$25M at 23… A Less-Known Real Estate Investing Strategy!!

0:00 - This 23-year-old and his partner built a $25 million real estate portfolio without using their money. But I'm skeptical. Is their success a random stroke of luck or have they truly unlocked the real estate code? - You can either buy real estate with two types of money. There's debt and there's equity. We bought that $0 outta pocket, seller financed as well. There's only three things investors care about. - So the order is always deal then debt then equity. - We've bought about 90 rental apartments and then the resort. - So in the summer we do a little bit over three and a half thousand per day. - That's where the real money in real estate's made. - Guys, your success at such a young age is quite inspiring. It's incredible. Before we get into how you purchased your first property, no money down, negotiation skills, relationship building skills, give our audience a little bit about who you guys are.

0:46 - My name's Cody Davis. I got started in real estate at 19 as a college dropout, and since then I had bought 30 apartments by the age of 21 and I had ended up meeting Christian at that time, but I realized he had been in the real estate space for a little while in a different sector. I was a real estate agent, not a very good one, I wasn't making any money. And when we connected we went out and bought a little bit bigger. - Yeah, so I did the opposite route. I did the whole college 9 to 5 thing. So I worked college to get a job to get a second job, third job, fourth job ended up at the CoStar Group. They own LoopNet, apartments.com, basically the internet of commercial real estate. I worked there for four years trying to get into real estate. I had the assumption that if you're around real estate and you get a job, you're better qualified to go buy real estate. What I learned was that the only way to be a real estate investor

1:32 is to actually go buy the darn real estate. I used the money I earned there to buy two duplexes. That was all the money I earned there. And I had to figure out how to buy without money, which is where I ran into Cody. Started with no money, got 30 units. And I'm like, well, I started with some money and I got to four. There's probably another way to play the game. We partnered on a 38-plexes, our first deal together. And the rest is history. - Let's go check out some of your units. - Yeah, let's do it. (calm music) - Tell us a little bit about Robin Hood, the acreage here. Anything else you wanna highlight about this cool place? - Robin Hood was built back in 1934. And so this has been around for a little while, we're going on 90 years next year. But this is on the Hood Canal in Washington. It's about 12 acres.

2:17 It wasn't 12 acres when we bought it, however, we bought the white house just across the street. Different owner, different transaction, but we bought that $0 outta pocket, seller financed as well. And that added two and a half acres to our nine acre assemblage here. (calm music) - All right. What is this place, you guys? Welcome to the Robin Hood suite. - This place is pretty cool, 'cause I got the chance to stay here last night. The cozy cottages. You've got what, total 16, 17 here? - A total of 18 cottages. - Gotcha. - If you include the big house across the water there. - Why this place out of all the places? Walk us through the process of deciding to acquire this property. - Well, originally one of our mutual friends said, "Hey, there's this zero down resort, you should go check it out. It's on the water and it'd be really fun for you guys.

3:05 It's too active of a project for me." So we came to come see it and ended up being really cool. Found out it was a lot more than $0 down, but we fell in love with the project and the property. So it was just one of those one-off adventures. - Gotcha. So it wasn't zero down, how much down was it then? - It was a million down. So it was one and a few zeros, they were really close. They were off by one digit. - Missed a one. - Yeah, exactly. - Yeah. So we bought this for four and a half million bucks. And with a million dollars down, the seller carried a note at three and a half million dollars for eight years. Our ongoing debt cost is about $154,000 a year. So when we were underwriting the deal, we looked at top line income list. What we thought was the operating expenses, we made some mistakes there. We didn't know what to underwrite to, but we projected for about a $400,000 net to pay the 150 in debt service.

3:50 - What are you on average bringing in per month as a total revenue for the property? - So in the summers we do a little bit over three and half thousand per day. So we're bringing about $100,000 a month in the summer. In the winter it's about a third of that. We're in a very heavy summer town, so there's concerts here, boating right out front, tons of hiking. In the winter, it slows down quite a bit. - Yeah. Well, just getting outside, you guys, 'cause it's getting a little toasty inside. And balance it with some cold Pacific Northwest Air. Cody, you started investing with absolutely no money, right? How is that possible? - Well, it starts with a lot of debt. You can either buy real estate with two types of money. There's debt and there's equity. Equity is cash and debt is borrowed cash. And if you don't have any money that you can actually contribute, you have to borrow it. So I got the seller to finance as much as possible,

4:37 which was a little bit north of a million dollars. And I still need another 125,000 bucks. So I ended up borrowing that from an investor, which was basically a hard money lender at the time 'cause they lent me money at 12% for my down payment when everyone else was borrowing at three or four. - That's crazy. How did you convince that investor? I mean you had no money, with what, $3,000 to your name or something? - That's all I had. And they were banking off the fact that I probably wouldn't make it work. You gotta think about what happens if it goes well. Well, they're gonna earn their 12%, then they'll get paid off. - Right. - What happens if it doesn't go well? I didn't know how to do all this at the time. I had to lean on mentors that I met through the real estate brokerage to show me how to do this with attorneys. They had a clause where I'd just sign over the ownership and the LLC if I could not pay them back. They get a stellar asset, it was a 12-plex. They were happy with the terms of the seller finance note.

