HIP E85 Christian Osgood - Zero-Down Deal That Cost 1.5M

[Music] The Hotel Investor Playbook. Your guide to building wealth and freedom through hotel and hospitality ownership. [Music] Welcome back to the Hotel Investor Playbook. I am Michael Russell, founder of Milama Capital and your host. On this podcast, we talk story about everything you need to know to make money investing in hotels and in hospitality assets. Today's guest has built a $30 million real estate portfolio in less than three years. Not using traditional bank loans. He's also bought a $4.5 million waterfront resort for $0 of his own money. And also, he is also called as the biggest mistake of his career. So I'm excited to unpack that. But his name is Christian Osgood. And today we're going to walk through his real estate career. Christian, welcome to the show. Hey, thanks for having me on. Yeah, excited to break that down. Yeah, buy for $0 and then also buy for millions of dollars depending on how you want to break it down. But I'm excited to talk about the deal. A lot of learn there. But do you think that's going to be on? We were chatting offline a little bit and you're like, "Oh my gosh, this was a painful learning experience." And I'm like, "Hey, people love to learn about struggles." So let's dive into this. Look, you've got a lot of knowledge I've seen you share on YouTube and on your own podcast. And so you're a wealth of knowledge, you're a young guy, but you got a ton of experience and you've grown tremendously quickly. So from my perspective, man, you're a real inspiration. And so I want to unpack. I want to get inside that brain of yours and learn a lesson or two from your experience. So why don't we start with this waterfront resort? So why don't you tell us where it's located? How many units you have and how you got started? How did you end up buying this thing? Yeah, so it's called the Robin Hood Village Resort. It's in Union, Washington. So this is on Washington State's Hood Canal. Think most Pacific Northwest thing you can possibly imagine. Saltwater, you can see the orcas going through the canal every once in a while. But there's, you know, seals, fish, oysters. And then you're in the Foothills the Olympic Mountains. So you got hiking, fishing, bald eagles everywhere. Dear, imagine the Pacific Northwest, it's that. It's exactly that. It is 13 acres. We got a river running through the resort. 17 cabins, though I am going to be converting something to different space. I may or may not go into in this, but as we're doing hospitality, events are taking off. So I'm repurposing a little bit of it, probably going to go down to 15 cabins. And I think actually increase our revenue doing that. So small resort, but it's a super premium location. The community hates it when I share this. So everyone in Union, I'm sorry. I know we don't do this breaking the rules, but it did like adjacent parcel is the Bill Gates family somewhere in states. So probably context of how cool the area is, we're on a little area called golden mild. It's like all the super wealthy people. And then there's me in our little resort. So this is really, really beautiful place. Well, when you drop the name Bill Gates, it's not exactly probably the low rent district where Bill Gates is spending his time. So I imagine it is, but no, it's fairly premium. So where we're based is very, very nice. However, I did overpay for the resorts. I wish I learned after buying it because it was my first resort. And I thought that being good at buying multi-family meant that I was going to real estate, which was turns out hospitality is not multi-family, which was my first first lesson as they have almost nothing in common except they both involve buildings. That's about ends there. Yeah, well, let's talk about that. So you're investing in multi-family. You got your gain in momentum, boom, boom, boom. You're buying these properties. You're growing. You're raising capital. You're doing well. And then all of a sudden you take a hard turn and you go, well, you know what? Let me pivot. I'm going to go buy a hotel. How does that happen? Like what attracted you to say, you know what? I want to take a stab at hospitality. I think it was an identity problem. I thought that I was a real estate investor who was good at creative finance because I got out and I creatively financed the 38 Plex in the same year. About a 38 Plex, a 3-sub-by-side duplex is a seller finance, seller finance, 12 Plex, 10 Plex, about another duplex, about a 7 Plex in Seattle. And so I had built 0-81 rental units in one year using none of my own money. And a friend called me, Dion, and he actually just hosted the last bigger Plex event. He was there at their keynote. He calls me and says, "Hey, I just looked at this hotel. I think you can buy a $0 out of pocket. It's way too much work for me." He's actually branded himself as the lazy investor. He buys small multi-family. So he looked at the deal. He's like, "This looks like a job. I don't want a job." So he called me and said, "Hey, you should check this out." And so me and my business partner at the time go to Davis, we drive down and meet the owners. And it turns out they actually wanted a million dollars down, not $0 down. They were open to seller financing. We negotiated 4.5% interest. The mission became, okay. Based on their books, it was actually a fantastic purchase. What I learned later is that there was a bunch of employees paid off books and there's a whole bunch of mess that I didn't know at an underwrite hotel. Now today, I can look at a P&L and say, like, there's no way your payroll is that low with that many employees. As someone who has never run a employee-heavy real estate project, we looked at the books, the bank statements matched the P&L, matched the tax returns. I'm like, "Okay, box is checked. Let's roll." Problem is it didn't pass the logic test. So that was a, our first couple of years were quite rough. And, because I raised that money, the