Seller Financing in Multifamily Real Estate

Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they’ve built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I am thrilled you’re here. And I know you’re going to get tremendous value from the two young gentlemen I’m interviewing today. Their names are Cody Davis and Christian Osgood, and they’re in Washington State. They’re in about 110 doors, multifamily, plus another 12 under contract. But almost all of those were done with seller financing, including a resort that they owned was done with seller financing. So we’re definitely going to dig into that because that’s not something we talk about much on the show, and we’re going to have a lot of fun. Welcome to the show, guys.

Cody
Thanks for having us.

Christian
Yeah, good to see you.

Rod
All right, well, it’s a pleasure to meet you guys, and let’s get into it. So why don’t we start with having you tell my listeners just a little bit of a background, you know, because, like, Cody, I know you started really young, so I’d love you to articulate that a little bit. And Christian, you’ve got a very interesting background as well, so please take it away, guys.

Cody
Yeah, so my name is Cody, and I got started in real estate at 19 years old. I had been messaged on Facebook by someone I didn’t know to drop out of college and get my real estate license. So I did what any rational teenager would do, and I did that. And I took someone’s random advice, but my parents weren’t happy about that, so I ended up getting my license, left college. I was about two quarters in a college at a community college in Tacoma at the time. And when I transitioned, I thought I was going to make a ton of money because this person online told me, you can get rich as a real estate agent and you can make a ton of money, and then you can buy assets. Well, six months in, I made no money. And then the following 30 days after that, I made $3,600. All that time, I had a little bit of money, and two months following that, I bought my first 12-plex. Seller-financed, zero money down.

Rod
Good for you. Good for you. You know, it’s funny. I want to interrupt for a second. I got my real estate broker’s license right when I turned 18, which you could do back then with education, they got smart. Now, you need some experience, but I was actually a broker. I could have my own office. I was smart enough to go work for another broker. My first year, I made eight grand. My second year, I made ten grand, but my third year, I made over $100,000, which back in 1980 was pretty decent money, and it was all about mindset. I talk about this a lot. That was the difference between year two and year three, was mindset. So I want to circle back to– well, actually, please continue. So you bought your first 12-plex. Are you finished there, or do you want to continue on that?

Cody
Yeah, I’ll just segue a little bit off that. Nine months later, bought my second 12-plex, zero money down, seller-financed. Then I bought a six-plex, and that’s where I met Christian.

Christian
And then I went in the more traditional route. So I bought into the, like, okay, I need to get a high-paying job so I can afford to buy assets. So I went to college, did my four years there. Took a couple of years bouncing around different sales jobs because I didn’t know what to do with a college degree. So sold pet food, sold apparel, wanted to get into real estate, and started working for Land.com. I’ll get into this more, I’m sure, through the podcast, but one of the things that I learned really early on was, if you want to be a real estate investor, you do, in fact, have to buy real estate. Working in real estate is not the same thing as buying real estate. But worked at Land.com that was bought by CoStar Group and spent the next four years selling LoopNet and CoStar to buy my personal residence, my house, and two duplexes. And at that point, seven years out of college, I had three properties, and I was out of money again. And that’s around the time that duplex was across the street from that six-plex Cody mentioned. And I was like, I want to get 30 units by 30. I’m 29 years old, and then this kid across the street has 30 units and has no money. And I’m okay–

Rod
Punk. That punk.

Christian
We got to figure this out. And so I articulated that to Cody, like, I want to get the 30 units by 30. You got to 30 units by– you were 21 when you hit 30 units?

Cody
Yeah. And so at the time, I was like, well, shoot, you’re not very close. So I go on the MLS, and I find this listing. 38 rental apartments on the market since I was eight years old. Had been on the market for 13 years at the time, it listed for $2 million when the rents were 300, now, we’re getting, like, 1150 on the rent, and we bought it for that same $2 million.

Rod
No kidding. Guys, that is a massive clue, okay? Was it on LoopNet or where was it?

Cody
That was just sitting on the MLS?

Rod
Okay. Guys, if you see a listing that’s been there forever, you know, and very often, they don’t have a lot of information, those are the best because everybody gives up at that point. Nobody goes any deeper because they’re lazy. If you’re willing to do what others aren’t willing to do, you’ll always be a success. 13 years. Holy crap. That is just incredible. So, again, that’s the other piece of that. If you see a listing that’s been on the market a long time, rents have gone up. Everywhere. So now, of course, they’re stabilizing and compressing a little bit right now, but they still, I mean, in many markets, went up 20% or more in one year. So if you see one that’s three or four years old and they’re marketing it based on those rents, get excited, guys. Get excited. And I want to circle back to one other thing you said, Cody, which was, you got your real estate license. I get this all the time. Should I get my real estate license to go buy real estate? And I always say no. Why? Because first of all, you’re not going to learn a damn thing about buying real estate. You’re only going to learn how to protect homeowners and learn the laws. And you’re held to a higher standard. You basically have liability you don’t need. Do you agree with me?