5:23 And because of that, if I won, I got a property, they got 12%. - Gotcha. What did you learn in that initial relationship with the hard money lender? - There's only three things investors care about, whether they're investing into debt or equity. Where's the money going? How's the stability of what's backing it? And how do they get paid back? And if you map out those three things, they will give you money. - And it's almost always a discussion. It is a sit down over coffee. We don't put up big slide show presentations together, we don't give them a Word Doc. We have an idea. This is why it's gonna work, this is where your money's going, this is how it's coming back. - That's it. - Super simple. - Do you guys know why most investors fail very early on? The answer might be surprisingly simple, so keep watching to find out later in this episode. (upbeat music)

6:08 I'm curious 'cause it looks from just the outside, just like a regular house. You've got the two bay shop with the carport and stuff like that. What's the thinking process for buying it? It's right next to Robin Hood, yes but- - The prior owner of the Robin Hood, before the sellers actually sold it to us, the one that sold it to them, they used to own this. And so this is a wood-coax house. And this is actually a triplex, there's two apartments downstairs right now. But this is on two and a half acres of adjacent real estate to the Robin Hood. And we thought, what if we reconnected these two properties that used to be owned by one person and share that again with the community? Because this spot here hasn't been on Airbnb. And so we opened this up as the Robin Hood Lodge. And over time we're gonna recite this to be a log cabin. - Oh nice. - It will start to fit in more with the feel of the Robin Hood. - Talk to us about the deal here. What did you pay for it? Did the seller finance it as well?

6:54 - They did. So it was listed for 900,000. They had a mortgage. They said we can't seller finance. I said, well, this is what we were thinking. We were thinking about putting about 200 grand down and we'd like you to finance it for a few years and this would be the payment. And so they thought about it and said, oh, we're just gonna pay off our mortgage. And so they did. And we bought it seller financed. We brought in an equity partner with a buyout agreement on this place. So that we could buy it with $0 out of pocket. And we've been operating it successfully as the Robin Hood Lodge. - Man, let's get inside 'cause it's getting windy and cold- - It's cold and gnarly. (calm music) - All right. So how are you using this place? I mean, it's winter, it's slow. Are you doing a daily rental? Monthly rental? What's it bringing in? Just give our audience a quick snippet. - So we've got two long-term rentals down below that are rented out around 1,450 bucks a month.

7:40 Upstairs we've got a master lease from the Robin Hood Village Resort. And so we've got consistent income of 4,500 a month coming here. And then Robin Hood sublets it out to make the delta. - Gotcha. Okay. Part of Robin Hood, the 12 plus acres, right? With the white house, that's 12 total? - Yep. - You own that beautiful waterfront as well, right? With the fifth wheel? - We've got some waterfront over there with the water wheel, yeah. - Water wheel. Let's go check it out man. (calm music) All right. So for the year, kayaking is done, right? - Yep. - This ship is definitely retired, as you guys can tell. Can't believe this was what, three stories high you're saying? - Yeah, there was a party deck on top. - Sheesh. And it came with Robin Hood? - This came with the white house. - Okay. What were some of the initial challenges that you guys faced?

8:25 - Well, you'd think it'd be starting with no money, but it turns out the money is actually pretty much the easiest part. I think the hardest part for me was doing all the real estate. We bought a lot in November and December when we started scaling our business. And it was learning accounting. Not having the background in that and immediately going from, Hey, I have a duplex and a W-2 job to 55 units, going into a CPA's office and he asks you questions. You're like, "I don't know the answer to any of these." That was hard. - Now, you're not doing accounting for your company. - Well, we were. We were, just until last year. We did all the bookkeeping. And I was doing all the bookkeeping for us in the beginning and making sure all the taxes looked okay for our CPA. - What would you do now? Would you hire someone from the get go? - Well, you gotta start every venture with profitability. And if you don't have enough cash flow to pay whatever bookkeeping costs for every entity that you have, then you do it yourself.