partners did not want to contribute any money whatsoever to do things like marketing or renovations. We just closed the deal and then we were stuck for three years. Add to negotiate with the partners to save the project. The only way to do it was to either lose the building or to buy a run out. So that ended up, that $0 out of my pocket purchase ended up costing me $1,550,000 out of my pocket. For context, when I bought the Robinhood Builders' or I had to borrow the $45,000 earnest money. So I had to go from less than $45,000 to $1,550 in three years. So what I got out of it, I'll pivot this back so I'm saying a lot of words. But what I got out of this was it forced me to focus on what I was actually best at, which was the multi-family operations, my property management company. So that really motivated me with my options being I can scale my business until my problems feel smaller with this resort or I can let the resort beat me. And so I opted for option A. I scaled the multi-family to over 600 units. My property management company actually took off in Texas. So I got actually quite large and I was able to earn my way through the money to buy the mount, which was ludicrously hard. But also a really cool thing to be able to say, okay, I had a big problem and so we decided to scale through it. Yeah. Well, I hear you saying what I say all the time is you learned by doing. So sometimes you don't know what you don't know and you jumped into something new. You had experience with multi-family, but my question was, all right, why the heck did you buy a hotel? What was it about this particular property where you thought, yeah, okay, I want to take a gamble on this. It was so our financial, the numbers looked good and I was just a, I got suckered in by the fact that it was a one-of-one property. It's historic, it's 96 years old and it's a great plan, where the Robin Hoodville resort is on the Hood Canal. It's a perfect, perfect name for what it is. But it's this beautiful, sure wood forest like retreat. So being from Washington state, I'm like, this is so cool. This is so much more interesting than my multi-family. Why did I buy it? Because honestly, the multi-family was working really well and I thought I was better than I was at business and I was getting a little bit bored. It was the first time in my life where I'd left the 9-5 real estate was working and I had like one hour every day in the middle of the day to play silly Xbox games with my business partner because we've done it. We have financial freedom. We can go do new things and promptly lost that freedom for three years. Well, you got slapped around a little bit but then you learned to, you ultimately prevailed, right? Because like you said, you had to borrow the earnest money but then you went and ultimately figured out a way to buy out all of the investors. So I'm sure there's a story to that which we will unpack but I do want to talk about what you led with which was, hey, this was creative financing or in other words, this was seller financing. Can you walk through the terms that you locked in like interest rate, term lands, amortization? Yeah. And also, I'll give a little bonus piece for everyone. The key to creative finance is you're not solving a U problem. My problem is I didn't have money but that's not, you get terms accepted when you solve a problem for the seller. And so every single deal we solve a different problem but just so you know, that's the cheat code is figure out what they're trying to do and if it's not conventionally financial for any reason, solve the problem, get the real estate. So what we were solving here is they've been trying to sell this for a long time. It was a mom and pop run. So they live on site model. So we're taking this from live on sites to run as an actual business with employees without us being on site. When a bank looks at that, they're like, okay, well, this model's untested. The book's are difficult to track and they had run this thing with zero marketing budget and they owned it in cash so they never needed to maximize what it could do. So there wasn't a great story to take this to a bank at that time. You get a bank load. So it had to be seller finance to pull off the deal. The terms were 4.5% interest on an eight year note. I only do long term fix rate debt. So in commercial real estate, eight years is fairly long. Fix rate, awesome. We had, where we shot ourselves in the foot. I thought we were being clever with this. They wanted even more down than the million down and we couldn't do that. So I said, hey, we'll do principle paydown. However, it's a resort. So we make a ton of money in the summer and not much of the way. So the principle paydown is in, it's November 1st of every single year all the principles do. So your cash flow is not hit through the year at the end of your peak season as it rounds out and you have the most cash. That's where you'd be the principle paydown. The problem is we were paying principle down because we weren't cash-like as much as we thought we were. We were paying down more than our total annual cash flow. So we were actually writing checks at the end of every year to bridge the gap as usually around 80 to $100,000. of the 225 we'd pay down, we would have to pay out of pocket to pay down the loan. It's principle, so you're not losing it, but I can't reinvest into the resort. So our principle pay down actually put us into negative cash flow territory, which made it almost impossible to run for the first three years. I wanted to reinvest in the resort, but we structured it in a way where I was never able to because all the money went towards paying the darn principle pay down. Why did you do that? I never heard of someone structuring a principle pay down. You amortize this over time and you're paying in equal payments, principle and interest, but why would you say, you know what? I want to do extra principle pay. So it's interest only through the year, but there's one payment