Every Deal Structure Behind 100+ Units in Grant County, WA

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0:00 I just arrived at Moses Lake,
0:02 Washington, the first town that we took
0:04 over without spending a single dollar
0:06 out of pocket. On today's episode, I'm
0:07 going to talk about the creative finance
0:08 structures that [music] we used to buy
0:10 deals just like this. We're at the
0:12 original 30plex that I bought with my
0:14 buddy [music] Cody, one of my favorite
0:16 deals and showed me what was possible.
0:18 We're going to drive by a handful of
0:20 buildings, over a 100 units in Grant
0:22 County. On today's [music] episode, I'm
0:24 going to show you how we structure each
0:25 and every one of these deals using
0:26 creative finance and how we bought all
0:28 this real estate without spending $1 of
0:30 our own. [music]
0:44 [music] It's Cody Davis. He's back on
0:46 the channel. Cody,
0:47 good to see you again, man. This is the
0:49 first deal we ever purchased [music]
0:51 together. 38 unit seller finance. This
0:53 started the entire adventure. Cody, tell
0:56 us how this deal [music] actually came
0:57 up and how we got seller finance terms.
0:59 Well, it was on the market for [music]
1:01 13 years. Got listed when I was 8. We
1:03 bought it when I was 21. It was listed
1:06 cash out. [music] Asked them to seller
1:07 finance and they said yes. So, a
1:10 million7 of the $2 million purchase,
1:12 they said, "Yeah, we'll take payments
1:13 [music] on. Just find 300 grand." We
1:15 forgot to do that till the last couple
1:17 weeks. And then, uh, we did end up
1:19 putting it together. three people, 100
1:21 grand each, and we [music] bought this
1:22 with no reserves, no cash flow. Well, it
1:25 was negative cash flow. It was a lot of
1:26 uh all the wrong things to do. [music]
1:28 Everything wrong. If you could go back
1:29 in time, how would you have restructured
1:30 this deal? Cuz we did close it, you
1:32 know, in our 20s, $0 out of our pocket.
1:35 But what would we have done completely
1:36 differently?
1:37 It would have been better to ask for
1:38 like [music] 130 grand per person. So,
1:40 we had an operating budget cuz this is a
1:42 big campus. It's 3 and 1/2 acres.
1:44 There's a lot that we did end up [music]
1:46 upgrading. And if we had been able to do
1:48 that, we wouldn't have had to refinance
1:50 our really cheap interest rate with the
1:51 seller [music] to get liquidity.
1:53 Now, you had landed the original pitch
1:55 with the broker. At the time, [music]
1:56 you were 20 years old, I believe. 20 or
1:58 21.
1:59 Yeah, 21.
2:00 You're 21 years old. What gave them
2:03 [music] the confidence that after 13
2:04 years of this going on and off market
2:06 that seller finance it to you and I was
2:09 the answer?
2:10 Well, it was the way that I was
2:11 communicating, the communication style,
2:13 cuz they didn't ask for a proof of
2:14 funds, which is good. We didn't have
2:15 one. Yeah, [music] I conveyed that we
2:17 could close, that we knew what we were
2:19 doing. I mentioned that I had worked on
2:21 other deals in the market and [music] I
2:23 identified that they were just trying to
2:24 get their price. If you know what they
2:26 want, it's easy to give it to them.
2:27 So, you figured out what they want. You
2:29 knew what you needed and then you just
2:30 proposed it. And you showed up, I
2:32 assume, suit, [music] tie, dress shoes,
2:34 ready to go. Build all that confidence,
2:36 right?
2:36 I was wearing slides and sweats.
2:40 Kind of like [music] today, except for I
2:41 have closed toed shoes today.
2:43 There we go. He's grown up a lot. But
2:45 guys, when you're finding these deals,
2:47 [music] it's not about looking
2:48 professional. It's not about negotiating
2:50 the daylights out of everything. Figure
2:52 out what they want. [music] Make the
2:53 offer. Be confident in your ability to
2:54 close. And like Cody mentioned, raising
2:57 capital. We forgot to do that critical
2:59 piece. Do [music] not worry about the
3:00 capital until you have the deal, which I
3:01 think is the one thing that we
3:02 definitely did right at this property.
