We have all sorts of different speakers at different starting points. For me
8:34 personally, I didn't start as an entrepreneur. I started where as I believe a majority of you did nineto-5.
8:40 I personally did college. Don't really use that part of my degree which is hilarious because it's business and I do
8:46 business. I can't point to one thing I learned in college that I use today. But I did the degree, went to first,
8:53 second, third, fourth, fifth job, scaled a sales career. Uh, even got jobs in real estate. I worked for the Co-Star
8:59 Group, loopnet apartments.com. Worked for them for four years. Co-star Group
9:04 was awesome, except that I got good at selling data. I didn't buy real estate.
9:09 And I would meet with people all the time. And this was the revelation for me that I hope a lot of you guys have here because there's a lot of people here who
9:16 do own apartments. I was talking to all of these people who have done the thing that I really wanted to do and four
9:22 years in I had overstayed my career. I came there to get into real estate and I
9:28 didn't own any real estate. So for me it was a four years of college then eight years career of working for me to go
9:34 wait a second there's other people who have done the thing that I want to do. It's obviously doable. And that's around
9:40 the time that I met Cody, which is why he's one of our speakers today, because he was the kid in the office who was like 19 years old and he had he was just
9:46 about to close on his 30th rental. He was I remember being on a boat uh that his boss had like absolutely no money to
9:54 actually afford buying. Uh but I was on we're on the same little mini dinner cruise in Lake uh was that Lake
10:00 Washington? I think that was Lake Washington. We're out on this little mini cruise and they're like, "Oh yeah, and this is Cody. He's bought 24 units
10:06 and he's 19." I was like, "Wait a second. I may have missed a potential step here.
10:12 My goal of today and our our multif family thesis for the first section I'm going to share here. My goal is that no
10:19 matter where you start with like as an entrepreneur, as an investor, as a nineto-5 or went to college, didn't go
10:24 to college. The point is you could do exactly what we did. You can scale larger. I'm technically I think Mark has
10:31 a higher unit count than me now. So, it's like you can you can literally just uh you can be any size investor in any
10:37 amount of time with any amount of units. Phil has uh no partners in his portfolio. That's another cool thing to
10:43 do. There's a bunch of different flavors of real estate and ways to structure this. We're going to go through a ton of
10:48 them. The main goal for me is that you put together new pieces of how this is possible. If you have a few takeaways of
10:55 this clicked and I now have an idea of how I could attack this deal, that's a
11:00 successful event for me. And you know, everyone gets out of here and buys an apartment complex.
11:05 So again, came from the co-star group. The difference in life from Double Chin
11:12 Christian here on one side of the screen uh with Jeff Golem, our apartments.com rep, who actually, fun fact, uh he a
11:19 condition of his contract, he came up with the character Brad Bellflower, which is
11:25 also just Jeff Goblin. like there's it's just normal Jeff Golem, but his contract says that everyone calls him Brad
11:31 Bellflower and that is his character for apartments.com. I was like that's a very Jeff Golem thing to do. Uh favorite
11:37 co-orker going from a relatively successful career. I did really well at co-star to owning buildings like the one
11:44 behind me in that picture. That's a 44 unit uh that's the office of a building that actually Matt and I own together.
11:50 Sweet property, 100% occupied. going from corporate to this, I can't fathom
11:56 ever wanting to go back. Even if I even if I say lost all the rentals, which
12:02 would be really really hard to do when you're cash flowing, but if all of it disappeared, I'm like, I would just do
12:08 this again. I love everything about the life that I get to live. Providing apartments, going to projects, meeting
12:15 tenants, and then getting to do it all from a house, which is really sweet. When you have a wife who's in the
12:22 business, and you have kids, it's just I don't get I don't miss out on any of
12:27 life, which is the one thing that you do get for working really really hard in apartments.