Christian
Yeah.

Cody
Absolutely.

Christian
[inaudible] there will be real estate investors to buy real estate. [inaudible] it’s your next step.

Rod
There you go. Yeah. Fascinating, guys. Well, listen, I want to circle back to that first seller finance deal, because, again, we don’t talk about seller finance much here. I talk about it in my boot camp quite a bit and strategies around it and how to market for them and how to sell them on it and so on and so forth. But first of all, how did you find the deal? And maybe it’s the same model used for finding all your deals, I’m assuming– were they direct to seller or were they listed?

Cody
This one was listed.

Rod
Listed. Wow.

Cody
And for contact, this was two years before I met Christian because I’ve been doing this for about four years now, but I bought this 12-plex back in 2019. It was on the MLS, and I didn’t even know where the heck this city was. It’s called Quincy, Washington. Tiny little speck on the map that is 10 miles north of the freeway and ends up being a great area, but, mean, it’s just hard to find. And originally there was another broker in the office, had a client that was under contract on a seller finance 22-unit in Moses Lake. It was a four-plex, a six-plex, and a 12. And that was the first time I learned about seller financing. But when I realized that someone could buy something without any money, I tried to buy that deal and get it from that client because they didn’t move forward. That didn’t work out. So I looked up seller financing, and this 12-plex popped up on the–

Rod
It was actually listed offering seller financing. You didn’t even have to propose it. Wow. Okay.

Cody
It was on the market for 551 days. And so I called the agent. I said, hey, I had a 22-unit just fall apart. It wasn’t my deal that fell apart. It happened to be someone else’s.

Rod
All right. That’s all right. See, now, why did he do that guys? That gives him instant social cred. Okay? So the broker took him seriously. Keep going. That’s awesome.

Cody
Let him know the 22-unit fell apart in Moses Lake, which is just next to Quincy, and that I wanted to buy this. So I asked him, how do you want it written up? I wrote it up, and what ended up having been negotiated was 90% LTV seller financing, a 30-year term, 6% interest, fixed rate, no balloon. So it was like a home loan. It was a great deal. Problem was, I had to come up with 10%. So many, many, many pitches later, I’d gone into the brokerage and was like, hey, who has clients with money? And people ended up letting me pitch them, and I botched most of them. First one, I didn’t even remember how much money I needed, how long I needed it for with the payment. And I’m a math guy, so forgetting numbers is embarrassing. But botched a lot of pitches, got one, and the end all be all pitch was, look, it’s a 30-year fixed rate product, if I fail to pay you back, we’ll just do a sign over the deed-in-lieu of a foreclosure, and you could take a fixed rate asset that you can’t get the loan product for anywhere. Cash flow is great. They looked at the numbers, and so they placed a second lien with the mutual understanding that I would sign over the LLC had I not been back.

Rod
Yeah, you secured the LLC as performance. So, see, guys, there are a lot of ways you can secure a deal. You can have them put a note in a second mortgage on the deal or second trust deed, depending on what state you’re in. But you can actually secure your interest in the LLC that owns the property, your membership interest, which is basically a direct foreclosure. I mean, they don’t have to go through the foreclosure process. It’s seamless, it’s cleaner, it’s easier, and it’s safer for the person loaning the money. But listen, I just have to say this. You know, don’t tell me you’re too young to do this freaking business. I don’t even want to hear it, okay? Because Cody has obviously proven that wrong. And if you’re listening to this, I can tell you he looks like he’s 20, 21 years old, okay? So, you know, even if you look young, it doesn’t freaking matter, okay? So, you know, and the thing that’s interesting is you didn’t know what you didn’t know. You just freaking did it. And that’s my favorite catchphrase. Massive freaking action, okay? And you just took massive action, and you made it happen. Very impressive, brother. Very impressive. And I’m not easily impressed. So that’s absolutely awesome. So you got into that thing, literally, nothing down because you got the down payment from somebody, and I’m sure you gave them some rate of return. Talk about that deal. What did you give them?

Cody
That was 12%.

Rod
12%, okay. That’s high. Well, that’s good money.

Cody
Well, it was expensive, but it would have cost more not to do the deal. And it cash flow, you can pay them 12. So that’s where it worked out.