3:04 Absolutely. And don't add steps.
3:06 Yes. [music] Don't add steps. C Davis
3:08 did the same. Yeah.
3:17 Okay, we're coming up on the first
3:18 duplex I ever purchased in Moses Lake. I
3:20 don't own it anymore, so all the garbage
3:22 outside of that, that's not me. But that
3:24 little duplex, we renovated the whole
3:26 thing. Financing was 101% private
3:30 capital at 9% interest. [music]
3:32 Renovated it with my own money,
3:33 refinanced it shortly after, sold it,
3:35 and took the proceeds, [music] bought
3:37 that 12plex. The 12 bought the 10. The
3:39 10 bought the duplex. And that's how we
3:41 turned one duplex into 24 units.
3:45 Not bad.
3:49 [music] The 12plex behind me was
3:51 purchased seller financed by my buddy
3:52 Cody Davis. I actually eventually bought
3:54 into the LLC that owns this, but he
3:56 purchased this 5% interest, 10% down.
4:00 The seller's actually become a dear
4:01 friend of both of us. a refinance that
4:04 we did on this after we installed those
4:05 roofs behind me. Pulled out enough cash
4:07 to buy a seller financed duplex and a
4:09 seller financed 10plex. So, we turned a
4:12 Z investment or in my case the proceeds
4:14 [music] of a duplex into this building
4:16 and eventually into 24 units in less
4:18 than 2 years.
4:24 This 10plex was really fun. So, remember
4:25 that 12plex we purchased earlier? We
4:27 used the cash out refinance as the down
4:29 payment on this. The seller, his name is
4:32 Chad, he was selling this deal and I got
4:34 a call from the broker who's since
4:35 become one of my best friends. I've done
4:37 four seller finance deals with that same
4:39 broker since this deal. He called and
4:41 said, "Hey, he's willing to sell for
4:42 900,000, which was the exact price I
4:45 wanted to offer on it. Even better, 5%
4:48 interest, 15-year notes." Now, [music]
4:50 technically, it's 8 years with an option
4:52 to extend for another seven as long as
4:54 we're in good standing, but [music] it's
4:55 15-year debt product at 5% interest
4:58 only. So, low payments, 10% down. We're
5:01 able to take the refinance from the
5:03 12plex after we purchased it and buy all
5:06 of this here. Now, this is just a little
5:08 1950s 10plex, but it's a way to turn 12
5:10 units into 22. A little further up the
5:13 road, we also bought a duplex. Same
5:15 thing, seller financed, 10% down.
5:20 [music]
5:27 This is the 30 unit hotel conversion. We
5:29 bought this for $1.6 million. No
5:32 creative finance. This one was private
5:34 capital. And we got more than 100% loan
5:36 to value. Not only did they give us the
5:38 entire purchase price, but we got a vast
5:40 majority of our rental budget as we
5:41 redid the roof, the paint, the plumbing,
5:43 the electric, and basically the entire
5:45 building. When we bought it, it was a
5:46 dump. Today, this is a nice place to
5:48 live. Okay, so brace yourself. The
5:50 interest rate was 13 1.5% interest. Why
5:54 would we do something so crazy? Because
5:56 we're able to stabilize the entire
5:58 project very quickly. Now, this broke
6:00 some of my rules. If I could go back in
6:01 time, I actually would not do this deal
6:03 again, even though it worked. So, what
6:05 we did, $0 out of pocket, we bought the
6:08 deal. We bought it cash flow negative
6:10 knowing that we got an amazing price.