for all of the principle, which actually is a better model, I think, for hospitality, because that way I'm not paying principle down in the off season. I'm waiting till the annualized, we pay it annually instead of month by month, which actually is smarter. The problem was it was too high of a principle pay down. We weren't actually able to make it because we underwrote it off of books that weren't actually real. Yeah. So at the end of the day, it's the same amount of money that gets paid annually. It's just whether or not you budget for it. So if you budget that in the prime season, you've got cash surplus, you got to be very conscientious to save that surplus so that you can offset your losses in the low season. Yes. And in our situation, there wasn't enough surplus throughout the entire year if we saved every penny. We just didn't make enough top line to do that. And partners wouldn't let me do the marketing, which the two things that saved us, concerts absolutely took off there. So we'll have we have a big wedding venue that we do. Well, well, well, I want to time out our Christian because there's too much here that I think that we're okay. Okay. Okay. We're going over here. There's you mentioned a couple things. Look, I think are critical lessons. Yeah. Like this is so good. So just bear with me here. What you noticed there, you pretty soon said, Hey, you know, I didn't realize like, okay, the business was operated by Mom and Pop. So like the labor cost. This happens all the time. You see this property. It's like not selling. And then the seller has to do seller financing. And then if you're excited about buying a property and you're relatively new to this, it is so easy to miscalculate what it's actually going to cost from a labor perspective. If you're not running the business yourself and many most of these Mom and Pop operations are not paying themselves directly. And it's not on the P and L. You know, they do get paid after from business proceeds from net income. But if you miss this component, you miscalculate it, you're going to walk into a world of hurt. And look, I can relate. I was so excited to buy this property in Idaho a few months ago. Many of my listeners can remember I was referencing this. I went through due diligence. It was a very similar situation. Mom and Pop or deal. And like what you just described, there were two problems. One, the labor cost that the owner was paying was not calculating for the owner's own time. And so when I added those into the due diligence period, red flag. Uh oh, not enough cash flow. The second thing which you hit upon was seasonality. The summer seasons for this property. Similar to yours were golden. And then sometimes in the winter, depending on snow, golden, but it was the shoulder seasons where there was these huge cash deficits. And it became very uncomfortable for me when analyzing the annual cash flow about predicting how much revenue there will be. And so unfortunately, I had to walk from this Idaho deal where my pride was invested. And I was like, this is such a beautiful property. But there just wasn't enough revenue from room revenue from the hotel operations. And the reason I'm pausing here is because you're about to walk through ancillary income. I could tell it's coming. And I wanted to just to make sure before we go into how you solve this problem ultimately that we just sort of dress, well, what put you into that position where you were struggling to make enough money to pay for principle, not well-digiting for labor well enough and and seasonality. And this is the important thing that everyone has to know because I actually think you make a lot of your money in the operations, not just in the buy. There's that saying of like, you make your money when you buy. You set yourself up for successor failure when you buy. But you ultimately make your money being an operator. A great example, like very public right now, Brandon Turner's big deal that just went south and multi-family used in $15 million a race. And they did another post that he I think he deleted where he's like, oh, you know, there is also another $30 million this at risk here in the next couple years. But not good. You can't usually earn your way through doing a bad deal. The nice thing with the Robin Hood is it wasn't a $53 million transaction. It was a $4.5 million transaction. It's at the brink of figure outable and we didn't overpay by as much as we could. One thing I love about hospitality is actually I think the only thing I like more about hospitality than I do multi-family is your ability to market and outperform in brand. You can have a your ability to market and create an experience has an outsized effect on your actual net revenue. But you can't do a multi-family. There's a cap on how much people will pay for rent before they move so on. Even if you're the best marketer in the world, you can barely command any premium by being a better marketer. Fortunately for us, the amps Larry income also was all used to brand the space, which I think was the big difference. Hey guys, if you're getting value out of this conversation, do me a favor and take 30 seconds right now and leave me a review on Apple podcast or Spotify. It literally takes half a minute, but it makes a huge difference in helping other hotel investors find the show. Okay, now back to the episode. Yeah, the levers, the number of levers in hospitality provide plan B, other options, right? And with the brand intern thing, man, whoa, that when I saw that, I was just like, man, what a kick in the nuts because supposedly multi-family is a much more safer investment than hospitality. And I say this from the perspective of like what banks typically will say. Hospitality is hard to get funding for. Let's face it. That is the biggest challenge in my opinion. One of the biggest challenges beyond all the family is much more stable hospital. Yeah, here's the problem with hospitality. And again, this is from someone