Rod
Are you working– can you accelerate paying them back from cash flow and try to get that paid back quicker or what’s the plan?

Cody
Yeah, so in that deal, I had to just write a check so I couldn’t chunk it down over time, and I didn’t have all the cash flow or the income to chunk it down. So what ended up happening is I asked for one year. I didn’t earn enough money to pay them off, so I begged and pleaded them to extend one more year. They said yes, I had to pay a few more points, and then I was able to pay out my earned income after that 24 months–.

Rod
And you paid it off from earned income. So were they actually a hard money lender that you met at a meet-up or something?

Cody
Just a private individual.

Rod
Private individual. Because that’s pretty sophisticated. They got points, they charged 12%. Sounds like hard money. That’s why I asked. Okay.

Cody
It was expensive, but it got me started.

Rod
Right, and you could, you know, very possibly have refinanced it at some point and gotten them out of there, too.

Cody
I wish.

Rod
But, you know, the rate has gone up. Huh? I wish. Yeah. Well, you’ve got a great first mortgage there, so it’s like, you know, paying them off. Paying off that second is just fine, too. So talk to me about the– what was the big one you guys got? There was a 38.

Cody
We started our first deal was a 38-plex.

Rod
Talk about that. Talk about that a little bit.

Christian
So, yeah, $2 million purchase, seller finance, 15% down. So a $300,000 capital raise.

Rod
So that’s the one you were just talking about that had rents that were freaking ten years old, 11 years old, whatever.

Cody
Over 20 and 30 years.

Christian
Yeah. Unbelievable. So, yeah, we’re in Washington State, and rents on some of those units were $350.

Rod
You’re a blue state. Do you have rent control?

Christian
Not yet. We will.

Rod
Okay.

Cody
We wouldn’t have bought the deal if there was rent control.

Rod
You’re right. Okay.

Cody
Percentage points at a time would never happen.

Christian
Yeah. That would take literally forever.

Rod
Okay.

Christian
But yeah, the building, so no one else wanted to buy this. That’s why it was on the market for 13 years at the exact same price. A lot of problems with the building but the biggest problems were they were just not collecting rent. They filled the building with a whole bunch of their family members. Bunch of drug problems. There’s a rough building. However, this is in 2021. There are a million relief programs for people not paying rent. So we got in there and we knew our plan was, okay, we’re going to get in. We need to just get collections up. Before we do anything, we just have to start collecting money on people who aren’t making any money. So we went door to door, got everyone on government programs, fixed the immediate issues. A little bit of work to the septic, a little bit of work to the plumbing. And we got the income on that building. 38 units, were making five and a half grand.

Cody
Day one. That was gross. So it was a negative cap rate on acquisition.

Christian
People say that there’s no such thing as a negative cap, but if it loses money operating, mathematically, negative one cap. But we got collections from five and a half to 15,000 in the first few months. And part of that deal, we just negotiated, it’s creative finance it’s, whatever you negotiate. So we did lower payments for the first six months, and then the payments jumped up to the full amount. So we had time to [inaudible]

Rod
To get things cleaned up.

Christian
Yes, exactly.

Rod
So you worked with the existing tenants to get them on their feet rather than throwing them out?

Christian
Yes.

Cody
Absolutely. And what we found is when we went in, this is not something you talk about.

Rod
By the way, guys, that’s unusual. Typically, operators will get them the hell out and get somebody else in that’s paying and get a higher rent and all that. So that speaks to you guys. I mean, that’s really cool that you did it that way, but that is unusual. I’m just going to tell you.

Cody
Well, our thing is cash management is everything. While we could go get a higher rent, we need to manage what we have and where we want to go because if we focus too much on where we want to go, we won’t have anything. Where we focus, we tend to gravitate towards. So getting the higher ends of the future is great, but we have to manage the cash flow that we’ve got. So it’s easier for us to go in and say, hey, we’re going to buy you all new appliances. And we did that for a lot of people because all their appliances were busted. [inaudible].

Christian
Put a little bit of energy in and then ask for a little bit back.

Rod
That’s how it works. I mean, you know, if you take over a property, the first thing you do is start making improvements on the outside so people see you’re going to improve it before you ask for any increase in rents. So I know one of the things that we wanted to talk about before we started recording was partnerships. And it’s a topic, you know, that’s an important topic because this business really is a team sport. You guys became partners. Looks like you’re great partners. Let’s speak to that a little bit. Give me your feedback on partnerships.

Cody
Yeah, well, we bonded over going to a 10x Growth Conference, and I think it was 2020.