6:12 Now, the reason that we did it this way,
6:13 we had enough global cash flow in our
6:16 portfolio to be able to structure the
6:18 deal to cover the negative. However,
6:21 leading money on any project, I don't
6:23 think it's worth it. If you only buy
6:24 income, your income will only ever go
6:26 up. We had a lot of risk. And guess what
6:28 happened? The project actually took a
6:30 lot longer than we thought it would,
6:31 which means we had more negative cash
6:32 flow than we originally factored for.
6:34 Still a great project. We still did a
6:36 great thing for the community fixing
6:38 this hotel. However, at 13 1.5%
6:41 interest, really brutal deal. Total debt
6:45 structure, we borrowed a million850 for
6:48 a million6 acquisition. Did a ton of
6:51 maintenance and repair. I eventually did
6:54 have to contribute to this account to
6:56 finish the renovation. So, not a perfect
6:58 deal, not the perfect structure. If you
7:01 can go back in time, just start with
7:03 cash flow.
7:08 [music]
7:13 Welcome to Pheasant Street. The three
7:14 sidebyside duplexes behind me here were
7:17 purchased 10% down. It was a $900,000
7:20 purchase, so we only needed to come up
7:21 with $90,000. Now, this was 2 weeks
7:24 after we closed the 38lex, which we had
7:26 raised just enough money for. So, I had
7:28 none of that $90,000. However, we had a
7:31 fantastic deal. seller financed, 5%
7:33 interest, 10% down, and it's in an area
7:36 where duplexes were going for a little
7:38 bit over 300, about 350. So, we're
7:40 walking into some day one equity. That's
7:42 how we structured this deal. Of course,
7:44 when you have 5% deaths and you have 10%
7:47 down and you're winning on price, when
7:48 you win on price, terms, and everything,
7:50 really easy to raise capital. I found
7:52 one person who had $90,000 with a sole
7:55 goal of doubling their money in 5 years.
7:57 So, I made him a deal. I'll pay $180,000
8:00 in 5 years. That's given me 5 years of
8:02 cash flow. I got 100% of the cash flow
8:04 of these deals in that structure. But
8:06 with a great debt product, we were able
8:08 to negotiate a deal that easily doubled
8:10 his money and allowed me to own this
8:12 without any partners. [music]
8:19 [music]
8:20 Hey, so we're technically not supposed
8:22 to be here, but welcome to my duplex.
8:24 This burnt down, so again, technically
8:27 shouldn't be in here, but we snuck on
8:29 in. and they forgot to lock the garage
8:30 door. They had to rip out everything on
8:33 both sides. Uh someone had a loose cord.
8:35 They plugged it into an outlet. It was
8:37 an old extension cord. It caught fire at
8:39 the outlet, burned down the unit. It's
8:40 one of the ones where the tenants at
8:42 fault, but we ended up with a full
8:45 burndown on one side. The fire spread to
8:47 the other side. So, both tenants had to
8:49 leave. Tenant on this side was pissed.
8:52 But there's nothing you can do. Health
8:53 and safety has to take precedent. Uh
8:55 this is what happens though. If you have
8:57 the worst thing happen, total loss of
8:59 building, uh they've stripped everything
9:01 out. Everything had to be remediated.
9:03 All the windows blew up, insurance will
9:05 cover basically all of this. There'll be
9:08 a tiny bit out of pocket, but
9:10 ultimately, these are 1955 duplexes.
9:13 We're going to get a brand new duplex in
9:14 its place. If this happens consistently
9:17 to you, insurance will just make you
9:19 uninsurable. So, you don't want this to
9:21 happen often, but this is exactly what
9:22 insurance is for. We'll have a brand new
9:24 duplex. They rip it down to the studs.
9:27 You get the contractor quotes and they
9:29 come in, remediate it all, and then
9:31 they'll build you a new duplex. The
9:32 total downtime on this though is going
9:34 to be about 1 year. Wow, that is wild.
9:37 Yeah, they really did just rip this all
9:39 the way down. And what a lot of people
9:40 don't realize is that your rents are
9:42 also insured. So, fortunately for us,
9:44 [music] we get paid exactly what our
9:46 rent roll was on a fully occupied duplex
9:49 every single month. In fact, we actually
9:51 had a scheduled rent increase. They pay
9:53 the rent increase at the scheduled time.