who's currently finally successfully running hospitality and having fun with it. The problem with hospitality is that it's one of the first things to get hit in our session, one of the last things to recover. So you have way more economic dependency and you can get the yubble, this reputational risk and there's only you get a really bad review. I actually had a wife, my wife said, never share this online, but whatever. We had one wedding guest who had Costco deli rolls in a fridge and they asked us to clean their cabin mid-stay, which we don't do. We made an exception for them because like, oh, we're gonna swap guests or like, oh, we don't let you do that because it's always a problem, but we'll do it this once. She then posted online to her 300,000 followers that I had political affiliations that I didn't have and that we encouraged our staff to break into their cabin and still $2,000 of shark hootery. Now, it was about $40 of partially eaten Costco deli rolls and they asked us to clean the cabin. But the post got 4.5 million views, so that was great. You don't have those same things happen in multi-family, typically. You would not deal with a negative review that goes hyper viral for absolutely no reason. No, no. You also don't get the emails and the notes of like, gratefulness from people that are like, that was the most incredible experience we got engaged at your place or we had a fan of your place. Like, people only write you when they complain. Like, my toe, it's backed up or your property manager sucks or my neighbor's dog is barking all the time. Like, no, whatever says thank you for being the best property owner ever. I love where I live and if it weren't for you, like, I wouldn't be as happy. No, they're just like taking for granted that like, you're the property owner and you're a slum lord. Like, yeah, I'm exaggerating a little bit, but there is some value of hospitality that you gain. Ridiculously short story and I'll get back on track. But one thing I did take from hospitality that actually gets a lot of positive review in PM. I have a 76 unit building in steam bill Texas, one of my favorite properties. It has a huge middle courtyard. It's on like 14, I think 14 or 15 acres. It had big middle courtyard. We do movies on the lawn and one of my employees actually has a food truck so showbiz, actually a mobile bar, but we converted into popcorn and water. So she does that. I'll actually get reviews for taking over properties and then adding all these community events. But it's a lot of it. I learned from the hospitality industry bringing it into the larger and mid-sized multi-family project. So you get a little bit of positive, but you're right. Most of it is like, people are reached out when they have a problem. You don't everyone just kind of expect to have a great place to live. We do get a lot of positive, which is what we had to establish. So the difference from where we were to where we are, two things. And this is just steal this directly from me if you're in hospitality. Without partners, I'm allowed to spend money on the resort and no one can stop me. Which is great. Having an ad budget is great. Instantly, I started Google ads, basic geo-targeted ads. Like, okay, most of our guests come from Seattle and Portland. So, marked it to Seattle and Portland. That every single month, that's like a 500% return investment. I spend 1000, make five. Like cool. So first, $60,000, I get dimension returns above that. But around $1,000 a month of Google ads gets about a 500% monthly return. Stupidest return on investment ever. Like, obviously, super do that. The other thing that really helped, the community was not massive fans of prior ownership. Yeah. And they're very vocal about that. Whether they deserved it or not, I have no idea. Nor do I care. I saw, I won't say anything negative about the people who sold it. I will just say that the community at the time of this sale was not huge fans of them. They had during COVID, they shut down the bar, which was like a huge community music venue and hotspot. What we have done since I've taken over the resort in its entirety, my wife and I, we brought music back. to the Robin Hood. We do summer events. Prish and Bush from the band Sugar Land is always our opener for that event every summer. There's this singer-songwriter event. There's a four-day farmer's market held there and four-day concert, which is called Hood Stock. We have really high-quality musicians. Roll through and play. We usually have about 500 people a day. We'll cycle through for multiple-day events. Really fun. Then we re-Semi-soft re-opened the pub. I actually master-leased the pub and the historic front building, which used to be a restaurant pub they're converted into units. The units were like our worst-rending units. What we did is we partnered with a group called Rob. They actually named their company Robin Hood Revival and they do multiple events, music events every single week. They usually sell out of tickets within about an hour of posting. What it did is made the community fall back in love with us. All of a sudden they have all this community support. I have a problem. There's 15 people in the community who raised their hand to go, "Oh, we're going to go help." Some people in the community actually just increased. They did a power upgrade so that we can service more food trucks because they wanted it for their events. They're like, "Hey, we'll pay for it. Let us upgrade the resort. Let us get a bunch of media in here." What do you charge the food trucks to be there though? In a food trucks in that area do actually well enough in sales at the large events or where they actually just come out and sell a shop, they actually will compete for a spot to be there, which is kind of fun. Let me make sure I understand this correctly. You've got this 17 room resort. Your goal is to put heads and bets, but you've since realized that by promoting concerts and using it as a music venue that