Rod
Oh, that’s so funny. I’m going on Monday. I’m going to Vegas on Monday.

Christian
We’ll see you there.

Rod
You’re going to be there?

Christian
Yeah.

Rod
Oh, fantastic. Listen to this. Listen to this. I am in section one, row one, seat one. I’m in the front row, but I paid a lot of money for that. But I’m literally in seat one, section one, row one. It’s funny. Anyway, it’s just the guy called me and said, hey, guess what seat you got. Well, that’s awesome. Make sure you come up and say hello.

Christian
We will.

Rod
Yeah, I’ve never gone, I felt like I needed a little motivation. I motivate everybody else, and it’s like, time to look in the mirror. So, you know, Grant’s hilarious. He’s been on this show twice. You know, so I said, what the hell? I’ll go. I saw Tony Robbins three weeks ago. I’m seeing Grant next week. Anyway, I digress. So you went to Growth Con. Please continue.

Cody
Yeah, I went to Growth Con. We sat down and looked at our goals because he had just bought that second duplex next to my six-plex. And we got motivated, as most people do, leaving that event. You know there’s a lot of hype in that room.

Rod
Sure.

Cody
We sat down [inaudible] by 100 units in two years or less without syndicating, and then we did in 11 months. But what we found for the ability to do our partnership is in a similar place that we were going. And once we realized where we were going and what the costs were associated with those goals, we set out principles. And the principles were like our guiding bumpers down the bowling alley that kept us in check so we don’t go off the rail. So we established about 35 principles, and that was not just sitting down and saying, we got to follow this, this, and this. But we’ve mapped that out over a partnership.

Rod
All right, all right, I’m not going to let that slide by. I want to hear some of them.

Cody
Yeah. Don’t add steps.

Christian
Yeah.

Cody
You have to acknowledge that you can’t do a good deal with a bad partner, so that will violate everything. You have to start with profitability.

Rod
Okay.

Cody
You got to actually go catch a fish before you’re dedicated to building a boat, right, because you spend a whole bunch of time and resources on something that doesn’t make money. You think–

Rod
Busy work. Busy work. I get calls from my students. What do you think of this logo? I’m like, how many brokers have you called today? Okay? How many deals have you looked at? I don’t want to hear about your freaking logo. Go out there and make something happen. It’s called income-generating activity. Right? All right. Anyway, sorry. Keep going.

Christian
No, that’s exactly right.

Cody
Yeah, just stuff like that. And we just identify, okay, we have to keep it super simple. And we just identified all our little steps, and they were from things that we learned from other people to do and things not to do. We had a mentor who showed us exactly what not to do in business.

Christian
Which was super helpful. I’m grateful for those.

Rod
I’m a great poster child for that as well. Actually, at my boot camps, I give away these shirts that say #AskMeHowIKnow because I’ll say, don’t freaking do that. Ask me how I know. And a student gave me a shirt that said that. And finally, I’m like, have a bunch of those printed up, so we give them out. That’s funny. Do you guys wear different hats or are you doing the same thing? How are you– well, tell me about each of your strengths and how that plays out as well, please.

Christian
Yeah. So there are two major roles that we play, and there’s that– I’m typically the integrator and Cody is the– what’s the term?

Cody
Visionary.

Christian
Visionary. There we go.

Rod
Interesting. Oh, that’s good. So you execute Christian, Cody visualizes. I can hear that in just talking to you guys. So you’re more detailed, Christian? Would that be an accurate statement?

Christian
Yes.

Rod
Okay.

Christian
Cody is the best single buyer of real estate I’ve ever met. He’s a freaking nature. Putting together deals, building relationships. If it’s some of the little stuff in between there of like, oh, yeah, do we call about utilities yet? It probably hasn’t happened. So with the little stuff of, like, what goes into running a property management company to the acquisitions, making sure we don’t miss any steps.

Rod
So you’re managing yourself?

Christian
Yes.

Rod
Do you have an employee or are you doing it yourselves?

Christian
Yeah, between the orgs, we have about 16 employees now.

Rod
Holy shit. Wow.

Christian
A lot of that is the resort, though. The resort [inaudible]

Rod
Okay. Have you guys implemented EOS?

