Finding Your Why and Navigating Real Estate Challenges: Lessons from Multifamily Strategy's Journey

Alrighty. So, I don't know about everyone else, but uh boy, that was super fun in the pub last night. I mean, when I I I thought my watch was just not set to the right time because, you know, yesterday was a long day. >> I was sitting here was in the pub. It said 2 a.m. I was like, "Well, that's obviously wrong. I'm not tired and this is Yesterday, surprise, there's a lot of energy." So, I was like, "We we should be we will be more tired than this." Uh yeah, that was that was that was a late night. How's everyone feeling this morning? >> Ah, that's pretty good. >> I'll take that. >> How was the band last night? That was actually I the first time trying to coordinate that. They was good set of recommendations, I thought. >> Fantastic. >> Well, guys, we survived day one. We made it through this morning. Now that we're all recovering, we're now going to do the part where we actually talk about setting your why, doing the motivational thing, the things that you think we talk about day one. and I really did want to save for today. So, I'm very excited to uh get to run through our schedule today. For today, we're going to go over a few things. We're going to do finding your why. This is my uh this is the motivation and a lot of this is going to sound more demotivational, but it's I I promise it has a good ending. Creative finance with Cody Davis will be next. We're going to talk about structuring creative partnerships. That is the raising capital. I told you guys we're going through deal debt equity. We're going to get back into my favorite part, the equity. It's basically that what you guys are going to learn is that if you have a deal, you just figure out how to make the money fit the deal. I mean, that's that's all it is. Equity is very very similar to debt. It's just structuring the money in the way that your deal wants you to structure it. And there's only a couple of inputs. So, I actually shortened that section a little bit. I'm like, it's so simple. This could be the easiest thing we go over. I'm really excited for it. Creative equity is great. Uh, we're going to talk about establishing a personal brand. This actually ties in perfectly with how to scale when you go through all of these things. Your first capital raise, the first time you raise money, usually up to the first$1 to$2 million. It almost always comes from one to two degrees of separation from you. However, as you start to do the thing, if you want to scale beyond where you're at, you really do need to figure out how are more people than my existing network really going to get to know who I am. And so I gotta bring my friend Dylan who flew in from Vegas. Dylan, thank you for making it. Dyl D D D D D D D D D D D D D D D D D D D D is the Canadian Q-tip in the back. I also appreciate Dylan because Dylan could take a joke. Um Dylan is Dylan is actually one of the the few people on planet Earth where I'm Dylan is a great friend. I really appreciate him. It's a huge privilege for him to be here. Uh he's done some really cool stuff in business. So for the Q&A session at the end, be thinking about questions for Dylan as well. He's done some amazing stuff branding. Uh it's amazing amazing marketer. Uh everyone here or almost everyone came into this network because of something that Dylan or his team did at some point. If you guys have ever seen a webinar, a ad, you guys saw my book, you saw me talking about anything online, Dylan's team set that up. So he's going to talk to you guys if you guys want to. You don't have to, but if you want to, how you can start stacking the pieces of personal brand and putting together your story as it relates to real estate, which I'm really excited for. Uh, then we will do a full uh putting it into practice with our one and only Phil, the billionaire. I'm actually really excited for this. The way that this event has gone, we're talking about so many things that we did wrong and how not to do them. I'm really excited for Phil to share the other things that go wrong, but mostly go right. Phil made very, very few mistakes. setting up the way he did his business and he gets to do the whole adventure with less steps than everyone else. I it is the when I talk about stories of what I want multif family to MFS to do for people. Phil is more or less the the the target like this is the desired outcome. You do a few deals, they all make you money. Uh there very few headaches. You get a couple of tenants who sue you and then you're fine. I'm I'm really excited for that. And then that'll be that'll wrap us. Then we'll do a Q&A and we'll uh VIPs will do dinner in the pub. Uh, one difference from today. So, did one catered lunch. That was yesterday. The goal is around this event, you guys have started to make friends. You've grouped up. I extended today's lunch. You guys have more time to hang out, carpool, drive out to the restaurants. I'll recommend a few of them, but we have a more relaxed lunch time. I'll still have some food around. You guys don't have to leave. Uh, but if you guys want to go out for lunch, my recommendation is find the people who you really want to connect with. We set that time aside today just for people to enjoy the Robin Hood and Union uh for a couple hours in the middle of the day. And that is our schedule. Let's get into the oops that uh inspired a lot