you can make additional revenue. What I'm trying to break down is where is the revenue coming from with these sides, the room occupancy? Yes. So, ground fees are a little bit, and we would not do a ton, but they per big events, like three grand, and we'd run a lot of events. I don't have my books in front of me, but let's say we generated an extra $30,000 revenue from just general ground fees and other leasing event-related. The underperforming Robinhood Suite and Pub Suite were converted back into Pub and Meeting, and that company master-leased those two spaces. So, I now don't have to run them. I don't have to clean them. I'd lower my overhead, and I now have fixed revenue there. So, a master-lease for two unused spaces, guaranteed revenue, that's slightly higher than the best months we ever had, and I have my basically have my best month every month for those two spaces now on auto-play, on multi-year contracts. So, that's a great deal. The other thing that happens, we get way more heads and beds, because we get way more organic post. We have people coming out to the Robinhood and posting, and I have musicians posting. We're going to be at the Robinhood. So, all of a sudden, thousands and thousands of pictures and tags and comments and videos are all of a sudden coming out of my resort. Simultaneously, we made friends with other local resorts that are about the same size, and a lot of us will collaborate on major events and music programs. So, the Hood Canal, in general, has done better as the small hoteliers myself, a tailor, who's just fantastic, he owns the Glen, just up the road from us, by collaborating with them and just making the entire area better, the revenue goes way up, and the heads and beds go way up. I think our occupancy is up about 20, last I looked at, it was like 23% from where it was year over year last year. Profit is up 43.5% as of 15 minutes before we turn on the cameras. 12 months rolling, which is just phenomenal, and the difference was just those two things, a little marketing budget and opening it up to community and being a postable magical space. Okay, so you masterlease the bar and the event space or the, what is it, event space? It was a restaurant that was turned into the Robinhood suite, which is like this big a-frame, but it never, it never released well, we were never able to brand it correctly. Those are masterlease, so that's reliable income, coming in, stable, but who is running and promoting and facilitating the music venue? Like, is that third party run as well? The music venue is all third party, so they lease this space from us and host their events. I mean, there'll be multiple companies that do that. So, we have a few corporate releases through the year, we'll have Hood Stock, rents for multiple days, that's a big event, and then the singer-songwriter series, that's its own company, they'll rent, so it's all masterleasing, it's almost identical to our wedding contracts. We're long-standing wedding venue with huge wedding tents and event area. It's very similar to that. It's just we rented out two individuals to host their events and they book cabins and they book the grounds. Do you third party lease or masterlease the ability for another company to like run wedding events or are you coordinating that as the hotel owner? I don't do event coordination, we do venue only, so we do have a list of like recommended vendors. But we thought about doing more build out in this, but I found that it wasn't every time we've tried, it doesn't make as much money as the amount of effort we put in. So, right now, our current iteration, it is only grounds and cabins, you book the event space, we'll have the wedding venue set up for you, but decorations catering, I don't have a wedding package, we don't do weddings for you, we are just the venue, you book the venue. Dude, this is so good, Christian, like I don't think if it had anyone on the show who's really just kind of broken it down like, hey, we got, we want heads and beds, but this third party, ancillary stuff that's happening is increasing the revenue that we're going to generate from accommodations and so why not? But when I go through the cycle, the mental bandwidth thing, well, how does it all that work? It gets like, whoa, that seems like a lot of work and if there's the ability to just sell the space to others to run and then you can just benefit from more bodies being there, more exposure, more marketing and it just helps you overall, like that is brilliant. And so, I mean, we're listening to this that has maybe a beautiful space. I mean, it seems logical that, yeah, my fear when taking on more work and responsibility like this is the law of diminishing return of my own time, it's like, okay, but if I can outsource it to someone else and just improve margin without relatively increasing my workload, that is exciting to me and it sounds like that's what you've done. Yeah, everyone wants to steal this business model. I'll literally put this in a super short model. So we have work campers for our key role. So people live on site, I own the hill up the like up the road to the Robin Hood and it has an RV site where our director lives in her RV and super nice RV and then I have two mobile homes where my maintenance director lives and my assistant director also leases. So they super low rent, but it also brings you at low rent. It also reduces effective payroll. So I have live on site employees that are there 24/7, which is super helpful. That makes it my wife and I run the Robin Hood. We work an average of about 15 and 20 minutes per day ish from Dallas, Texas. I'm not there physically. I don't do anything. There's a lot of decisions and a lot of effort, but time is consistency. It's not high volume. That's been the model. People want to lease the space, lease the space to them, but I'm not involved in the weddings. I'm not involved in the music. I'm not involved in the cleaning. I'm not involved in the maintenance. I am