9:11 (calm music) - All right. Back to a warm spot. So this place used to be a restaurant here at Robin Hood? Like what's the back story? - This used to be the bar. Actually, the Robin Hood suite, the big A-frame in the front used to be the restaurant, then this was the bar. - All right. How many properties did you guys acquire in the first year of partnership together? - We bought about 90 rental apartments and then the resort. - That was over about seven or eight transactions. - Gotcha. Within a one year period. What areas are we talking about? - Moses Lake, Renton, the Tukwila area, and then here in Union. - Why did you focus a lot on Moses Lake? - I believe in the market and that's where all the opportunities were. You buy where the opportunity is

9:57 and you don't always know what that opportunity's gonna be until it pops up, and it's probably not what you expect. I've never been to Moses before we started buying there. - How did you come across that market? What made you decide that this is the opportunity area? - There was a real estate agent in the brokerage I worked for when I was 19. And that agent had a deal that was seller financed that they were brokering. That's how I learned about seller financing and Moses Lake. - So besides renting cottages, enjoying the lake, there's other things that I could do here, right? So I kinda want to go take a look at where the venues would take place. For what? The weddings or- - Concerts, lots of corporate retreats and get togethers. - We have barbecue pits, we do stuff like that. Okay, let's go check it out. Show our audience where it is. Yeah. Let's talk about your biggest setback in your first deal. How did you overcome it? - I think of all the things with the 38-plex,

10:43 the biggest setback was probably drugs. That's the one with the chicken infestation and the couple bad roofs. That one had some difficulties. However, the biggest thing was we had a bunch of non-paying tenants and some of them were dealing drugs. Now, we don't do heavy value add on every project. This one was really difficult to figure out 'cause there were some very, very rough tenants to the point where it was actually dangerous to be there at certain times of day. - Well, how did you overcome that without... Whatever you can disclose. - With time and money. - Yes. - Yeah. - It took time and it took a lot of money. We had to do some evictions- - Have some cash for keys. - Yeah, we had to offer people money. And if you're doing cash for keys, you don't actually give them cash, it has to be certified funds. You can verify at the bank level, 'cause otherwise they'll say you never paid them. - What's the most important thing you've learned

11:28 through that project? - Be very kind but firm. - Exactly. - Makes sense. So there's this guy on YouTube, Ben Mallah, real estate, you guys have probably heard about him. He talks about real money coming from refinances instead of the actual sale of the property. Do you agree with that? Like what have you learned? - Well, I'd make the argument that the real money comes from holding real estate and not over levering it. So while you could refinance and pull out cash, I would disagree and say you should just keep the cash in the deal. That'll increase your cash flow over time. You pay it off. That's where the real money in real estate's made. - I agree. - It's not the people that flip them and sell them, to that point he's correct. But folks that leverage forever are always at risk. Folks who own their stuff, whether it's 10 million, 100 million or a million dollars of real estate, whatever their goal is, the people that can buy the real estate and pay it off

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12:59 Then give Durable a try. It's free to publish your website and start booking jobs. Just click the link below to head to durable.co and give your business the web presence it deserves. Blitz time with Cody and Christian. Thanks guys for submitting your questions. First one is, does risk scale proportionately with larger multifamily property acquisitions or is there disproportionately larger risk for properties with larger unit counts? - If you go bigger, to an extent, there will be less risk. If you're just getting started and you go too big, there'll be more risk because you won't be able to float the capital expenditures. However, 20 units is less risky than 2 by far because you've got way more money coming in. - Awesome. - Next one; what is a guiding principle you have returned to in times of uncertainty? - Deal then debt then equity.

13:45 Whenever you're worried about the money, whenever you're trying to figure out the opportunity, you have investors who wanna place capital, you always start with the deal, you never violate that principle and the money will always appear. - Love it. How do you get started in a market that doesn't have many multi-families for sale that don't need to be fully renovated? - You meet up with the owners that own the rest of the multifamilies. Go meet with the players, they can teach you how to play the game and they can give you the opportunities that you're looking for. - How do you apply seller financing in a multi-family market where all properties seem to have a negative cash flow? - You lower the cost of capital. One way to increase cashflow is to either borrow less money or borrow cheaper money. So you could do less money borrowed by reducing the price or putting more money down. If you don't have more money, the best way to do it is to lower the interest rate.

14:30 - All right. What's the weirdest interaction you've had with a tenant? - Weirdest interaction with a tenant. I actually had a tenant from Moses Lake find my house, drive four hours across the mountains, show up on my driveway while I was pulling out of my garage and said, "Hey, I don't have a cell phone but I got a notice that I'm delinquent on rent. I believe I paid." And I was like, oh good, I thought I was about to be killed." (Paul laughs) "You're fine. What is your name?" And we looked it up and we found the check in our system and they were good to go. - What's the biggest misconception people have about real estate? - That real estate is complicated. Real estate is a very simple model. People own stuff, they rent it out to people. They confuse hard with simple. It is not a complicated game, it is just hard. - If you could have dinner with one person dead or alive,