of where we're at today. Uh for my uh for all of my media team who's here from uh from Union, this will actually probably be a fun story for you guys because this is this is how we got to where we're at. Uh so we're going to talk about the story of the Robin Hood. And this is a story that is uh very heavily just a a Codian Christian adventure. So I'm going to start from the actual beginning and we're going to roll from there. So uh here we go. We're we're live and make sure this thing is recording and then uh we're off to the races. So buckle in, guys. Final full day. >> All right. So, when I got started, I was working in CoStar. I shared part of this story yesterday. I was working in Co-Star. I was reading every single book that you can read on the train on real estate. I read Brandon Turner's book first. Uh, that's a I was 28 when I first read Kiasaki. So, I I did not have the normal starting point of a lot of people were like, I read this book on business and I I got all these great ideas. I started with the Dave Ramsey thing. So, I was like, save save, buy properties. I knew I wanted to buy properties. I was always interested in that. I remember in high school being like, "This this is a sensible thing. Humans will need housing. I think they're going to continue to need housing. This sounds like a product that I can probably get behind." Like I always was interested in that from a teenager. Never really did too much about it. Eventually found a duplex, bought the duplex, bought that second duplex, meandering our way through. As I shared yesterday, COVID shut down the country. And I was like, I had that clarity of like with free time, what am I doing? And why does it not look like my goal? So the next steps from there, we bought that 38plex. We started buying these deals. And when we bought the 38 plex, we got it to cash flow pretty early on. Even though Cody and I did not raise the renovation budget, which is one of the first things that you need to do, we didn't raise enough money. We raised enough money to close. We still muscled our way through the project. It was making money. It was cash flowing really well. We're like, "Okay, it's time to refinance this thing. Let's buy our partners out. We basically tried to do the Phil strategy right off the bat. I'm like, we got the partners, the real estate can get the money. Let's buy out the partners. It's just Cody and Christian against the world. It's going to be great. Well, at that time, interest rates spiked and that lender for that particular deal. Uh we got approved in underwriting. We got approval to sign. We actually got sent the final docs where, you know, your entire settlement statement, the whole thing. Like we reviewed all of our docs. They tell us, "Hey, tomorrow we're going to do signing. It'll probably be around 3. people will reach out with the time. They didn't reach out with the time and we were calling in around noon. We called at 3. We called at 5:00. The next two days we keep calling the bank and emailing the bank. No one gets back to us. Day three, bank calls and go, "Hey, we did a meeting. Our VP just decided, uh, you guys have a lot of creative finance. We just don't want to be the first bank to lend to you. We qualified you. We love your deal. You guys did everything right. Uh, we just don't want the we just don't want the business." So the mor the the the mortgage broker who put this together said, "Okay, well you guys signed a contract saying if we if we brought you a lender then then you guys owe us commission. Obviously this fell through so we're just going to find you another lender." In that time rates went from 4 and a.5% interest only to like 6.2 6.3% on a 25-y year AM. That's a huge amount of cash flow difference and in fact enough to kill all of the cash flow of the deal. What Cody and I didn't know at that time that we could have just given them the finger and said absolutely not. I'm not paying that. You guys screwed up. What they did is they sent us an invoice. Cody and I are broke. Our mentor I shared with few of you guys. Original mentor was not a fantastic business person. He had already fled the state because he sucks. And I was like, well, now we have no guidance and we're getting invoiced. How do we how do we survive this? So, we ended up going through with the refinance. We still pulled a ton of money out, cashed out the partners, did the whole thing. Then we find the Robin Hood. So at this point, Cody and I had uh we' done a 12plex, another 12plex, a 10plex, three sideby-side duplexes. Uh we had done the of course the 38 unit. Uh we did the 7 unit in Seattle. Uh I brokered a couple of deals for other clients in the office. Like we were and they're all creative finance. I mean we were just seller finance closed, seller finance closed, seller finance closed. It was this amazing revelation that if you know how to work the deal, which we'll continue to go over in the equity today, if you have the ability to buy anything, you can buy anything. And Cody and I more or less did that. We get a call from Dion who spoke at every single Robin Hood event except for this one. He's he moved to Texas and apparently that's what you do when you succeed in Washington. You move to Texas. Dion is like, "Hey, I found a thing. It's called the Robin Hood. I think you can buy at zero down. Um, it's amazing. It's hot tub cabins. It's just a little bit too active of a project for me. My