12:33 I've already said that. So, here's what we're going to cover today. We're going to learn math and analysis with the one and only Cody. That's him at another
12:39 event. And I have the same whiteboard for Cody right over there with the same markers. Uh so you guys are gonna get
12:45 Cody has done this before. He knows what he's talking about. We're going to go through the math and analysis. We're going to make sure that you're actually
12:50 doing the right deals and structure in the right way. You guys are going to meet uh Eric who I've done multiple transactions with. We're going to have
12:56 to have a conversation with him on how you position with brokers. One of the most common things that I personally get
13:02 when we talk about brokers is, "How do we do creative finance with an agent
13:07 without sounding like someone saying, "Hello, I don't have any money." Eric's going to go through that in detail. I've
13:13 done four seller finance deals with Eric. I've partnered with Eric on a deal. Uh people here have done trans
13:18 multiple people here have done transactions with Eric. Uh it's going to be really fun having him up here because he's a broker who understands the
13:24 business, is going to say it really simply, but also knows how to get creative. I've done deals with Eric when
13:31 I didn't have any money. So, it is possible to do with a broker. Eric's going to help us go over that. I'm going
13:37 to talk about negotiating live deals. Again, internet dependent. I'll either literally call some brokers live and
13:42 I'll do the live call in front of you guys or if the internet and sell reception don't want to work because I
13:47 don't know if you noticed, we're a little bit remote. Uh I have a plan B to go over that in more of a roleplay
13:52 sense. But either way, we will cover exactly what that looks like today. Uh and we're going to discover a lot about creative finance. Uh this is a uh campus
13:59 that I bought uh 144 units. It's just crazy when I look at that picture. I know the screen is
14:05 really small. Our big TV died. If you look at each of these buildings, though, it is so weird to go to that campus
14:11 still and go, we own every single one of these. It's like 22 acres of just
14:18 building. And then you go six blocks down the street and we have another campus and we just went under contract for another 80 unit on the other side of
14:25 town. It's really just a It's a surreal feeling to go 2020 was when I really got
14:31 out of just buying a couple duplexes to apartments. It's a surreal feeling to go from 9 to5 to you're just in a city and
14:41 you're just a part of the business there. It's a really fun experience. We're going to talk about how you get
14:47 there using a little bit of creativity because that's where I personally started. Left my job. Uh
14:53 oh, right. We're not on YouTube. I can say the word co. Ah yes [laughter] co you know what I'm talking about. Uh
15:00 so co hits I'm an outside sales rep for co-star. That was a the best thing that
15:05 ever happened to me personally because it had me stop what I was doing and have
15:10 time to actually just sit and think like what do I actually want to do? And that's how I landed on like we're going to do the apartment thing. I remember
15:15 having the decision on the train into Seattle a year before, but then I didn't
15:21 do anything meaningful with that decision other than just like read a bunch of books and research. So I learned learn learn didn't apply. COVID
15:28 hits and I was like I am definitely not doing this. There is no possible way I'm going to sit in my house while my wife's
15:34 teaching kindergarten over Zoom and my house is like 1,000 square feet in rent at the time.
15:40 There is no possible way I'm doing this co-star thing. left my job, then go back to go back to real life. My wife breaks
15:47 her back and I'm like, "Oh, shoot. Well, now we have no income. I have two duplexes. So, my mortgage is
15:54 covered. My my duplex is cash flow $2,000 a month. My mortgage because I bought my house in like 2016. It was and
16:00 it was a tiny house. It's like $2,000 a month." So, I'm like, "Okay, uh house is covered. Uh food, insurance, gas, I'm
16:07 now at a loss." So, I'm like, "Okay, options. Go back to work or figure out the apartment thing." We opted to figure
16:12 out the apartment thing, but that's how I got started. My recommendation to everyone, uh, don't actually start from
16:19 zero. Very difficult to do if you can avoid it. Uh, some income is nice.
16:26 Oh, and there's ghost Christian apparently on this slide. I made myself transparent. Uh, we're also talking about how you uh disappear as you raise
16:33 capital. Oh, no. We're going to talk about how you actually raise money for these, how you put together the equity structures. The equation that we're
16:39 going to go over in this session right here is deal debt equity. If you guys have ever seen the YouTube channel or
16:44 been part of any of mentorship call ever, I've said this like five or six times. I'm going to go over exactly why
16:50 this works the way that it works. We're going to hear every single piece of this. And for the most part, these two
16:55 days, we're going to go in order through finding the deal, negotiating the deal, which is why we stack this the way we did. We're going to get into the math
17:01 and analytics, which is how do you determine your deal as a deal. We're going to talk about the debt products and creative finance. And then we're
17:07 going to get into the equity structures. I have a ton of questions that many of
17:12 you guys have asked over the last several months prepared to be answered in all of these
17:20 especially on the equity side. I had a lot of questions on how do you structure this. So target there. I really want
17:26 everyone to understand how you would close a deal, how you're going to underwrite it, and how you're
17:32 going to put the pieces together. Because any deal that you see online, offline, there is a price or a structure
17:38 that it would work at. It doesn't mean it's what's going to get accepted. But if you can look at an opportunity and
17:44 you can you have the tools to know when that opportunity is an actual opportunity, you can buy literally
17:50 anything, including this. Don't buy this. And we're gonna learn some practical
17:55 application from the fillionaire right there. The man himself named by Matt, I believe. I believe you first coined
18:01 that. I love I love that nickname. Uh but it's been really fun watching Phil uh literally apply exactly what I'm
18:08 teaching. Uh I I think in the purest way I've had people do technically more than
18:14 Phil. Uh but Phil just did it. I I love the way that he structured it because he learned all the things that you learn buying apartments. It's not like
18:19 everything went absolutely perfect for him, but the amount of mistakes that he cut out going from A to B that most
18:27 people don't. I'm really excited to have you I'm I'm really excited to have you talk about this. Actually, there there's
18:32 a couple things like I I have questions for you on on how you make less mistakes and a whole bunch of other stuff. So,
18:38 I'm really excited to have you guys here. So, uh, before we get started, oh, this is more of a for a newer crowd,
18:44 this this particular slide, but if anyone here has still had these any of these thoughts, I do want to dispel
18:50 these because these this it's the wrong way to attack this business. Uh, if anyone's like, "Hey, I should get my real estate license to buy my real
18:56 estate. I should be a property manager, a wholesaler, I need to make 200 dials a day." Whatever your original ideas were,
19:05 you know, mine was I need to go to Co-Star and then I became a broker. Cody and I were like the best brokers at never selling anything. Um, we've worked
19:12 in the same office. I added all of these steps.