15:16 who would it be and why? The person I would talk with, his name is Mike Klug. He owns a bunch of real estate and has owned all of the biggest properties in Grant County. And I've tried to reach out and he's just unavailable to me. He's a little bit older, but every time I've looked at a big building in Grant County, his name has been on it at one point in the past. - What would you talk about? - Well, I want to figure out how he assembled that massive portfolio because we're talking average size of the buildings are 40, 50 units and he owned all of them. - What about you Christian? - I think the person I would meet with would be Mark Cuban- - Oh yeah. - From Shark Tank. He's done so many interesting businesses and he is so consistently successful. I just feel like there'd be so much to ask and so much to learn. He has such a simple take on money. I would just love to sit down and see what nuggets he drops

16:01 when we talk about the business model that we've built. - How many properties do you guys have as of today, not the ones that are pending? - We've got the resort and about 170-ish, 180-ish between the two of us. Because he's got some stuff in Texas that I don't have. I've got some stuff here in Washington he doesn't have. But combined, we're right around 180. And we're under contract on about 50 more. - Wow. How do you guys manage all these properties across different counties, different states? I mean, do you have 10 management partners or what's the secret here? - Yeah, so Cody and I started a property management company together, and eventually I ended up trading him a building for the company. And so I run the company today. - I see. - Our resorts business where we bought two properties and we're right now working on a, we're actually working on an RV park down there

16:48 that is in Mason County. So we have individual hubs, but you really want to focus on individual areas so that you're not spread out 10 deals in 10 different markets. That gets super messy and that's where a lot of people get sloppy bookkeeping, buildings go into disrepair. It's very hard to manage if you spread out too wide, too quick. - Talk to us a little bit about the cost of management for somebody that doesn't know and is new to this industry. - So cost to property management in a lot of markets is gonna be somewhere between 8 to 10% of the rents. That's usually what you would allocate. For our portfolio, because I own and manage, I'm able to do that as a discount, especially on some of our properties where we're getting rents up over time. I can come in at a lower cost. Cody and I manage stuff at $50 to $60 per month per unit. When we set a lease, $500 flat fee.

17:35 That's lower than you're gonna find in most areas. That's an advantage of self-managing. When I manage third party, it's gonna be $75 to $80 or $85 per unit. Same system though. Renewal fee is 200 bucks, leasing 500 bucks, it's pretty cut and dry. - What were your goals when you first partnered up? - When we got started, I wanted to help retire my mom and he wanted to help retire his wife, which we successfully built the business within 11 months to do that. But we figured we needed to buy about a hundred rental apartments to hit both of those goals. - Talk more about the relationship with your mom. Why was that important? And then touch on retiring your wife as well. That's pretty ambitious. - Well, my parents split back in '08, and I've always wanted to be able to help my mom 'cause she helped me a lot, and financially my dad's been able to get to a point

18:21 where he's able to retire pretty well. And I just wanna be able to help my mom live where she wants to live and do what she wants to do without having to go to a job. - What about you? - So my wife was a kindergarten teacher and we had this 10 year goal of retiring her, then the pandemic hit and she also got injured at the same time. So my 10 year goal became a one year goal. I was like, okay, she's not going back to teaching next year. I already left my job to pursue real estate. So I'm like, we're not gonna have income in about a year. We set this two year goal of like maybe she has to work another year. We ended up in 11 months of partnership, we hit the goal where we were able to bring her full-time into the property management company, which she now loves. And she gets to work with us. My wife and I wanted to buy a house in Texas, we're just starting laying the foundation on that right now. - That's so cool. - So all those goals were hit in our first two years of partnership. - Absolutely. We'll talk more about why partnerships fail,

19:07 so keep watching to find out. So you've mentioned that focusing on capital first is a backward strategy. Talk to us about that. What do you mean and why? - So a lot of people worry about the money, especially if you don't have money. It's like, okay, how am I gonna buy real estate for millions to dollars if I don't have the money? However, the money depends on the deal. You don't know what the debt needs to be, what the equity, 'cause ultimately you're going for a deal that cash flows day one on long-term fix rate debt. That is the goal. So the order is always deal, then debt, then equity. Because your deal, especially in creative finance, completely dictates the debt and the equity that you're gonna need to close it. - And so if you don't have the money, a quick way to not add steps is to go get real estate, 'cause if you had the real estate, you'd have the money. So let's figure out how do we structure the purchase in a way that actually gets you to be an owner? And most people are gonna say,

19:52 well, I don't have the money to buy it so I can't buy it. You don't have the deal, you don't have a property, you don't have something that makes any sense financially. So go find that piece first, 'cause that's way more important and way more scarce than the actual money. - We bought the Robin Hood, we thought it was gonna be $0 down. It ended up being a million dollars down. We had never done a raise for seven figures. We did that in one meeting. Their first question was, "well, what would it look like if we funded the whole deal?" - To which I said, "well, it'd look like you're writing us a check for a million dollars." And they said, "yeah, let's do it." And so we just asked them a question, Hey, we're not trying to borrow this. We'd like an equity partner, buying out in the future so we can own it 50-50, which we thought would be really cool. And they said we'd love to do that. And they got some cost segregation benefits out of it, which we can talk about later.