just involved in the hiring and the marketing. And so my job is to do a great job of keeping the right people and they're getting the right team in place and doing an excellent job of curating the story of the Robin Hood. So that more people hear about it and more people come out. That is how I view my job as highest and best use for Christian is doing a good job of doing cool things and then making sure that people know about the cool things that you're doing. And then that's so you're in Texas and you're running the Robin Hood, which is in Washington. What's the connection with Washington? Were you living there before? Is that where you're from? I lived in Washington for 32 years. So I bought it while I lived in Washington. I moved to Texas for start a family. Also, I like sunlight and people in good and church and all these cool things that Texas has. I thought that there's not some great churches in Washington, but there's more options in Texas and there's certainly more heat in Texas. So I live in Dallas now where most of my portfolio is, but we chose a business model where we can continue to grow the Robin Hood and I can do it from 2000 miles away. Or however, for analysis from union, someone can fact check me on that, but let's call it like 2000 miles. So no one would you know now that I mean, would you would you buy more hospitality? Or is this a one in done thing for you? This will be one in done for me, but not for the reason that you think one. My wife is like, I'm not doing us belly guns too hard, which is fair. It's hard to earn your first million dollars. It's even harder to give it to other people who you're not obligated to give it to to make a deal right. I did not half, I was not obligated to pay that. We were partners in a real estate transaction. So there was no, I did not borrow the money to buy the Robin Hood. That was a equity partnership. I did what I felt was the right thing, which is put on my adult pants in earn a million bucks or a million and half. That sucked and it really was not fun to write that check on the belief that I can probably make the Robin Hood do better. Maybe like there was no evidence that it was going to work. It was just I think if I can start marketing and spend money, I can probably turn this ship around, but I don't know. That was really, really hard to do. I know. So I think there was enough trauma and running that. This test where my wife was like, probably don't do that again. I have a lot of fun in hospitality. I I'm a musician, so I love, love, love, love having a music venue and hearing the artist come through there. The reason that I wouldn't do that is I think this is good advice for all entrepreneurs in all fields. You should specialize in what you're best at. Period. Be really, really, really good at the thing. I have 600 multi-family apartments. I'm really good at structuring those deals. I buy them all the way. They cash flow day one. I buy them all long term fixed rate debt. That is a model that I can repeat again and again and again to the point that it is unbelievably boring for me. I love it when my money is boring. It keeps it so simple of a business model. If I did another resort, it would end up being a new challenge, and it would be difficult. I have enough going on with my property management company and my multi-family where I'm like, "That is where I focus my attention." I run a mentorship group called Multifamily Strategy, which is a vast majority of my actual time. From the bottom of my heart believe that there is no other online coach who spends as much time mentoring students than I do. I'd personally, I do 152 times a year. I do live group training and I do one-on-ones in between that with everyone. So then we have hundreds of students that go through that. I want to talk about that real quick. I do recognize that I am a skeptic by nature, and sometimes I wonder for the folks that are out there teaching, that are focused, like you mentioned, "Hey, predominantly, the majority of my time is spent working on my education program." Well, skepticism in me is like, "Wait a second. How do you reconcile someone that's focused on education versus someone that's focused on real estate investing?" Because if there really is money, we made a real estate investing. Why are people teaching? Yeah. No, it's a great question. Here's a big difference. And this is a different way. So take like your influencer coaches. So let's take like, let's just take a handful. I'm like, Brandon Turner, Grant Cardone, Pays Morby. Like, big, big influencer real estate names. They're influencers and marketers first. And then they have all of them have a handful of other businesses. And they're marketers first. None of them are hands-on operators. And usually you see those people. I'll never be on a podcast pitching, joining my group. I don't care. If you want mentorship and you're like, "Hey, I resonate with everything this guy says." I truly love teaching. I know that's a super cliche. But that is my favorite thing that I get to do with my time. So for me, I'm like, I will not market it. It's like, if you want to do this, I have a price of what the time is worth. And I know what my overhead is to run that company, which by the way, is over a month. They're expensive to run these programs. And I think last month was like $110,000. But I have nine employees. And then you have to do marketing. And then you have software. And it's a business. But you have to run it as a business. I get really skeptical when it is a influencer who gets a huge amount of traffic and then all of a sudden has a program to sell. That is what always weirds me out. Like, I'm not a, I don't have 10,000 students. Or, you know, I'm certainly not bringing in $100 million or whatever pace says this thing is, like, that's not what it's about. What I have found is that real estate acquisition, I do not want to ever buy more than four transactions a year. So I need to get like one person to