Christian
I read the book Traction, so EOS is [inaudible]

Rod
Right. I heard the term implementer, and that’s why I thought maybe– guys, that is a game changer. I would highly encourage you to implement it. It’s incredibly powerful. Guys, if you’re listening, it’s from the book “Traction”. A guy named Gino Wickman and I presented this to my Mastermind members. You know, there are 16 billion in assets in my Mastermind. This is not the Warriors. This is my Mastermind called The Multifamily Boardroom. And almost every single one of them uses it now. And it’s an absolute game-changer. So with that many people, I’d highly encourage you to implement it because it’s very, very powerful. Well, good for you guys. Holy cow. Well, listen, by the way, as it relates to partnerships, guys, I have a free resource. If you haven’t heard me talk about this before. See, partnerships are easy to get into, like a marriage, and hard to get out of. And like, in my boardroom, I have two very large members at 4,000 plus doors apiece that just broke up. One a male and one a female. Just broke up. A very large partnership because they didn’t ask the hard questions upfront. And you guys, it was really cool, you came up with your 35 core principles, and that’s a fantastic framework. And the other thing is that you both have complementary skillsets. You’re not the same thing. If you’re the same thing, you’re going to butt heads. But I’ve got a list of questions. And guys, if you’re listening, if you go to “RodsLinks.com”, “RodsLinks.com”, or text the word “links” to “72345”. There’s a book in there called “The Questions You Should Ask Before Forming a Partnership”. And it’s all the hard questions you want to ask. You know, things like what happens if somebody gets sick or dies? I can’t even think of the questions, but there are a ton of them in there, and then they’re the important questions to ask before you get going because you get caught up in the emotion and you don’t ask what you really should ask. And then if you hadn’t heard me say this before, also trust your intuition. It’s super important. If your gut doesn’t feel right, trust it, because your brain is incredibly powerful, and it can pick up on these little micro nuances that you’re not consciously aware of, but your gut, you’ll feel it. Okay. You know, there’s a book called “Blink”, and it talks about how instantly people can get a perception of something. And there’s an example in there of some of the best art experts in the world, and they’ll look at a painting and they don’t know why it’s fake, but they know it’s fake. And this is an example of it. Your brain can pick up on somebody’s congruency, for example, if what they’re saying matches their body language and things like that, but you’re not consciously aware of it. Anyway, I digress, but that’s partnerships. This business is a team sport, and you’re very rarely going to do it alone. I’ve only met literally one or two people that have built big, big portfolios on their own. And so, you know, these important upfront questions are super important. I love the fact you came up with some core principles. You know, we’ve got core values in my organization as well. Things like integrity and things of that nature. That’s in fact our number one core value. Well, let me ask you guys this. So what’s the driver here? And what’s the why that’s driving you two? And I’m sure it’s different for each of you.

Christian
Yeah. When we got started, actually fairly similar. They’re at least adjacent goals. My goal was to retire my wife. She’s a teacher in a school here we’re in a state where the politics have gotten weird. I won’t go into that. But we’ll say less than ideal, not agreeable.

Rod
Yeah.

Christian
That was really my driver from going from– I have two duplexes that I got to stop buying duplexes, and I got to go bigger. Because it went from, hey, I have these dreams, to like, we got to do this now. So there’s the security of providing for my family, and I think a lot of husbands will relate to that. I just want to provide for my wife.

Rod
Sure.

Christian
And doing that meant financial freedom. That meant not buying one duplex at a time. I had to figure out how to go bigger, which is where my goals– let’s get a partnership to 100 units went. For Cody–

Cody
Yeah. I wanted to be able to help retire my mom, and so I didn’t know what that exactly looked like in the beginning. Originally, I thought it was just going to be paying for a mortgage, but what I realized is that things cost more than they used to, evident by all the money that’s been printed and all the prices are higher. So what I’m doing is I’m helping her remodel her house into a duplex. And this is in North End, Tacoma. So I had to figure out, okay, what’s the value and what’s it actually cost to be able to do all that? And it was about the same cost as retiring his wife. So we just said, hey, 100 units will do it. And when we got to 100 units in 11 months without syndicating, it was all just private, seller-financed debt. We celebrated by buying the resort.

Rod
Okay, talk about– okay, bought a resort. Good God, where the heck did that come from? And talk about the resort.

Christian
It came from YouTube. One of our YouTube buddies who’s local. But he looked at this resort and he was just about to retire. His whole brand is investing the lazy way. He does fourplexes, buys one at a time, a lot of house hacking. But he just does a very passive, simple, build your wealth over time model. He looked at the resort and was like, this thing makes a lot of money. It’s also a ton of work. This is a better project for some young guys. So he called us and the pitch was, hey, I have an off-market deal. I just drove to it for the first time. The owners are really nice. Zero down and it’s going to cash flow really nicely for you guys.

Cody
Yeah, it’s going to cash flow for 20 grand a month on zero down.