20:38 - Yeah. Man, I mean that doesn't happen though unless you have a relationship established, right? - Yep. It was a total fluke. They're the people I bought my first duplex from. - Oh wow. - He didn't realize that until we went to go meet with them. - Years, years down the road. That's pretty cool. Talk to us about seller financing. I know we can write books about it, but for the snippet here, what's most important to know? - Well, it's really simple and that's what makes it repeatable. There's a promissory note which is a promise to pay. If you take a dollar bill out of your wallet, that's a note. Promissory note is bigger than the dollar bill and it's just a promise to pay any amount over any payment schedule. So you have that. And then a promise is only as good as what backs it. So there's then a deed of trust against the property, which says in essence, the seller trusts you're gonna pay them. In case you don't, they're gonna have a lien against title

21:24 so that they can try and take it back if you don't pay them. - Right. And the seller is the bank? - They would be the bank. - Right. - And you can finance anything that you own. So if they have equity, they could finance that equity. - What three things stand out to you as far as what you've learned when it comes to seller financing? - People will finance to you because they trust you. And especially on a lower down deal where their lender risk is higher, they wanna know that you are a good operator. And so we've found that when we meet with people and we actually learn how they built their business. Instead of trying to buy their properties, we focus on learning how did you build your business and what worked for you? They know that we are gonna apply those practices towards running that property. And that results in more deals, lowered down payments, and ultimately, a much easier transaction, 'cause they do stay involved as a lender. They're a part of the deal

22:09 and a stakeholder of the deal throughout the whole transaction. So trust is the number one thing. - How do we identify properties that we want to acquire? I mean, do you have a set of criteria that you follow and stick to, or just 50 doors plus you'll look at it? - We like playing Monopoly. We love the board game and we like playing it in real life. If you find a market where you can get one opportunity, which is what we did, we found Moses Lake, Washington, we thought if it's worth buying one, it's worth buying everything. So every apartment building, we're buying them. If it's a 6-plex... A 6-plex will never change our universe at this point in time. However, it's another 6-plex that we could buy next to our other 6-plex, it becomes a 12. And we can start doing this Monopoly board game. And so for folks that are getting started, pick a market, get an asset,

22:54 and then start buying up that neighborhood because if you own all the neighboring real estate, you can guarantee your property will be a good area. - I was gonna say, you're not spreading out over a big territory. You're almost like, let's dominate one neighborhood or city. - Grant County, Washington. - Yeah. Grant County. And to that point, we're buying one neighborhood and then we're buying another neighborhood. And then every time we buy an asset, maybe we buy a 12-plex a mile apart from each other, we can call all our property neighbors in two locations now. "Hey, I'm your property neighbor. Wanna meet up?" We do that in the lakeside area and then we do it on the peninsula. And we can start taking over until we own properties that get closer and closer and closer, and then we own a big strip. - And we've seen people do this all over the country. Multiple markets. When we talk about meeting owners and people who've mastered the game- - Right. - This is almost universally how they play the game.

23:39 - Well said. Let's get outta here, let's go get warm. How do you find off market deals? - We found a magical map online. - It's super cool. It has every single off market property. - No wait, what is it? - Google Maps. - Is it free? - Yes it is. (laughing) And you can do it for free. That's how we started and that's how we continue to operate. Google Maps. You can do this in any market, and I just did this with someone in our mentorship group. They're like, "Hey, I'm stuck in this market. You said find the large roofs on Google, I'm not finding them." Hop into their market. You basically find an apartment complex. And typically in cities, when you have an apartment building, there'll be other apartments next to it. So you look at the residential areas, find an apartment building there, and you can just drive straight down the street. Kind of like a lot of people talk about driving for dollars, you can do it on the map. And you look through and you go, "okay, that building looks cool, that building looks cool. This is the type of stuff I'd like to own.

24:25 Now we need to figure out who actually owns these." And that's almost always on the county assessor site. Or if you're somewhere in the country where the county assessor's harder to access, you pretty much Google "parcel map this area." You'll find the ownership name- - White pages for phone numbers. - Exactly. Or opencorporates.com is one that we use all the time. But that's how we find these people is I go, "there's a building that you own that I don't in an area that I would love to own in. How did you get to where you're at?" Basic phone call, super simple. Only objective in that phone call, book a coffee meeting. All we wanna do is create enough interest to sit down and meet. And once you actually meet, people share their stories. And we've learned 95% of what we've learned from the people who've already done what we wanna do. - What is the biggest investment mistake and lesson