say, yes, I'm a great deal once a quarter at most. Three or four deals a year. I buy this year, I've bought an 80 unit and a 144 year. So I bought what, 224 rental units so far this year. I don't need to buy more than that. That takes like 15 minutes a day of buying. Buying deals is not a super time consuming thing when you've built a pipeline. So that doesn't take much time. Property management, I have offices in two offices in Stephenville, an office in Abelian and we're going to be opening up an office in Houston. I have managers who are in those offices and I have a director of PM who's an equity holder in the company, she owns 20% of the company and she's fantastic. I make active decisions in that company. I'm very active in it, but it's not a full-time job. It's just not. I have gone through the years of full-time work and full-time plus plus plus. But I'm not day to day in the operations and I finally graduated, do I have no direct reports anymore? For the first time ever in that company, there's someone at the end of every communication chain that is not me. So I only now come in for large problems, which is great. And we have plenty that will come up. That being said, I don't have full-time jobs anymore. I spent every waking minute of my life from 21 to 34 building my companies to where they're at and how they are running. So I now have the time where I'm like, what do I want to do? I love talking about real estate. I love negotiating deals. My best way to get to do that personally is to get to network with people all of the country and talk about real estate and network deals. So selfishly, my mentorship is a way for me just to do what I want to do, which is talk about real estate and look at deals. It just happens to make other people money too. So I will not pitch that. A multifamily strategy is super cool and don't do it unless you specifically want a mentor and want to buy multifamily and are at deal. It's like, hey, I want to buy deals conventionally and create a sure, but honestly, I have 2,500 videos on YouTube. It's free. If you're like, I want knowledge, knowledge is free. And now we have Chatship ET. It does more than I do. Like, if you want knowledge, the knowledge doesn't cost anything. My book's like 20 bucks on Amazon. If you really want it in like a detailed thing, but mentorship should be mentorship with the person who is doing the operations. I'm so passionate about this. So I'll jump off my soap locks, but-- - So I'm skeptical about people who are not operators coaching because they have not come up against half the things they're teaching and I hate it. - I do think that the education program and the capital raising and deal flow work hand in hand. The education gives you a platform to teach and talk. And then naturally, people are gravitated to you as authorities so they bring you deals. And then it's easier to raise capital. So they all intertwine. There's value and all the other. - The authority piece does help. I found a little bit. Though I do want to point out, I raised my first $10 million without having a platform or a channel or experience. And I've never raised any money from family ever. So it's not like I'm going out. - Okay, tell me about that. How the heck does that do that? - The first-- so I learned how easy it was to do capital cheat. I like starting with the cheat code and then work backwards. So I learned at 28 that it is not money, then find a deal and then close it. Deal debt equity is the order in which I always flow for every deal. I will add one sub to that. There's four steps. You need to know how to analyze a deal first, otherwise you end up in brand and territory where you just massively overpay for a building. He crushed it on operations in that building. Couldn't overcome the fact that he massively overpaid. So first step, learn how to analyze a deal and be comfortable with that. That is number one, can't skip. Then you find an opportunity. Then you go, what debt products are available, creative or conventional, what makes sense for the opportunity in front of me. Then if you don't have 100% financing, which you usually don't, you now have a package of, I have a deal, I have a price, I have how it's going to make money. I have a projection of how much money is going to make, raising capital is stupidly easy from there. Now you're looking for other people who also want to make money in your market and don't have a deal, which is like a ton of people. So the capital raising is actually fairly easy. I discovered that on a 38plex, I bought two duplexes by saving, good old Dave Ramsey method. I grew up without the Kia Sockie book. I grew up on Dave Ramsey. I didn't read Kia Sockie until I already had 81 units. The 38plex, I needed 300,000. I negotiated the deal. I got it under contract. It was seller finance, 4% interest. The investors, I didn't know any of them before I went under contract for that deal. I picked up my phone and I went through my phone list and I said, "Who do I know who might know someone who might have the money for this?" I ended up on a real estate agent for small multi-family buildings who had bought a duplex from years ago and I said, "Hey, do you have any clients who are trying to buy bigger but don't have a deal?" 