19:17 What I learned is that the simplest way to do something is just you need to map what is the end goal and then how does
19:24 one get there? The path to buying an apartment has nothing to do with being a property manager. You're going to pick
19:30 up property management skills doing that, but you're not building a resume
19:35 if you're someone who is trying to leave the nineto-5. A mindset problem that I I think a lot of us run into is we're used
19:42 to having to qualify to do the next thing. So, you're trying to build your resume. And while it helps
19:49 like a tiny bit with bank debt, 70% of my deals had creative finance.
19:55 That that didn't even it wasn't even a factor. It's not about building your resume. It's about mapping the most
20:00 efficient way from A to B. Where where do I want to be specifically and where am I at now? So, quick drill for
20:06 everyone. Uh for me, when I started, my wife's injured. I left Costar. I don't
20:13 have income. What do I need? Well, mortgage is $2,000 a month. My two rental properties do
20:19 cover that. Everything else costs less than $10,000 a month. Awesome. If we get to $10,000 a month, I have an excess of
20:26 capital for my current lifestyle. That is a great place to be. So my first target gets to $10,000 a month. And then
20:32 you hit that target and you set your next target. And so the next one was like, "Okay, well did it once. Let's do it twice." 20,000 would be 10,000 was
20:37 like we're in Seattle. So I'm like, "Okay, I can survive." And then 20,000. I'm like, "Okay, well I I have some
20:43 excess here. This is this would be a more comfortable place." And then we engineered to that
20:49 challenge for everyone while you're here right now. Think about it. Where do you
20:55 want to be specifically with rentals beyond, hey, I want to own more buildings. I want to have more money because for eight years, I wanted to one
21:02 day retire off rentals. And I ended up with two duplexes in those eight years. I didn't do nothing, but it wasn't a
21:08 meaningful life-changing amount of, you know, a lot of people will watch Bigger Pockets like if I get a couple duplexes,
21:15 I could be set for life. And it's like, not not really. They're help helpful. It's cool when your real estate pays for your real estate covers covers my tiny
21:20 little mortgage. Really understand where do I want to go and how would I build the path from A to
21:26 B. When I talk about the Robin Hood, day two, our first meeting, like the nine
21:33 o'clock on day two, I'm going to go really deep and like what if you have like a ridiculous thing that you need to do, but wherever you are right now, just
21:40 like really map it out. This is what I am trying to build to and then let's cut out the extra steps, not skip steps, but
21:47 go what are the actual necessary steps? And what I usually find is there's a
21:52 bunch of extra stuff that we've added, especially if you were a nineto-fr
21:57 because a lot of us went from first grade, second grade, third grade into middle school, high school, some
22:02 college, some didn't, but then you went into your first job, your second job, your third job. You started a company, you went back to the 9 to5. We're used
22:09 to adding qualifications to get to the next step. as an investor the way that you process
22:15 these things it you have to have some knowledge but it's not it's not like
22:22 this resume or like hey I must do this to cross your your own boss it's the fun
22:27 part about being an investor and we will talk about some of the mindset of that because uh being your own boss can be really hard all right so again this is
22:34 our general structure for today I'm going to dive into number one I'll do our best to keep us on time last
22:39 announcement before we get rolling every section should have about a 10 to
22:45 15 minute break between mingle, hang out. My goal is that while we go over a lot of structured stuff, I hate events
22:53 where we just sit the whole entire time and then they freeze out the room so that everyone's cold so you pay
22:58 attention. This is organically breezy. It will get warm. Uh we did a good job here. Uh but when you guys are when
23:05 we're actually going through and like doing this, be social. Network with people. The point of the Robin Hood is that this is supposed to be fun. There's
23:11 five kayaks. There's like 45 of you. Figure that out. Uh we we also
23:17 [laughter] have like frisbee. We have little trails around here. There's fun restaurants. I tried to build in
23:23 downtime. I found every time we run an event here at the Robin Hood, by far the most valuable thing every single time
23:29 the feedback we get, no matter what we teach is, hey, I connected with someone here and I learned something from someone in the audience. That is always
23:37 what happens. So I try to build in an absolute ton of that. No, please take the time. We're in Union, Washington in
23:44 the summer. One of the only two months that Washington is habitable. You I don't like gray. Okay,
23:51 this should be really fun. You guys should relax a little bit and let's have a good time. Okay, so the basic multif
23:58 family thesis only buy deals that increase your income on day one. I have
24:04 done multiple deals that did not increase my income day one. They had a ton of upside and they're
24:09 they're technically good deals. That being said, a deal that bleeds money, a
24:15 delay, you just continue to bleed. It's really stressful. I was talking to Matt,
24:21 if you don't mind me sharing, last night you had mentioned this. You factor correctly your math for a deal that does
24:27 bleed for a while. You have like excellent opportunity, but actually physically watching the account go down
24:32 and then go like, "Hey, I hope that everything does actually happen the way that I thought it would." There's a
24:37 certain amount of stress that comes with that that makes real estate less fun. And what I find happens is one of two things. When you don't buy based on cash
24:43 flow, you either buy one deal and it consumes all of your energy and now you
24:49 are trapped in fixing that one opportunity for a long period of time.