brand's the lazy investor. I don't want to do the work, but you guys should check it out. You guys are young. And so, we come down here and meet the owners and they're like they're all these hot captains like, "Hey, stay here for a couple days. See how you guys like it. It's going to be great." Um, it wasn't zero down. It was a million dollars down. It was seller financed four and a half%. Cody and I made the biggest mistake that I made through all of real estate. I'm not crying. My voice is actually just going out. It was so hard. No, we made the biggest mistake that we made. Everything that we had done, I I had a bad mentor in the beginning, but I learned a ton of what not to do. It was so valuable. I learned so many things on how not to run business. Saved me probably millions of dollars. Definitely hundreds of thousands of dollars. Probably millions. learning from a very creative individual how to suck at business and then just like don't do that. There were many times where Cody and I would sit down and be like, would this guy do this? It's probably a bad idea. That was our that was our ethics test for we could do this. Is it right? Would he do this? Yes, we should not do this. That was that was our uh our benchmark for success. When the Robin Hood came up, I had no mentor for hospitality. We had the stupid idea that we are creative finance real estate guys and we now know what we're doing because we've done six deals seller finance. The big one is back to break even. The 38 was and it had some renos to do. So we're sitting at that one. I'm like, okay, but we just pulled like almost a million dollars out of it. So I'm looking at this like, okay, our first deal, we pulled out a ton of money. Everything else is cash flowing. This is just working. We we have an idea of how to run this business. Also, Bigger Pockets was kind enough to tell us that we're amazing and everyone should love us. Cody gets the most watched episode of all time on Bigger Pockets. And I'm like, I think we're pretty good at this. Robin Hood, this is we're so good at marketing because we randomly got a million. That was the that was the stupid idea. It's like, oh, this is how this works. People love us. People will come to the Robin Hood. We'll host events here. It'll be amazing. Well, turns out we did not know how to run a resort. We didn't know how to underwrite a resort. The books, as Cody shared yesterday, there was two sets of books. There was the operating books and there was there were other operating books. That was just the company that had expenses. If I knew what I was doing, or if anyone with a resort looked at our P&L, you would notice that there's eight people on staff and salary is $60,000 a year. Eight people can't live on $60,000 a year. Our method at the time was you take the bank bank statements and you compare it to the P&L and you compare that to the tax returns. And I'm like, okay, everything maths. Everything is lining up exactly as they told us. I'm looking at the expenses. It all passes through. This is how the Robin Hood runs. So, what ended up happening is we bought a resort seller financed at four and a half% interest. Amazing debt product for $4.5 million. it was actually worth three. Robin Hood was the biggest deal that we'd ever done. So, the problem that I was stuck with was we done we did a bunch of things right and a few things wrong, but like overall we as new investors, you're never going to do perfect. We did a really good job in our first year of making I think fairly excellent decisions and winning a bunch. The problem was the one deal we decided to do wrong was worth about as much as every other deal that we had done. The way that we structured the debt was the other problem. The investor who came in, we got coffee with them. We raised the million dollars in seven minutes. I got coffee with one person. I asked, "Hey, would you like to join? We're looking for like three people at $350,000. That's that's what we're thinking this is going to be." They're like, "We're more comfortable without partners. We'd like to do the whole million." We go all the way through feasibility. Earnest money goes hard. And then two weeks before close, they call and they say, "Hey, just so you know, uh, $700,000 is going to be one of our investor friends." Like, I kind of thought it was going to be just us, but that's fine. They're like, "Also, I need you to pay him 18% interest on the $700,000." I was like, "Well, that's dumb." But we went back to the books and we said, "Okay, well, our plan to execute the Robin Hood, we actually have way more than enough cash flow to do this. Like way more than enough cash flow with what we think's going to happen." So, we'll buy them out at year two. We'll do the same thing we did with everyone else. We'll just refinance and buy them out. So, I'm not going to pay this 18% very long. Super mega dumb idea number two. We didn't have that much earnest money in this. We didn't have the money, but what we should have done at that point was said, "Hey, this is this isn't looking right. We should just not do the project. That would have been the correct thing to do." So, when everyone says, "Would you buy the Robin Hood again?" No. I mean, now caveat, I don't want to sell the Robin Hood. I love the Robin Hood. But would I knowing what I know today, would I have done that adventure? No. What I learned doing this particular adventure was