25:11 that you guys have learned? Let's start with Cody. - My biggest mistake was not buying deals that made sense for my criteria. I thought I was scaling too quickly in the beginning. And this was before I actually partnered with Christian. There was a ton of opportunities that I had the deal lined up and I had the debt lined up to buy at a hundred percent debt. It would've cash flowed a few thousand bucks a month on multiple properties, and I could have been at six figures cash flow, free and clear, at 20 years old. And I opted to say, "well, I'm scaling too quickly, I don't see anybody else doing this." Zero money down could've bought them but I didn't want to go too quickly. That was a mistake. - My biggest mistake was staying in the 9 to 5 too long and buying too small. So actually very similar. It's a fear of scaling too much. - Right. - I'm like, I'm very comfortable with my job. I was making decent money. Until all of a sudden I had a larger goal

25:57 where I wanted to retire my wife almost immediately. - Yeah. Well, if you scale too fast in certain industries, that could damage or hurt you. What can you tell our audience as far as your lessons learned? I mean a lot of people are watching right now sitting on a deal. And they're like, eh, do I pull the trigger, do I not? - When you buy a project, there will be some underlying obligations that you have to meet. So make sure that you have more options than you have things you have to do. Because as you're building cash flow, it's great to have more money coming in every single month. But if you've got a whole bunch of roofs you've gotta do, you've got electrical you've gotta do, there's a lot of obligations that will eat up that cash flow. If you're sitting on a deal and it doesn't have a ton of stuff that has to get done today, but it does bring in a bunch of positive cash flow, you should probably buy it. - Tell us about the journey of acquiring Robin Hood

26:43 and specifically what you've learned in terms of negotiation, due diligence, seller financing, really the best of the best that you can share with us. - Oh yeah. So we were sitting down in the Robin Hood suite. So they asked us what our experience was in business and they were asking about terms and what we thought about down payment and they asked, "did you just bring a whole bunch of cash?" I was like, "well, yeah, let me go grab it. I've got a suitcase in my car." - Yeah. - And so jokingly we said, "well, we're working on another deal down the road and we're doing a million dollars on that deal. That's our down payment." Because that is what we were actively working on, buying 85 rental apartments over in Moses Lake. They said, "okay, we want a million." We said, "well, whoa, whoa, whoa, what if we did 450, 10% down?" They said, "ah, we like a million." And in the process, we made the mistake of telling them all the special clauses we had done in the past

27:29 about additional down payments. - Interesting. - So we said, "what if we did 450 down with additional down payments of a quarter million each year?" And they said, "we'll do a million, but I really like your idea of additional down payment. So we'll do the quarter million as well." So we made that mistake. But that is unfortunately what we negotiated. - Now, the benefit is we're gonna basically have this place paid off at the end of the note, which is fantastic. The problem is, at this phase of our business, when we're in the build and stabilize phase, this is the most important part to optimize cash flow. Like we want to reinvest the cash back in our business. We now have to reinvest a lot of the cash into paying off the debt here. And while the property supports it, that is the wrong debt product for our phase of business. - Right. I mean you said earlier, to the negotiation table, start with what you want and work backwards.

28:16 What did you do wrong here? You kind of just said too much maybe or? - We were excited 'cause this was a new adventure. I think we put a lot of respect on the fact that they had done something we hadn't done before. And so we just took what they said as what will happen. - If you are an inspiring entrepreneur looking to start or currently have a business that you wanna scale, head over to upflip.com to find blueprints, mentors and more. Is Robin Hood Village profitable today and do you regret purchasing it? What can you highlight as far as the whole deal? - It is profitable today and I definitely do not regret buying it. This is a fantastic place. And every time we come down here, I think the immediate thing we say is like, oh my gosh, this place is so cool. I'm so glad we bought it. What we do regret is the way that we structured the actual deal.

29:02 The debt structure has us paying off this building very, very quickly or this campus very, very quickly, which is great, but it doesn't help for like the next five, six years. - Can you share some numbers, Cody, as far as where you're at for Robin Hood Village? - The best year ever before we bought it was 620,000 top line. Our first year of operating, we brought in over 730. - What changed between those time periods? - We did some more marketing and we held events. We are shifting from just a hotel model to more of an events venue. Events are a great way to increase your revenue. And so we brought in 730, in 2024 we're shooting for 850, and then the following year to get to a million. Of that, of course there are expenses. With a million dollars of revenue in the next three years, we should be netting about 600,000 to pay our debt and then cashflow.

29:49 - Not bad. How many people do you have working on at the village? - Well, any given point in time, it can be between day to day, three to five. - Okay. - But I think on staff, we've got five or six people right now. - What is the most surprising thing you guys have learned about real estate that you didn't know before? - Everybody's broke. - They don't have any money, at least they don't hold any money. - Folks believe in real estate a ton and so they put all their money into it. As soon as they get a million dollars or a hundred grand, they're gonna put it into their next deal. And that is not exclusive to small investors. We've seen people that have got hundreds of millions of dollars worth of real estate, and they'll spend down to their last little bit of cash just to buy the next deal. People put their trust in real estate more so than cash. - How do you guys avoid that for you? I mean, you don't wanna be in that spot five years from now. - Well, we actually do.