Rod
20 grand a month on zero down. Holy cow.

Cody
That is great. And then we ended up meeting up with the owner, realized it was listed on the market, and they wanted a million down. So they got the first zero of many correct for the down payment. They just forgot the one. But a million dollars later, it did in fact, on day one, cash flow 20 grand a month with another 30,000-month upside. So it can be a really solid–

Rod
So you did come up with a million down.

Cody
Yes. It was one coffee meeting, one relationship, one wire.

Christian
We thought it was going to be the capital raise. We thought it was going to be three equity partners with the buyout agreement. On our first pitch, five minutes in, they’re like, we just want to do this project. So what would it look like to not bring in other people? It’s like, well, you need to bring the whole million. So, okay, done. That was the easiest raise we [inaudible]

Rod
So, hold on, I want to drill down on this a little bit just to give my peeps some framework. So this is a resort that people go and stay in for a week or a few days or something like that. Yes?

Cody
Yes. And it’s been operating–

Rod
What’s the appeal of this place? It’s on water or something or what’s up with that?

Cody
It’s got a waterfront and it was built by John Beckman. And for us, the story is worth more than the real estate. John Beckman was a set designer for the Robin Hood movie that partnered with Walt back in the ’30s. It was built by John and so the Robin Hood Resort was built by John.

Rod
It’s called the Robin Hood Resort.

Cody
Robin Hood Resort. Yeah.

Rod
How many rooms?

Cody
On that campus, there are 17.

Rod
Okay.

Cody
An extra guest apartment. And then we bought the neighboring property, seller-financed as well when it hit the market. So that was added another three.

Rod
Okay. So you got basically 20 rooms between the two properties and it cash flows well.

Cody
Yes.

Rod
And you looked at historical numbers to come up with the determination that it would cash flow. Okay. Very interesting. Wow. And they are seller-financed and what do you have to give? Did you give your– I mean, if you can’t answer this, it’s fine. Did you give your Limited Partner or your partner in the deal, did he get equity or did he get a return?

Cody
We did equity with a fixed buyout. They did not want to have any cash flow. They just wanted to have their percentage and then to be bought out later, but to be backed by [inaudible]

Rod
Well, that’s basically debt. I mean, just to be honest.

Cody
Oh, yeah. It’s debt.

Rod
That’s debt. It looks like equity, but it’s not.

Cody
Right.

Rod
They have equity from a collateral standpoint or from a security standpoint, but that’s really debt. By the way, guys, if you give somebody a rate of return, like, let’s say you give them a preferred rate of, say, 8% to 10% or something, but then you cap them at 12%, that’s debt. Okay? Because you’re basically going to pay 12% to get them out of there. Because anything over the 12% is return of capital instead of a return on capital. Love it.

Christian
Exactly right. And for them, there are some tax advantages for them, the way they wanted to play the equity piece, which was the main reason we structured with the equity pieces, just because we’re running a cost segregation study on it made sense for them the way they wanted to run it. But outside of that, it is effectively we run most of our equity partnerships very similar to that, where if we partner with someone, there’s going to be a fixed buyout in a fixed period of time. We will own everything we buy and the real estate will pay for it. The goal is the real estate buy the real estate.

Rod
Yeah. That’s the best. Have you seen a slowdown at your resort based on the current economic environment?

Cody
No.

Rod
Not yet. Okay. Well, let’s hope not. Okay. Talk about any, aha, moments that you had on this journey, guys. Any epiphanies where you’re like, okay, now I get it moments if any have come to mind.

Cody
Yeah, it clicked for me when I got my first bank loan. My first bank loan was a million nine and a quarter. And when we got that, I had to sign and I had to have the net worth personally to back that. And I did, but it didn’t get real until I got that first loan.

Rod
How old were you when you got that loan?

Cody
22.

Rod
Wow. Now, did you have a relationship with that bank beforehand?

Cody
No, I didn’t even know they existed.

Rod
Wow. Wow. Wow. That is extraordinary. Honestly. Again, very impressed. Okay. But that’s when you sobered you up a little bit, didn’t it?

Cody
It was pretty cool because the ability to sign and back a million nine loan at 22 was like that’s–

Rod
Don’t get cocky because that can come back and bite your ass if you’re not careful.

Cody
Absolutely.

Rod
Ask me how I know, okay?