24:54 Or you decide, okay, this was hard and real estate sucks and I'm out. And I've seen a lot of that, too. If you just do
24:59 deals that increase your income, I look at this I'm a board game nerd, as many of you know. Um, I'm going to do this
25:05 like a video game, though. It's like a save point. Like, I closed and it has positive income day one. If nothing else
25:12 changes, if none of my business plan even works, I've increased my income and my income stays up. If I bought a deal
25:18 and I don't lose it and it pays me money, I've given myself a raise for life.
25:24 People, especially the internet, like to pitch like, "Oh, all the value of real estate is appreciation and depreciation." And those things are
25:30 awesome. And frankly, appreciation when you have a nice run on the market will is what's going to make you rich in real
25:37 estate. You know, net worth, you can skyrocket. Build your business on cash flow,
25:43 period. I get pitched and a lot of you guys have sent me deals where like, I have a vision for this deal and it's
25:49 awesome. I'm like, it does look really awesome. Please don't do that. It doesn't make money yet. Just buy it where it makes money. that if you just
25:55 do that, the thing that I promise you, you're going to find amazing opportunities. If you say no to the ones that don't
26:02 make money day one, you will go faster. You will buy more deals. Drive literally
26:07 anywhere and just look around you. There are buildings everywhere someone owns them. You can do it, too. Literally,
26:14 every single building is owned. Whenever I feel a little bit down in real estate, I drive literally anywhere. Well, except
26:21 for West because I live in a bunch of ranches. There's no there's no properties. I drive east [laughter] and
26:27 you look at you're in the town. There's lots of buildings. Okay, someone owns that, someone owns that, someone's there's a way to do this. There's no
26:33 amazing ridiculous skill set that you need to do this. You just need to understand the math and a little bit of negotiation.
26:40 So, we increase our income from day one. Uh, never do a deal where it only works when
26:46 you sell it. This is a very common model, especially in syndication, where all the returns are based solely on the
26:52 exit of the property, which means this works as long as everything goes right or most of the things go right. I just
26:59 saw a podcast that Cody was on where the the guy who was debating Cody was like, "Dude, my business model works. As long
27:05 as there's nothing goes wrong, I make money." I'm like, "I can't believe you said that on a podcast." That's a crazy thing to say. I'm going to side with
27:12 Cody on this one. Uh, no, you need cash flow and you need margin. Just do deals that are better. If your deal doesn't
27:19 have enough cash flow or enough upside, what that means is you just don't have a deal. Go back, keep negotiating.
27:27 So, if you buy income and you hold it forever, you know what happens? Your income goes up forever. You get that
27:33 save point. Your income goes up and up and up. You buy based on cash flow. When
27:38 people will talk about this, it's a really common talking point online for the, "Oh, real estate just doesn't cash
27:44 flow. buying a couple of houses for a few hundred dollar a month and then having
27:49 to fix a laundry machine that doesn't cash flow. Real estate is a business. It just
27:55 happens to be a business that works better at scale, which is why the argument is multif family. If you can do
28:02 even mid-size multif family, if you can do a 12plex and a 20plex and do a 44plex, then find another great 12plex
28:08 really close to that one, you can actually add, you know, you're not going cash flow per door. you're going global
28:13 cash flow in my portfolio. You can build a portfolio that cash flows 10, 20, 30 $40,000 a month. And I've seen people do
28:19 this. I've seen a lot of people do this. You can structure this in a way where you do have ridiculous cash flow. Real
28:25 estate just happens to have accelerated bonuses of depreciation and appreciation and all the other pieces, which is why I
28:31 love it so much. But please build a business that cash flows day one. Cody and I built that and then we unbuilt it,
28:39 which sucked, and then we had to build it back. Just don't do the part where you lose cash flow.
28:45 And then if you do it a few times a year, this is my other favorite thing about multif family. I did two deals this year and we're at 224 units.
28:52 Technically, we closed one December 31st. So, I mean, I'm going to count it as this year. We really close it this
28:58 year. I've done two transactions this year. I'm scheduled to do two more transactions this year. We'll have
29:04 bought over 500 units this year. You don't need to buy a multiundred unit building. But the illustration here is
29:11 when you are scaling, you only need to succeed a couple times a year. If all I
29:16 did was that first and second transaction this entire year, 224 units and they cash flow quite nicely and
29:22 they're beautiful properties, we moved unbelievably farther than most people will in their entire lifetime in the
29:28 real estate space. It's what I really like about multif family. it's you don't
29:33 actually have to be very successful often and there's a ton of buildings that you can potentially buy. So, as the
29:40 business goes, while it can be a little discouraging sometimes because it's a long sales cycle, right? Sometimes
29:45 you're grinding for a while, when you break through, you get some momentum. Once you get this pipeline built, you're
29:51 not actually transacting very often. I look at all these other businesses, wholesaling, house flipping, all the
29:58 these active single family or small duplex businesses, and they're like, "Yeah, I do 12 transactions a month."