how to actually battle through that. So this is where it applies to you guys and this is where it becomes a positive story. So this mostly demotivational speech will now make a pivot. So what you need to do and I mentioned this yesterday, what you should have done by now is you should have put your goal of exactly what you want to do in your head. If you didn't figure that out yesterday because we're having too much fun partying, find some time to like sit down by the creek and be like, "Okay, what do I actually want to accomplish?" I had a very simple mission. We either lose the Robin Hood, which everyone in this community said, "Please don't give this back to the old owners." Um, they weren't like massive fans. Chris knows what I'm talking about. That's not The community really liked what we did with the property. They they just just truthfully the community really liked what we were doing or trying to do here. Uh the problem is the investors did not want to spend any more money. The partnership it was the wrong partnership. We had people who did not know hospitality all partnered on a deal. Uh Cody was set up in a role where Cody couldn't have succeeded. And I and Cody, sorry I'm not throwing you under the bus, by the way. Cody was put in a role where Cody had never had a job. And then we and then we were like, "Oh, let's put you on site and you're going to run all the staff with no experience ever doing this." I was remote out of Reton, having no idea how to run or market a resort. We put together a team of people who have absolutely no idea what they're doing with absolutely no qualifications and they just assumed we'd succeed because it always works. Is that more or less correct, Cody? Is that pretty much is that fair to say? >> Yeah. >> I always hate throwing someone under the bus in front of them. So, we were mutually underqualified to succeed in this project. I talk a lot about putting the right people on the bus and then putting the right people in the wrong seats. We were on the wrong bus. going the wrong direction uh on the freeway. There was no way to uh there's no way to fix it. What we found is that there was there was no way to really fix the Robin Hood with the team that we had and the investor who had invested in it was not going to of course was not going to put more money into a sinking project. So we had these limitations of the Robin Hood needs some love. It can do well. The original underwriting the Robin Hood actually can be great. No one in that group save me really wanted to do the marketing spend and the renovations on a project that wasn't making money. No one wanted to sink more money into it to try to make it work. It wasn't a responsible decision for anyone else. So, we were stuck for three years. We really, really, really struggled for how do we run this resort with the debt product we negotiated because all the money we make through the year goes back to the old owners in principal payown at the end of the year plus some. Cody and I did the math and this was year two. I remember we were driving uh out past the the casino out there. We're we're doing the one back road uh getting back to Reon and Cody and I were we were looking at the accounts because we've done cash refinances, so we had some money in the accounts. I was like, "Why does it keep going down?" We had there was a point where Cody and I had built a very consistent we were paying ourselves money out of the 38x. We're paying ourselves a little bit of money out of our duplexes. Cody and I had positive cash flow and we had left our jobs and we had like an hour every day to play Enter the Dungeon on Nintendo Switch and it was awesome. I'm like, I have reached my dream life. We work four hours, we play an hour of video games, we work two more hours and then we go home. I'm working with my buddy. This is sweet. We did the math and if I remember the number correctly, and I might have it slightly wrong, but it was about negative $21,000 a month is where we were at in global cash flow. For everyone here who set a goal of getting to $10 to $20,000 a month of cash flow, Cody and I succeeded. We just had the wrong sign in front of it. It's not supposed to be negative. Your cash flow should be positive. I also looked at what I was making before I left my job at CoStar and I was like it is really that's about my best year at CoStar is how much we're bleeding per year if we don't fix this. That was really really stressful. Our options were okay well do we just give up? I'm like I don't know how we would feasibly do that or how would we reverse this? And so Cody and I sat down and I remember this was like the next two weeks. All we did was be like, "This feels very bad. How do we fix this?" We had a bunch of units that needed to be rened. We went back through our portfolio and we found so many things when we were like, "Oh, we're really good at real estate." Where we just weren't doing things. There were units at the 38 that we could have been turning that we weren't turning because we were too busy buying. We opened multiple markets with multiple models. We had the wrong person running our PM company who like barely had any experience. And so we just had a bunch of vacancies. We had no great leasing strategy. We built a really stupid company on really cool debt products is what we did. We were able to get all the way through that negative. It was ludicrously hard. We had to