Cody
Yeah. Absolutely. But we try and just keep conservative and we have a four-stage business cycle. We didn’t really talk about this, but it works alongside with the partnership. We have the build phase, stabilization phase, optimization, and then debt hammer. We’re not going to get to be the biggest players in the real estate holding space, but we will own everything in cash and we’re going to get it to be hundreds of millions of dollars, I think, in the next ten years. And then it’ll take another five to ten after that to actually pay it off. But we have our–

Rod
That’s a great strategy, Cody. Great strategy. Yeah. Really great strategy. And I should do some of this myself. I had a partner way back, we’re talking when I was your age, actually, in Denver, and his strategy was he’d buy six places, he’d sell three, pay off the other three, then he’d go buy more and sell and pay off, you know. There’s nothing stronger than free and clear real estate. It just doesn’t get any better than that. So that’s a really good strategy. Let’s see. I felt like there was something else we wanted to talk about. What else didn’t I ask you guys about? Forgive me. We went off a whole bunch of different ways. It’s been really valuable. But let me ask you this. You know, I have a lot of aspiring real estate investors on this podcast. We just broke 15 million downloads. We’re the largest in the world at what we do.

Cody
Wow.

Rod
Yeah. Thank you.

Cody
Congratulations.

Rod
Thank you. And so, you know, we got a lot of people that want to be where you’re at, want to make something happen, dare I say, want to get off their butts and go make something happen. And so what advice would you have for somebody that feels trapped? Maybe they’re caught up in fear or they’ve got some limiting beliefs like I’m not smart enough or analytical enough. That was one of minor or, you know, whatever. Or maybe they’re comfortable and we know the comfort zone is a nice, warm place. We also know nothing freaking grows there, right? So what advice would you have for someone like that that hasn’t pulled the trigger? What would you tell them to do?

Christian
Well, we mentioned a little earlier, if you want to be a real estate investor, you do in fact, have to buy real estate. And you watch people buy real estate, and as soon as they get that first deal done, the second, third, and fourth, fifth deals happen right after that.

Rod
I see it all the time. I see it with my students. It’s the law of the first deal. It takes the longest. It’s the scariest. It’s the most stressful. It might be eight months in. They’re bitching, I haven’t got a deal yet. Then they get one. Next thing I know, they’ve got four or five. It’s like it happens every freaking time. It’s hilarious. Yeah. That’s funny.

Christian
It goes very fast once you get started, but you do, in fact, have to get started. The easiest way, I have found, to actually get into the game, and this might be a little bit unique to Cody, my strategy, but you have to set your goal, and you have to believe in that goal. If you don’t have any significance behind it, you’re not going to do it.

Rod
What do you mean by significance? What do you mean by significance behind it?

Cody
We have a circle drill.

Rod
Okay, speak up, buddy. I can’t hear you.

Cody
We’ve got a circle drill where we’ve mapped out– yeah, that might be a mic. We’ve mapped out a few things that build relationships with folks and get deals done. You’ve got relatability, which is your past, and people will meet with you based on relatable points.

Rod
That’s called building rapport. That’s called building rapport. Okay. Relatability. Got it.

Cody
Yeah. It builds that initial meeting, but you get to the meeting, and then in the second sector, you have goals, and people will work with you based on the goals that you set if they align with them. But most people get to the meeting, and then they keep trying to share relatable points. That’s not how you build the relationship. It’s how you book the relationship, like you booked that initial meeting. So you share goals, get people to work with you. The significance is what changes when you actually get there. It’s not your why. This is where we defer for most people. We think a why is good to internalize, but as far as actually connecting with others, it’s the what changed when you hit your goal and what changes for us when we hit our goal because that change is what will get people to buy into your story. And so with the outreach thing, when we talk about significance, it’s like, okay, what’s going to change if this happens? And that’s how we’ve gotten all our deals.

Rod
Interesting. So you look at the end result, and you communicate that end result. I like it. I like it a lot. And by the way, guys.

Christian
And we got to– oh, go ahead.

Rod
No, go ahead. Please continue. And then I’ll tell what I say what I want to say.

Christian
Just tying it back to how you get to your first deal and how you actually close that. Once you identify that goal and you’ve mapped that out for yourself, the next step, and this is really the last thing you do, is you just find the people in your market. You’ve done what you want to do, and you just network with them and you figure out what was the next step. And you just listened to them. And that’s it.