30:03 I'm like, "That sounds like a lot of paper. That sounds like a job. This is a job, too, but it's just not a
30:09 it's not acquisition is not a full-time job. You You cannot force this to take
30:16 all of your time unless you're doing it completely wrong. You have relationships. You work deals. You
30:21 underwrite them where they work. when you know where they work, you submit the offer. I'm going to go over this with Eric and then I'm going to go over it in the negotiation piece in detail, but you
30:28 end up with a massive income at the end of it only transacting a few times a year. If you want to get more aggressive, you can, but I have not
30:34 found a meaningful reason to. Uh, the next really important piece here, you need a deal, not more money. A majority
30:41 of people will come in, and if you're in the mentorship, you know, I talk about this all the time, like all the time,
30:47 but I really want this to sink in. We did not have any money to buy the
30:52 Robin Hood. It was a million dollars down. The deal actually wasn't any good,
31:01 which we discovered after we closed it. Unfortunately, we still raised a million dollars in
31:06 seven minutes. And we had never raised that amount of capital. We pitched one person
31:11 and then they brought in one other person. A lot of people on their first capital raise, when you have an
31:17 opportunity, I'll hear people reach out and they're they're like, I'm really worried about this. I have a lot of stress around raising capital. I'm like,
31:23 I know everyone does. You're fine. And then two days later, they're like, you'll never guess what happened. I'm like, I'll bet you I can guess what happened. You you raised the capital.
31:29 Yes. It happens all the time. And it's usually like one person. Like, Phil, how long did it take you to raise your
31:35 capital from when you were like, hey, this is a little bit difficult to I sent one. Yeah. There you go.
31:41 I presented on the call, Tuesday call. Two people sent me the proof of fund while I was still on the call from the
31:47 mentorship group. And then that night, I sent a text to a guy I sailed with. He's like, "Yep, I'll do it." Phil Phil had
31:55 like a fiveminute conversation with me on one of the the the calls about like, man, just feeling a little bit little
32:00 bit of anxiety around the first. I think Phil spent a little bit more time telling me about his anxiety of raising the capital than you did raising the
32:05 capital. spend more time worrying about it than when you have a deal that makes money essentially all that you're doing is you
32:11 are presenting to someone I have an opportunity and it's currently making money would you also like to make money
32:16 like that's a I know it's a little bit more complicated than that but like at its core when you do this in order deal
32:22 debt equity you are creating a product that makes money and then we are using that
32:29 to find other people who have money and I don't know if you guys noticed but we print a ton of this stuff so it is out there like people have
32:36 And the deals are here now. So, this is I'm not harping on Brandon, by the way. I just it was a really good example. So,
32:42 I just want to be clear, generally speaking, huge fan of Brandon's books. Uh, but Brandon and a whole bunch of
32:49 other major names are doing posts like this. Hey, oops, we lost $15 million of investor capital.
32:56 why this is interesting for us. Uh there's a bunch of like here's a bunch of the big big big groups that lost
33:02 billions of dollars a syndication just as like a quick little example. Thank you chat GPT for making this really easy
33:07 for me. Uh the deals are out there now. The deal that we are purchasing uh is
33:14 next to $0 down. The bank is assigning almost their entire note to us for a $13
33:20 million $200 unit transaction. Why? It's
33:25 in a second was a tertiary market and the current owners blew their
33:30 property management plan. The bank's like, "Okay, uh, rates have adjusted. The deal is not bad. The deal is
33:36 actually fantastic, but the current operators cannot finish leasing the building. So, we're coming in to solve a
33:42 very simple problem. The bank is basically just saying like, look, it we do not want to foreclose on another
33:48 investor who did not execute their plan correctly. All of these people who are losing real estate, what's really
33:55 happening is a lot of the players who have held a lot of this are actually shifting the portfolio right now. Which
34:01 is why I think it's so important to learn this now is this is in my opinion a very unique time to be able to take an
34:08 a disproportional amount of real estate because the people who have held a lot of it very publicly
34:14 are transitioning out of a lot of it right now. And if you buy it and you hold it forever, you're that guy or gal
34:21 now, which is awesome. So, what does the deal actually look like? Well, it's long-term fixed rate cash flowing debt.
34:28 Talk about this all the time. If you get the best terms of all time, you have a ton of cash flow. Uh, you got 3%
34:35 interest only from the seller on this amazing one-year note. What happens at the end of one year? You're, oh no, my
34:42 deal doesn't work anymore. The value of getting the terms that you want, the cash flow you want is in the duration in
34:48 which you've attained it. Now, market cycles generally speaking, and they do fluctuate. There's no magic rule for
34:54 this, but it's like seven or eight years. You usually go full full cycle in an average environment. You'll have ups,
35:01 downs, little crashes, sometimes big crashes, little booms, big booms, but you'll go through these different market
35:07 cycles. So if you have debt that's like seven to 10 years, that's considered fairly long
35:12 term in almost every market in the US. I know there's certain exceptions in certain, you know, like when the auto industry left Detroit, for example, but
35:20 in general over that time, you do get a lot of appreciation. You do get you get
35:25 a great market cycle somewhere in that time where you have opportunities to lock in and reposition your debt. If you
35:32 have less time than that and you end up in a bad market cycle, rates tripled right now and my refinance is due right
35:39 now, you've lost everything that you just built. So, long-term cash flowing
35:45 fixed rate debt. That's the motto. I need to make a t-shirt for it, but turns out it's like a lot of letters. Come up
35:50 with a cool acronym for it. That's the magic is we're going to negotiate terms that work and we're going to lock as
35:56 many variables as we possibly can. Your two biggest variables in real estate are typically going to be your debt product
36:01 and the people that you bring along with you. You really need to choose those really carefully. And when you get good
36:07 ones, good debt or good people, lock them in. I ask you a question. Yes.