bring more money into it. We had to earn more money, but we put together the whole thing. Now, what ended up happening later is Cody and I swapped around some pieces. As you guys know, I bought him out of multif family strategy. He took some of the properties. We separated out all of the pieces to move money around to fix all the problems. And I think it landed really well for Cody and I. Cody has an incredible portfolio with very few partners exactly how he would structure it today or I would I would assume very very close to how you would structure it. Cody has a really really awesome model that works very very well for him. I have the pieces that I wanted to have and bonus the Robin Hood actually is making money now. Uh it it did the thing. Uh it's not making a lot of money but it's almost worth what I paid for it which is really great. Uh it's it's really fun. We're I we looked through the game plan and between marketing, between renovations, between updating the hot tubs and honestly with the what the community here did buying into helping us, you guys saw the pub, the huge Robin Hood revival, that is people like Chris Kelly, the community came in and really saved the Robin Hood for me. So, thank you guys. Yeah, that's a round of applause. Chris, we're you're you're representing all of Union today. So, thank you Union. Uh but like the community helped us out. Uh Dylan helped me out immensely personally. He's like, "Hey, you're struggling with the Robin Hood. You're stressed. I'm just gonna" He's like, "I'm I'm already you're a marketing client. I'm just going to help you with my own time." Which was just a crazy thing for anyone to do. So, thank you for that, Dylan. But the Robin Hood just in numbers since the point that we bought out the partners where because we just couldn't invest money when I only own 20% of the Robin Hood. There's no way I can put in 100% of the cash with 20% of the equity. I got all the equity in the Robin Hood. We put in the money. Robin Hood was up 44% exactly every single month until last month was up 47% from the prior year. It just needed a coherent plan. And honestly, the Robin Hood just needed a heck of a lot more money, >> which how do you solve your problems a lot of the times is you have to write a check. One of the rules that I learned and Cody and I I think really learned this uh very practically. The one thing that cannot happen in real estate, I always talk about how do you buy it? How do you never lose it? That's cash flow. If you lose your cash flow because you're an idiot, you cannot stop the projects. The projects must be completed. Period. You must push all the way through unless it is literally impossible. We did some good deals at decent like really decent prices with really great debt products. There was a path to do it. You just have to map how would I get from A to B. Now, while we were bleeding that also to pay our investor in the Robin Hood what we needed to pay him by the time it was due, it was also like another like $41,000 a month we had to save. So, if you look at it, it's like it would be impossible to pay this individual off. I worked out a deal with him to buy him out over a period of time and I'm more than halfway through paying him off. Uh, which is which is great. And we're on track to do everything. The portfolio by itself, just the just the real estate, none of the other companies. If you take out the property management company, you take out multif family strategy, anything else that I have going on, just the real estate by itself, the decisions that we made over the last two years will pay off that person. Where I was at, which was very stressful, was we're bleeding like a quart million dollars a year and we owe a ton of money coming up. What we negotiated was I have two years starting with no money again to pay someone off like a million one and pay the other investor off like 300,000. It was about a one $1.4 million bill. To that point, I hadn't really earned $1.4 million in like here's liquid cash after tax that I can just hand someone. Um, we've almost made it all the way through. It was a a totally doable thing. So, the lesson for me, and this is why I felt this very motivating. I hear a lot of people and they're different positions from everyone here is in a different life position, but I have people who will talk to me who are struggling because they have $5,000 and they're like, I need to just cut my expenses because I'm only making $4,000 a month and I'm I'm I I feel like I'm drowning. The problem is not usually an expense problem. It's almost always an income problem. You can fix I know this sounds dumb, but like sometimes the answer is, have you tried making more money? Uh it's how would someone do this? When you drive any market and you look at all the buildings, someone owns them. The assumption is probably not everyone is losing money owning buildings. There's a ton of buildings, the largest asset class out there. There is a way to do this. There are people who can structure their business in a way where you get cash flow and you get appreciation and you get all the like you can write a business where you have all of the pieces. You can fix liquidity. You can fix cash flow. You just have to come up with what steps am I going to do? So, the goal for the rest of this event is putting together for yourself the pieces of okay, where where do I want to be? I would guess most of