30:35 - Yeah. - Because the most successful people get rid of their cash to get cash flow. So every time you expend all of your money, if you expend a million dollars, or if you're smaller, a hundred grand, or 10 million, you have more cash flow coming in every month to regenerate quicker. - Well, Christian, you mentioned earlier on investing in real estate as a side hustle, right? Because you had a 9 to 5 job. Would you recommend this to our viewers? Somebody starting out? - Yeah, I think getting into real estate, it doesn't take as much time as people think. People think, Hey I gotta sit here and make a thousand calls a day and I've got a full time... It is not a super time consuming thing to get into your first few deals. And so I think most people can self-manage, start building their portfolio really up to probably 30 to 50 units depending on who you are- - That much? - Usually once you get that 50 unit thing, if you love the game, that's where it makes sense to jump off

31:20 and maybe start going a little bit harder at real estate. - I mean it sounds like for those who do love the game, you have no reason not to do it on the side while providing for your family- - Absolutely not. Absolutely not. It takes time, it takes effort, but it doesn't take that much time. It is not all consuming to own a little bit of real estate. - Right. Let's talk about first time investors. Beginners looking at this episode and they're wondering, should I focus on residential? Should I focus on commercial? Can you guys speak to that a little bit? - Commercial-residential, as far as apartments go is where you should start. That is the most stable asset class. - Commercial-residential? - Yeah. Which is apartments. - Oh, okay. - So that's where more investors are buying. It's not the newbies that are buying duplexes and fourplexes,

32:05 but folks that are buying 6 to 20 rentals. That is an ideal starting range. - And a lot of that's because your values are actually based on your performance. If you're a good operator, it's worth more. Whereas in the duplex and fourplex, you're valued on how your neighbors are doing when they sell their property. - Right. - What is the most important decision, Cody, that you've made, and I'll ask you this Christian too later, that propelled you forward both physical, spiritual, material, whatever it could be? - I committed to learning how to communicate with people. I was introverted, very introverted, not willing to talk to folks. - I would never tell that based on our interaction today. - I was a kid at McDonald's with my mom and I was hungry. I had like the four piece or six piece and I wanted a little bit more. She's like, okay, here's $3, go get some more. And I said, "no, I'm not hungry anymore." I was unwilling to talk to the cashier, I was that afraid to talk to people.

32:52 When I got out of high school, I made a commitment to learning how to communicate. I did that through communicating with Starbucks baristas. I learned how to talk to them. I would try and get the flow of conversation right, the tonality correct. And every time I botched it, I realized I'm never gonna see them again. And if it went well, I'd get the takeaways for what went well and then I'd try and apply it again over and over. And that single skillset has taken me farther than anything else in business. - Have you read books that helped you do that or is it just basically the in-person baristas experiences? - The application, the actual going out and doing it took me farther than any book. - What is your top advice for negotiating seller financing deals? - Well, there's a lot of clauses out there that you could add to a contract. It could be from no payments for a certain amount of time,

33:37 it could be negative amortization. It's best to keep it simple. Just have a standard loan product that doesn't have any exceptions to it, because most people make the mistake of focusing on those exceptions so those key clauses that'll make a deal work, when you should just make the deal work standardly. And then if you get those extra clauses later down the road in negotiations, then it's just a better deal. - Did you learn it the hard way? - Yes. We've done a few special clauses that were very complicated both to explain to the investor and then more importantly to have to explain to our CPA to put things through to the IRS. What we found through experience is it's actually very simple to keep it simple. You just don't add steps. You look at what answers the question and what answers it in the easiest way possible. - Right. - Let's present that.

34:22 I'll do one other piece that goes hand in hand with this, is just ask for what you need. Cody and I have a problem of occasionally asking for what we think will get accepted. The deal still works, we don't violate any principles, but we could have done a better deal We meet three times a week every single week. And it's us, it's not like we're pawning it off on someone who doesn't understand the business. So we are there. The folks that show up and then ask the questions are the ones that are buying real estate. There's a lot of people that'll be flies on the wall and they're not gonna ask questions. Some of them do buy real estate, a good percentage of them, but the highest percentage of people that are winning are the ones that show up all the time and ask the questions. - Yeah. Those that execute on what they're learning, right? So if you guys are interested more about their mentorship program, the course I believe that you guys are selling, check that out briefly.

35:07 We'll make sure to leave a link in the description below. Make sure to check it out. Give us some insight on negotiation skills. You've done a lot of deals now and you're pretty successful. So what can we learn from you as far as negotiation? - Well, just 'cause you can doesn't mean you should. And so we try and keep everything in our negotiation super simple. And if we're unwilling to move on something, we'll shut it down. But for the majority of the conversation, it's a very open discussion. We are trying to meander through an unwritten path and so we're trying to figure out how do we get what the other person wants? - How much rapport building do you do before you actually sit down and talk terms, options? How important is that? - That's extremely important. And it will depend a lot on the deal.