36:21 Anybody here know Canadians have Canadians? You know, they didn't offer the type of debt that we've offered. So
36:26 they notes. Yes, that is true.
36:33 You know, they had different structures, but we have, you know, rates are historically low. You can get this 2.9%
36:40 rate, but cut it to little tar. Why does anybody do that? I'm old enough
36:49 to gone through the 87 crash, the 08 crash when I buy.
36:54 We just see the cycles. Anybody do that? I don't know. But ask your phone, ask AI, ask your browser, ask Google, were
37:02 the majority in 2020 2022 properties bought multif family bought with variable debt. And it
37:08 says yes, the majority. And those are the same ones that we just
37:13 saw on the last slide. Everyone who had variable rate debt or had two shortterm debt. Uh people do projections when when
37:20 interest rates were at 3%. People projected, oh yeah, in five years out rates are still going to be 3%. which is
37:26 a crazy thing to think. So the challenge you run into, there's some people I've run into that said,
37:31 "Well, I I've got money but not for that." I hear it's just a blood bath in multif family right now. It is and
37:37 that's why we're buying because we're buying broke and you never do it this way and if you follow the structure. So there's an
37:43 educational process. Absolutely agree. Which is why we do exactly this which is DDE. That one I do
37:49 a good acronym for. I can make a hat of that. DE uh deal debt equity. We're always going to do it in this order. So
37:55 deal is the actual opportunity. All that means is that you have someone who is willing to sell the property and you
38:00 have an idea of what they want and you know exactly what you want which we just established. It's long-term cash flowing fixed rate debt. That's what we are
38:07 after. That is a win for me. I've determined this is the goal. I know what I want. I have someone who is willing to
38:13 entertain the opportunity. So I put together my deal. Now I don't know all my numbers
38:18 yet until I know what my cost of capital is. So the next one is debt. Now, debt sometimes it's deal debt done, just DDD.
38:26 In that model, it's just 100% financed. Um, we did uh actually some of you guys will actually go out. Matt's I think
38:32 doing a Are you doing another tour of your uh your your RV park here while you're here? Uh I don't know.
38:38 I heard rumors that that might happen. I heard rumors that it might happen. Matt owns an RV park uh right up the road. He
38:43 bought it from me and it's still has a lot of upside. Matt did a really good job where he bought it. When we bought
38:49 it, it had some big problems that we had to fix. It had a failed septic system, which turns out you actually need those
38:54 on a 25 unit RV park. Um, the laundry room had failed and there were some really like gnarly tenants in there. We
39:00 got the worst ones out. I think Matt still had a little bit of work to do there. Sorry, bud. Uh, but we got a lot
39:07 of the problem solved. We purchased that thing at $300,000. It was 200% financed.
39:13 We got a loan at around $600,000 for a $300,000 RV park
39:20 for the right opportunity. You can do deal debt and debt can be that could be the end of it. You can
39:25 just have a deal that has enough cash flow where it can sustain the debt. You get the right product and you close it.
39:31 Most deals require some amount of down payment. The beautiful thing is it doesn't have to come from you. We're going to talk about the structures for
39:36 that uh in super detail. But the equity is just you and partners.
39:42 It's I have the opportunity and I packaged the prop the opportunity now. I actually know how much money this makes.
39:47 When you have the entire deal, so you have the numbers of how it's performing now, the price that you plan on purchasing it for, and you have the debt
39:53 product, you now have the inputs to say, "This is how much cash flow and how much projected upside I have." Basically,
39:58 what you've done if you put together a package that says, "This is how much money I can make for myself and my
40:04 investors. We have the total pool of money now captured." Now you're doing what Phil does and you you send a few
40:10 texts. You're like, "Oh my gosh, I can't believe that this just got raised." Sneak preview on this.
40:17 I I actually track this. I I try to interview everyone who when they close a deal at Multif Family Strategy. So from
40:23 our group, basically 100% of people are most worried about the money when they enter
40:29 the group. They're like, "Well, I haven't done a capital raise." Like, "Okay, that makes sense. It's not going to be the hardest part, but that's going to be what everyone's most worried about
40:35 when they do one. More than 90% of the time, it's almost every time I will teach how to raise
40:42 capital with webinars, with meetups, with Facebook groups without breaking
40:47 the SEC rules. I'll teach a whole bunch of different me methods to raise capital. And almost every single time it
40:53 is someone who is in your phone book or someone who is in your phone book, someone they know. It is one to two
40:58 degrees of separation from you for your first one to $2 million of raise. no matter who you are. Best example for
41:04 this, Caleb Hmel raised his first several hundred,000
41:10 at 19 years old. He had no family or friends that had money. No one in real estate.
41:15 He raised all of his money from people who he did not know, but someone that he knew knew. One
41:23 family friend, he called them, they don't have any money. They're like, "Hey, you should talk to these people." Regardless of your level, capital will
41:29 be attracted when it is making money. when you can just I mean what an easy investment. I have a deal that's cash
41:35 flow positive day one. It is currently making money. We think it's going to make this much money which is how you're going to make even more money but if I'm
41:41 wrong it's already making money. Do you like real estate
41:47 capital raised? I it sounds too simple. Oftentimes it's actually that simple.