you have a smaller problem than Cody and I gave ourselves. Want to take full responsibility. We we we bought we seller financed oursel a whole boatload of problems. I then seller financed and conventionally financed my way out of all of the problems. Most of you guys have an easier solution for most of you. And this is why Phil's going to close close us out. Most of you guys can do two or three deals and have a really notif like notable life change. The reason specifically that Phil is going to speak today is Phil gave me my favorite call of all time. Phil called me and said, "Hey, uh, I did the thing. I'm retiring my wife. Um, we would like to know what does one do for health insurance when we both don't have jobs. these are the problems that you should have when you build your business correctly. That is exactly the problem that you're supposed to have. Like we don't know how to not be employed. I'm like, excellent. I can I can definitely help you at being unemployed. I'm very good at that. Uh this is great. I've been professionally unemployed for a long time. Turns out it's a lot of work. Uh I'm really really I'm super excited that that was your outcome doing this and that's that's my goal for everyone. So that's for me the goal when I started is the same thing that I want to do today. I just wanted to retire my wife. I just did it in like a really really really roundabout way. I'm like $50 million in debt later. I did it. She has her dream job working with me. I work for her is really how this works. In case anyone was curious. If anyone has asked me questions like logistically like, "Hey, how does your company work?" like Dan text Danny. I I don't know. Someone someone asked me, "What do you guys pay for the um your cleaners for for cabin?" I'm like, "Don't know. I I know that the cabins get cleaned. I know the hiring works. I got an org chart. Danny does all those pieces. It's really fun for me to get to work with my wife and to solve these problems. You guys can solve whatever your problem is through real estate just period. You can build a business that works. Where it gets really defeating is I think people get distracted. You come up with something else. You get out of you get out of this event and you know the next few days you're probably going to feel really really really good about like this was super fun. Everyone here is hilarious. I loved seeing everyone's height. You have all these Zoom calls. we just see everyone's face. It's like I know how tall everyone is now. You're going to feel really good for a few days and then after a few weeks you might not go immediately under contract for a deal and then life happens and you get easily distracted with everything else and the high of the event kind of wears off. What I really want everyone just to focus on is like what are you trying to build? Have other people here done that? Yesterday we established about a third of you own apartments already and have done that over the last couple years. What things would you do to buy the next deal? We've gone through a bunch of them. That's all we're talking about today. But I really I I wanted to just vulnerably kind of start with like we built the business really well when we started. Cody and I made a bunch of great decisions. Then we made a bunch of bad decisions and then we made a bunch of we had to make a bunch of great decisions to overcome those. If you can skip the bad decision part, you guys will just go way farther, way faster. That was the the dream of mine was everyone has a stupid video or book out on how I built my business and then I lost my business. Like let's not do that piece. And so we built the whole the whole brand on like don't lose it. And I'm like Cody, we need to not lose this. Very important to me that as always we said on Bigger Pockets, all the comment section is like they're too young, they're going to lose it. I'm like just don't do that piece. I'm I'm super proud that we didn't. Uh just build it based on cash flow. Say no to the projects that don't cash flow day one. It it's not that hard to do. Just find a different deal. That's the I get so many questions. I've got a few at the event of of of like, hey, would you do this deal? Does it make money day one? If it doesn't, just don't do it until you have so much money that it doesn't matter. And it doesn't take that long. We I've seen plenty of investors start from literally zero. a friend of ours traded a like beat up Honda as the down payment for his first apartment complex. Uh that guy has lent Cody $10 million. You anyone can build this business and he came to this country like with I think he's working $5 an hour as a potato peeler. If you have if you've ever worked for more than $5 an hour in central Washington, uh you're more qualified than the guy who lent Cody $10 million. It's a it's a totally doable business. It's It's not that not really that complicated. Oh, which makes my job very easy up here today. I'm just talking about things that are pretty easy. Don't lose money. Uh so, for the rest of the event, that is what we're going to be focusing on. This first one is a little bit short because I want everyone to continue to mingle, grab muffins, and then we're going to dive in on all of these specifics. We're going to get into capital raising, creative finance, and we're going to have a fantastic rest of the event. So, thanks for making it, guys. Let's party on.