9:54 and they honor the leases one to one
9:56 exactly as they were. So, I am getting
9:59 rent on both sides of these while we're
10:00 getting a brand new duplex built. Great
10:03 deal. Don't want it to happen often. And
10:05 most important, safety. [music] The
10:06 tenants did in fact get out. No one was
10:08 harmed. Everyone was safe. Uh both
10:11 sides, no injuries. That's the first
10:13 thing you worry about after that. How's
10:15 your building financially? We're going
10:16 to be just fine. [music]
10:22 Also, that little turd right there.
10:24 three units. Bought another three units
10:26 with it. All seller financed, 5%
10:28 interest, 5-year notes. Ended up selling
10:31 that one to Cody.
10:38 [applause]
10:40 I'm here at 29 Basin Street, Afraid of
10:42 Washington. We purchased this with
10:44 seller financing and with private
10:46 capital for a true zero down deal. Now,
10:49 that doesn't mean $0 out of pocket, but
10:50 we covered the entire purchase of this
10:52 building through creative finance. Come
10:54 on in. So, these are actually mixed use.
10:57 This is the only mixed use of my
10:58 portfolio. I'm a multif family investor,
11:00 and that is the core of all these
11:02 buildings. Upstairs is multif family,
11:04 and we're just about fully leased. A big
11:06 part of this project is renovating all
11:08 this space. So, you might notice the
11:09 ceiling's still down. We're doing a few
11:10 last minute touches. When we bought this
11:12 building, this thing was a piece of
11:14 garbage. And it's really fun to get to
11:16 actually contribute something meaningful
11:18 to a city that really does need the
11:20 housing. Afraid is growing and with the
11:22 lowest cost of power, a lot of AI
11:24 infrastructure is starting to move out
11:26 here in central [music] Washington
11:28 state. This was actually owned by
11:30 someone who is not the most skilled
11:32 landlord I've ever met. And as a result,
11:34 this building was really worn down. It
11:36 had tenant problems, had maintenance
11:38 problems. But we bought it for the right
11:40 price for $600,000. nine units in the
11:43 downtown core. The mission start leasing
11:46 up the retail. Now, we just leased our
11:48 first of three in this building. Right
11:50 next door is a cleaner. We're going to
11:51 finish this [music] unit out. Hopefully
11:52 get a tenant here very quickly doing the
11:55 same project next door. This is
11:57 considered a heavier value ad. We were
11:59 able to do it because we had the income
12:01 from upstairs in [music] our favorite
12:03 asset class, multif family. Now, the
12:05 debt structure, we purchased a vast
12:07 majority of this with private capital,
12:09 and it's at 12 1.5 or 13% interest. That
12:12 is expensive debt. The goal is to finish
12:14 these lease up and get out of it as soon
12:16 as possible. We're in the process of
12:18 finishing that refinance and should be
12:20 done this month. So, we are almost done
12:22 with the project. We just needed to land
12:24 that one lease right across the way. The
12:27 remainder of our purchase was actually
12:29 seller finance. So, we blended private
12:31 capital and seller financing. It was
12:34 also higher interest. While it wasn't a
12:36 lot of money, 10% interest. The mission
12:38 here is to get out of the debt product
12:40 as quickly as possible with the
12:42 stabilization of the building. But a
12:44 really cool way to buy a deal, $0 out of
12:47 pocket. Next to me is the 5-unit
12:48 building. This is actually how we got
12:50 started. This is the first acquisition,
12:51 $45,000.
12:53 It's three multif family units, two
12:55 commercials. So, we have this barber
12:57 shop that actually just moved, so we're
12:58 just leasing it. and an old PM office
13:00 which I've actually used as my
13:01 headquarters for all of Afraid of
13:03 Washington. These buildings are awesome
13:06 and at 4.5% interest 10% down. So with
13:10 $40,000 we're able to pick up that
13:12 building which is how originally I
13:14 bought that building with no partners.