41:54 Oftent times conversation is like I would like to do this. People are like I too would like to do this. Like I guess we're partners. it. I'm I'm ser it's so
42:01 stupidly easy when you do this in order. So, everyone worries about the money first, which is the normal thing to worry about. That's where I got stuck.
42:06 That's where almost everyone gets stuck. Most important thing that you can take away that I This is my favorite slide.
42:12 No one It's probably why it has too many words on it. This is my favorite slide that I have in any presentation. I include this in literally every deck
42:18 that I do because this is where almost everyone is stuck. I am worried about the money. I have never in five years of
42:25 mentoring seen someone fail a capital raise in our group. I have seen reasons that deals didn't come together. Bad
42:31 foundation, partnership struct structures that didn't work. Their capital partner three days before the
42:36 close went to jail. No, actually that was me and then we figured it out. So, we did close that. There is lots of things that can happen. I have never
42:43 seen a deal not close like a good deal not close because of the capital raise. The money always gets lined up to the
42:50 deal. The beautiful thing about this though, if you have decided beforehand, so who
42:56 here is familiar with the burr method? Quick show of hands. Okay, everyone. Great. Uh,
43:02 I will get a bunch of people very consistently like, "Hey, I've decided that I want to do a burr. Can you teach me how to burr a multif family
43:08 property?" Yes, I can. Also, don't decide on your strategy before you have
43:14 an opportunity. Because you might have a deal that you can get in zero dollars down where there's nothing to bur out.
43:19 But if you're only looking for deals specifically for one strategy, you're only going to see what you're looking
43:24 for. I don't know if you've ever done this drill, but it's kind of fun to do around family. You be like, "Okay,
43:30 everyone, uh, name everything that you can that you see that is red." You look around and you have five
43:35 seconds. Try to memorize all of them. Awesome. Okay. Now,
43:43 how many things in that scene that you just looked at were blue? And if someone tries to remember that, you can't you you do not see anything but what you are
43:49 looking for. So what I my goal of DDE and this is what was life-changing for me is if you remove the oh I've decided
43:57 on the burr method. I've decided on this structure. I've decided that I'm going to need this partner. I decided I'm going to use a hard money lender. If you
44:03 remove that and you go I have an opportunity and this is how it makes money. Now which debt product makes the
44:09 most sense that is available for me which is usually only a few. You know like bank financing you could have a
44:14 DCSR loan if it's really cash flow heavy. You don't have that many options. you you select the one that makes the
44:20 most sense to you. You underwrite to that and now you know what other money do I need. The deal will tell you how
44:26 you need to structure the capital. You only have two resource pools here. It's you have cash flow and you have equity
44:31 growth. As far as your deal goes, you can give investors one other mix of both. There's not a lot of inputs. It's
44:38 what I love about this though. The deal will speak to you. Quick illustration for me. Every deal is
44:45 the same. This analogy works really well until the very end where I realized uh yesterday that it kind of falls apart
44:50 because the goal of soccer is not for both of you to score on each other. You actually want to score on them. However,
44:55 the illustration otherwise works perfectly. Imagine any sport that resonates with you if you played football then you know anything that has
45:00 two goals on either side. You Canadians maybe hockey I don't know. [laughter]
45:06 Cash flow fixed rate long-term that is a goal for me. I score when I get an
45:11 opportunity that hits that box. the seller. I just don't know exactly what it is that they want every single time.
45:17 That just honestly is it. My go job is to underwrite this deal
45:22 where it works for me and then figure out what is a win for the other party. If I identify what they want and I write
45:28 a deal that hits everything that I want, we now have an opportunity. We have a deal. That is what we close on. We're
45:34 not like amazing deal finders. This this deal that we're I referenced this deal in Long View. It's like $700,000 total
45:42 down on a $13 million deal with a bank there. It's not even that creative.
45:48 The opportunity came up because I knew what I was looking for. I need to know how to make this cash flow and I'm
45:54 trying to do this as little down as possible to take out this deal because we have some problems to solve that we want to align the capital with. My
46:00 underwriting says I can buy this at your price, but you need to basically finance the entire thing.
46:06 What do they want? The seller wants to not get foreclosed on. Okay. Well, that's pretty easy objective. Must move
46:11 property. Okay. What does the bank need? The bank wants to not own the property. Like, we want
46:19 to find the right operator. If I was trying to force some strategy through or I was looking through a
46:24 certain lens looking for deals, I would never in a million years look at that deal and say, "They want $13 million.
46:30 There's an occupancy problem. This doesn't work at all." Like, I would never look at this deal and say like,
46:36 "Oh, yeah. This is just super simple." You map this out and you go, "Okay, how would it work?" We met with the banks.
46:41 The bank's like, "This makes perfect sense to us." We hit There is no iteration where you hit everything they want and you get everything that you
46:47 need. And someone says no. Unless they're crazy. So, I mean, there's almost no situation where you hit
46:54 exactly what they're looking for. You offer them what they want and they say no. Your job is to basically identify
47:00 what that is within the bounds of long-term cash flow, fixed rate debt.
47:05 So, with seller finance, private capital, everything we're going to go through the event, you have all the
47:10 money that you need for your deals, if you have any anxiety over raising the money, just like for the next two days,
47:17 just let that go. If you are processing on like, wait, how's the money going to come together for this? You're going to
47:22 miss out on a system or a process that we're talking about on how to structure
47:27 the deal and the debt just for two days. Imagine that money is just not an issue.