35:54 For example, if a broker brings me a deal, it's gonna be a very transactional conversation. It's gonna be pretty much like, okay, what do we need to do? What are the objectives? Let's go. - They've done most of the legwork. - They've done a lot of the legwork and they're gonna do a lot of the communications. If we have a relationship where the seller is financing to us who we've had a long-term relationship, it can take months, it can take years- - Wow. - But we'll build a relationship. And the best opportunities we've had are large owners who have hundreds of units, will come to us near the end of their career typically and go, "Hey, I'm ready to back out of the game. Turns out my kids don't want the whole portfolio." Because they know us and they like the way we operate, they go, "I trust you with this portfolio. So if I seller finance it to you, I don't have to take it back when I'm 85 years old." - This is the game of the long haul, right?

36:39 - Yes. - You're not in it for the short term. - Nope- - If you wanna succeed, right? - Yep. - And we've gotta learn strategies that no one else gotta learn, 'cause we learn from the people who've mastered the game in the market that we're in. - Yeah. - If you wanna master any game, just learn from the players who've already done what you wanna do. That's what the strategy does. - What are some perceptions of wealth for both of you guys that turned out to be not true as you're in this chapter of your life? I don't wanna say you've made it, right? 'cause there's always the next ceiling higher and higher, but what have you learned so far as far as wealth? - When I got started I thought a couple million dollars was gonna be good. And when we crossed that in equity... Because we basically were at the same point from when we started. We both partnered when we were both worth about 400 and we scaled past a few million bucks, and realized very quickly, that's not enough to really expand and be safe today.

37:28 I mean, even if you're in the 6%, you're getting six figures a year, but you still have all the liabilities and assets that you gotta take care of along the way. So it's not actually as much as people think. - And I really thought there was two phases. I thought if you buy it all and you stabilize it, you're done. Like you're cash flowing and it's good and you'll refinance when the debt comes due and you just kind of keep the ball rolling. What we've found is almost every single master of the game, the guys who've been playing this for 50, 60 years, they buy it, they stabilize, then they optimize everything. They go, "do I need to build something here? Is there a next level I can take this asset?" And then they do pay off their debt in their entirety. And that is what it looks like to actually make it. - It's interesting 'cause I've heard many successful investors say it's hard to get to the first million, then it's difficult to do the next 10. And then it just becomes easier and easier, right?

38:14 The 2 million becomes 20 and so on. Like as far as the challenges, talk to that. - The reason that it's so tough to get to the first million is 'cause people buy little deals. They think they have to get started to start, which is true, but they don't have to start at the bottom. Most people start with a single family or duplex. You're not gonna make a million on that, it will not happen. - But there's that mindset barrier like, are you kidding me? 38 units? I'm never gonna buy that. I didn't even buy a duplex, I gotta start there before I buy a 38 unit complex. - Longer walls and a longer roof. There's more people that will support you along the journey if you have 38 of them versus two. And the more support you get from people, whether it's tenants, whether it's mentors, the more likely you are to win in this game. - Share one book every investor should read. - You should read Deals on Wheels by Lonnie Scruggs.

39:00 Absolutely, without a doubt. That book talks about mobile homes and seller financing. It's about private money. - Okay. What about you Christian? What's a good book? - I'm the systems guy of our business, so Principles by Ray Dalio. Fantastic book. It's about the size of a bible, it's a big book, but he runs one of the largest hedge funds in the world. And he talks about the principles that he built his companies on. And the biggest takeaway that I had from that is just, it's not even the principles that he shares, it's how you document principles and how you put those throughout your company culture. - Gotcha. Okay. How many years in are you already as far as this business goes? - Yeah. I've been investing for a little over four years now. - Gotcha. And what about you? - I've been investing about the same amount of time, but I started a lot smaller. - Gotcha. Okay, are you guys paying yourselves anything today? - Well, no. But out of all of our real estate

39:46 and all of our business ventures, we pay ourselves 60 grand a year, each. And as a ratio to our income, that is next to nothing. So we reinvest everything into the growth of our assets and the acquisition of new assets. - Gotcha. Why is that important? I mean, you could pay yourselves a lot more and live a little bit more lavishly. - Every year that we push that off means that we can further stabilize what we've built. And it's cool to buy real estate, but it's even bigger flex to never lose it. And most people lose their real estate because they go out, they get a hundred grand a year passive income, and they buy the nice car that cost them four grand a month. Half their passive income goes to the car. I could go buy my dream car tomorrow, but that would be a sacrifice to stuff like this. And this is way cooler than any car that I could buy. - There's a bigger win it sounds like,

40:32 in delayed gratification, right? And a lot of people just can't do that and they lose.