13:16 Now later when I built this portfolio I
13:18 rolled that in to the rest of the real
13:20 estate. So, we [music] got into it very
13:22 low down, had partners buy into the LLC,
13:24 which back to the capital out, and now
13:26 we have all these buildings, and now I
13:28 own that building right next to that
13:30 9plex, which is right there. They
13:32 actually share a parking lot on the back
13:33 end. So, when I'm talking buying
13:36 downtown core, $0 down, $40,000 down,
13:40 and backed out the capital as part of
13:42 our renovation. One more property to
13:44 see. Let's head over.
13:47 [music]
13:52 This 12plex was purchased from the same
13:54 seller as the 5plex. It was purchased
13:56 just after, also seller financed, also
13:58 10% down and also 4 1.5% interest. Their
14:02 goal was to find someone who would do a
14:03 good job with the property who was
14:05 trying to grow their portfolio, who was
14:07 ready to retire. They had a property
14:08 management company. They built their
14:09 portfolio almost exactly the way I did
14:11 mine. So, when we met up for the owner
14:13 meeting, that is what we talked about.
14:14 how they built their portfolio, how I
14:16 started a property management company. I
14:18 was the perfect buyer for these
14:20 buildings. So, we structured the deal.
14:22 We put together the debt. Their comfort
14:24 level was 10% down as the minimum to
14:26 know that I had some skin in the game,
14:27 which came in from my equity partners.
14:30 Now, later on, we actually bought out
14:32 those partners with a new partnership
14:33 that allowed us to own all three
14:35 buildings together in one LLC. Very,
14:37 very simple, minimal people. So, three
14:39 total people, three buildings, and we
14:41 get to do some awesome projects for
14:43 value ad real estate that was
14:45 desperately needed in Afraid of
14:47 Washington.
14:48 [music]
14:52 That was a lot of the deals we bought in
14:54 Grand County, both Moses Lake and Afraid
14:56 of Washington. There's a few deals that
14:58 I skipped. We drove past a couple of
14:59 triplexes we bought seller financed.
15:02 There were some smaller buildings that
15:03 I've owned here and there, a sixplex
15:05 across the street, also seller [music]
15:06 financed. But I wanted you to see a bulk
15:09 of the portfolio and a bulk of the
15:10 structures. Anything you missed has a
15:12 very similar structure to what we
15:13 shared. But that is what Cody and I did.
15:15 And eventually Cody did some of his own
15:17 projects. I did some of my own projects.
15:19 We did that in Grant County, Washington
15:22 in our 20s and for me in my very early
15:24 30s. I then took those same strategies
15:27 and I rolled them out in Stevenville,
15:28 [music] Texas and in Abalene, Texas at a
15:31 much larger scale. uh link below to the
15:33 last two videos where I actually run
15:35 through both of those portfolios. And if
15:37 you want to see the debt structures and
15:39 the equity structures we used, this is
15:41 all about the creative finance and debt,
15:42 the equity structures and partnerships
15:44 videos linked below. Check that out. A
15:46 really fun episode running through
15:48 Stevenville in a very similar video. But
15:51 I hope you enjoyed this. My
15:52 encouragement for everyone is these
15:53 deals are out there. The first 17 out of
15:56 21 deals that I did were seller
15:58 financed. Now, many of these have been
16:00 refinanced into conventional debt. But
16:02 you can build a massive portfolio
16:04 [music]
16:04 without ever using a bank. And that was
16:07 the first town that we absolutely took
16:09 over. Transaction after transaction
16:11 after transaction, no credit checks. We
16:14 were both unemployed at the time. So, we
16:16 had no income. Two completely
16:18 unbankable, inexperienced real estate
16:20 investors. Built a massive portfolio.
16:23 And these strategies work in every
16:24 single market, including yours. See you
16:26 on the next episode.
16:29 [music]