47:34 and just focus on how do I create the actual product that I am selling, which is a piece of property and an
47:41 opportunity to buy it that makes everyone money. That is all we're looking to do. Uh, and also note, we're
47:47 going to talk a ton about seller financing. We seller finance this. We sell finance over 70% of my portfolio.
47:53 This bank note is basically written like seller finance even though it's a bank note. Seller financing is the best tool you
48:01 have for creativity. It is also not the only way to do this. Like every other strategy, do not marry the strategy. We
48:06 are not, this is not an event saying this is how you win seller financing. We're just going to talk about it a ton because it's one of my favorite tools.
48:13 The goal is to have the tools in your tool belt to close on deals that are good. Last example and then we're going
48:19 to wrap because I know I went slightly over on the uh on the intro here. This is that first deal. Now, this much
48:25 prettier today. Cody can show you some pictures on his phone. Cody owns it now. Cody and I bought this 38 unit seller
48:30 financed $2 million is on market since Cody was like a small child. Uh it was on market
48:36 for like 13 years. So this was a property that was on and off listed. Anyone or their sister could have found this deal. So if you're like where do
48:42 you find these deals? I don't know. It's posted online. You just Google properties for sale. They're out there.
48:49 They want $2 million. There's a bunch of problems with it. There's septic problems. Uh Cody just solved a found a
48:54 new one recently actually. Uh, congratulations on not getting caught uh digging up your septic tank.
49:02 [laughter] Yes, Cody did nothing. Uh, no, but don't worry, the live stream's only going to a
49:07 few people. Um, when uh when we bought this thing, there was some problems. There was occupancy
49:13 problems. There were huge collections problems, but $2 million for 38 units in
49:18 central Washington state is an insane price. And we wrote it in a way where we had lower payments in the first six months while we stabilized the property.
49:24 Now, we'll talk about all sorts of mistakes that we made in our structure, which you guys don't have to make because you're here. However, what ended
49:33 up happening is we had to raise $300,000 as two guys. Cody had 30 units. I had four units.
49:40 We'd never done this type of value ad project before. And we just had to talk to investors who I had never met and we
49:46 had like one or two degrees of separation from of uh yeah, we need $300,000 to close a deal that no one
49:52 else wanted for the last 12 years. Like here's your pitch. Everyone's passed on this. Everyone and their sister has said no with more experience than us. We're
49:59 the ones to do this. Please invest in us. Um we pitched four people for $100,000. Three people said yes. Cody
50:05 and I forgot to start our raise until two weeks before. I took DD too seriously and I was like, "Oh, we do
50:11 have to start the raise though." and we didn't stress about it, but we didn't stress about it for too long. Uh, we got right to the finish line. We raised the
50:17 capital, closed that deal. Uh, when we did our cash out refinance, it appraised close to $4 million. We were able to pull out a ton of money, buy out all the
50:23 investors. Cody and I owned this building right off the bat. Him and I, I think we financed around month 11 or 12.
50:29 I It was like basically one year in, partners were already bought out. That
50:35 helped catapult us into real estate. But in the time that we bought that, between that and refinance, we bought a 7plex in
50:41 Seattle, which actually was a really good deal, wrong partner, we bought uh sidebyside duplexes, we bought I bought
50:48 into one of his uh 12plexes. We bought a 10plex in that same LLC. Like we had expanded to I believe at the end of a
50:55 year together. It was 81 units if I remember correctly. Is that Cody? You have pretty Yes. We got to 81 units in
51:02 our first year of this theory of what if you could buy everything that was worth buying.
51:09 This is what it looks like in practice. Today, this building is resided, new windows, new gravel. It's it's a whole new
51:16 project. This campus actually looks beautiful. And we have more guests.
51:22 Who did I Who did I I I mentioned we're going to get mobbed by deer at least once during this last night. Yep. They're messing up my Frisbee golf
51:30 course. [clears throat] I'm kidding. We're in a beautiful spot. I I love being down here. So, anyway,
51:36 this is what it looks like in practice. Today, I found that you can actually buy nicer buildings than this building on
51:43 the same strategy. I think if I could go back in time, I still would have done this deal. This launched us,
51:48 but you can actually buy nicer properties, newer properties, which will cut down on your headaches as well. The
51:55 point is though, these are out there right now. how this was on market for two people in their 20s with no
52:00 realistic experience to knock out of the park.
52:05 My eyes are here, Phil. Right here. Kidding. [laughter] I'm kidding.
52:12 I was like, what is that noise? Deer. If anyone sees a beaver going up the creek, by the way, chase it off. They're bad. I
52:18 I like these trees. I also like the cabins that you guys are staying in. Do not if you see a beaver. We don't We
52:24 don't like all of the wildlife. Okay, so as usual, I'm slightly behind schedule, but that's fine. I want to be
52:30 1010. We're like 5 minutes over. We're almost perfect. Uh let's take a break here for the next uh next just few
52:35 minutes. Uh we're going to get kicked off again at uh go 10 15 minutes from now. So try to be back by 10:00. Again,
52:41 restrooms are over in the pub right behind cabin 15. There's muffins, bananas, coffee. Enjoy.