Rod
That’s it. And that’s why my Warriors are so successful. You know, those are my mentorship students. They own upwards of 150,000 units now that we know of. And I’ve only been doing this for five years, and it’s by that association. My most successful students, my most successful Warriors are the ones that are most connected in the Warrior community. And by the way, on that note, that’s what I was going to say. So these guys, if you watch this on YouTube, you’re going to see a sword between them on the wall. And I was freaking out because I thought I screwed up because you know I’ve got 1400 students. And so I’m looking at my phone thinking, God, are they my students? Because we give a sword like that with somebody’s first deal, then they become what we call a Warrior of the sword. And I thought I screwed up. I’m like, oh, shit. And so I’m looking at my phone to see if I had them in my phone. But anyway, it was kind of funny because the sword they’ve got behind them is exactly the same sword that we give. It looks exactly the same that we give our students. It’s just hilarious. Do you have any favorite quotes, guys, or any favorite authors that juice you, that have inspired you? Talk about that for a second.

Cody
Yeah. So as far as good content, that helped me get started, “Deals on Wheels” by Lonnie Scruggs.

Rod
Oh, wow. That’s an old one. That’s been around forever. Wow.

Cody
Yeah. So when I first read that, I was like, these are great ideas. And everyone told me they were outdated. And then I used them and it worked. It was amazing. But “Deals on Wheels” and then Carlton Sheets have an audiobook.

Rod
Wow. This is old stuff, man. This is really kind of funny because you’re so young and you’re talking about stuff that’s been around for 40 freaking years. Wow.

Cody
First time I was driving back and forth from Tacoma to Moses Lake, going over the past. I was driving in a 1991 Miata. That’s the project car I had through high school that I got for $800. So I’d be driving this car until it actually blew up.

Rod
And did somebody leave those tapes in it or something? Is that how you found them?

Cody
So my original real estate brokerage that I was at, they had this audiobook, and since I was going on a drive, I told him, DB like, is there anything I should listen to? And he gave it to me, and he’s like, listen to this.

Rod
Wow. I mean, literally, I’m not kidding. I mean, Carlton Sheets was around when I was 15 years old, and I’m 63. Okay? So just to give you an idea what we’re talking about here, and of course, Lonnie Scruggs, that’s probably 30 years old as well. The “Deals on Wheels” is a mobile home park, mobile home stuff, but the strategies work, you know. That’s interesting. How about you, Christian? Anything for you?

Christian
I have a few on the mindset side. I love the 10X book that Grant Cardone– it’s just a great one on mindset.

Rod
Sure.

Christian
That one got me amped, got me motivated. Then as far as actual sales skills, I love Chris Voss’s book, “Never Split the Difference”.

Rod
Oh, yeah, I’ve had him on the show. “Never Split the Difference”. He’s the FBI hostage negotiator. Guys, if you want to– I actually had him speak to my mastermind as well. If you ever want to learn about negotiation, get that book. That’s a fantastic book about negotiation. I love it. Well, listen, guys, I got to cut it off here. It’s been a real treat to meet you guys. Very, very impressed with you both, and keep up the good work. And, you know, when you hit that goal, make sure you reach back out to me and get your butt back on my show, will you, because it would be awesome to circle back to this and say, hey, this is what they said, and this is where they’re at because I know you’re going to hit it. No question. It’s just a decision. When you make a declaration like that, it’s freaking done. There’s no question. A pleasure to meet you guys, and good luck in all you do.

Cody
Likewise.

Christian
Thank you so much.

Rod
All right, take care.

Outro
So one other quick thing. We encounter so many people that are frankly frustrated. You know, they’re looking in the mirror and they’re frustrated that they haven’t been able to escape the rat race. They haven’t been able to build cash flow to the point where they’re able to have financial and time freedom with their families. And maybe they see other people buying real estate and creating incredible cash flow, and they think, well, it’s just scary. You know, buying apartments is intimidating, and I get it. See, that’s why we created our Warrior Mentorship program. They’re our coaching students, and they’ve had extraordinary results. My students, I’ve been teaching about five years, and they own upwards of 140,000 units now that we know of. Right. And we feel like it’s just getting going. Now, we’re looking to grow this group and really take it to the next level and honestly believe that the greatest transfer of wealth could be upon us right now with this current economic environment, everything’s going on sale. So we’re looking for people who want to follow a proven framework, really, like a blueprint or a map, literally, step by step. And then they’re able to leverage our systems and our incredible network to raise money and equity, to find deals and close those deals and build partnerships really nationwide. So if you’re interested in finding out more about how you can become more in our incredible network and take advantage of the unbelievable opportunities that are upon us, you can apply to my Warrior Mentorship program by texting the word “CRUSH” to “72345”. Or you can go to “MentorWithRod.com”. And what we’ll do is we’ll set up a call so you can check us out and we can check you out and see if it’s a fit. Now, again, you can go to “MentorWithRod.com” or text the word “CRUSH” to “72345” to apply, and we will speak soon.