'Cause he only does duplex, triplex, fourplex. This is whole model. So I'm like, "Okay, I'm not competing with you here. Do you have anyone?" He gave me four names. I called the four people. Three of them came in with $100,000 which is exactly what we needed to close. It took me one day. No cap or raising experience. I had no experience running the department. I did not know any of the investors before we went under contract. I was like, "Well, crap, that was easy. That was $300,000. That's a lot of money." Two weeks later, three side-by-side duplexes, seller wants 10% down. They'll sell their finance, 5% interest on that one. Interest only five year note. I ran into someone at Starbucks the day I went under contract talking about losing money on a flip. I'm not very social, but I slid over. I'm like, "Hey, where's your time? My real estate." It's like, "I'll do you. I make money and I lose money. I just want to double my money every five years." I'm like, "I have an idea. I have a new plan. I need $90,000 to buy $900,000 of transaction right now. I got a crazy leverage point right now on a deal, which means it's easier to multiply the money. I am trying to build my cash flow to retire my wife. You're trying to double your money in five years. How about we do both? You put 90 in. I get all the cash flow, which started about $1,000 a month and migrated up to about 3K a month. I get all the cash flow. You get bought out for $180 by year five. So you double your money. I saw my cash flow problem. He's like, "Well, I have $90,000. You can Microsoft employee, well paid." Works for him. He doesn't need cash flow. He wants appreciation. I didn't give a rip about appreciation. I needed cash flow for my goals at that time. How did you structure the deal though? Was it a ten and some common deal? So a joint venture, JV with an option contract. An option has to be optional. So I have the option to buy him out for double the money. However, the consequence of not executing that option is he gets 100% of the equity. So he gets to keep the deal at the fantastic pricing five years down the road if I don't buy him out for double. So either he doubles the money or he keeps all of the real estate on a sincerely very good transaction. So he doesn't really have a lot of downside. Unless we totally botched the operations and he picks up a dumpster fire, I guess. However, we didn't and they run very well. But that was the negotiation there. One conversation, one coffee meeting. This was a stranger that you just bumped into or the customer's stranger. I didn't know his last name until we drafted the contract. I remember having to call him and be like, hey, I'm putting together the operating agreement. What is your actual full name? Like I literally just met him. His name was Isaac. I won't drop his last name because I'd be weird. But great guy. Right after we closed, he randomly moved to Alaska and became almost possible to reach. She just, he reaches out every year around tax time. Like, hey, do we got the K1s yet? Like, yes, sir, did well again. I got a text from him a few days ago being like, hey, we're six months out from the five years. I'm like, oh, yeah, I'll try it. I'll check. So buying them out here, I think about a week, executing the 180. I'll own 100% of those duplexes. And they paid me the whole time. All the cash flow. And we're doing it out of a cash out refinance. So there's a lot of money. real estate will ultimately buy the real estate. But there's like a couple of examples. I've done this. I've done 32 transactions, a lot of them like that. And so no brand at all. I did not have a brand going to Starbucks. Yeah, it's a good old one now. Now that you're raising capital, like what's your formula now? Now are you doing syndications? Like how does it work? Out of the last 31 32 transactions, I've done three syndications. Yeah, you're asking me like the good like I have a rule for all of these. Building a property yourself is better than having a property of partners. If you have the money, buy the property done. If you can buy it without syndicating, so that means five or less total partners. You can't have truly passive investors as a JV. IRS says no. So if you have passive investors who aren't doing anything, everyone needs to have a role. And so if you get like 12 people together to buy a $2 million piece of property, there's no argument that everyone's an active partner. You've created a security. It needed to be a syndication. So my model is simply if I can raise this with four or less other people, join venture every single time, which is almost all my deals. The raise for one of 10 million common. You can do 10 million common as well. When I'm doing a select 144 units perfect example, on the 144 unit, now it's like a $4.5 million raise. I had a bunch of people who had reached out over the last few years on deals. And so I basically looked at them like I'm going to market for this for me to actually market for that capital. That requires a filing for a syndication. You have to do a 506 C. Well, the reason why I'm saying tenants in common is because from a tax perspective, like this is super important, right? Like if you go and you syndicate like when you go to sell, you're going to have a huge tax burden and that money cannot be rolled in through a 1031. Yeah. Because you got to dissolve the partnership, right? And you're going to experience the full brunt of the tax consequence. But tenants in common, you can sell each partner will get their proportionate share of ownership and they can roll that into the next investment through a 1031. So for me, I'm like, wow, anytime I go into something if possible, if I'm partnering with someone, tenants in common all the way. I'm pretty sure joint venture doesn't doesn't apply the same way. Is that correct? Like you don't get those tax advantages. It's a little bit more nuanced than that because it's so in a break it down as like simply as possible. In a syndication, you'll typically have your GPs will be in their own LLC or LPs will be in their own. They'll be classed a different class of investors. So I call them class A and class B just because it feels better when you're the class A investor, but it doesn't really matter. So class A investors are my limited partners, LPs, the management, the the GP, the general partners have their own LLC. My typical structure is at the end of a syndication. So let's say it's a five year hold. I let everyone vote because I don't sell things ever. We get to the end. I'm like, hey, we're at our exit. Would you like to be exited at your projected value or would you like to continue to cash on this? And so far, everyone's always voted to continue. So we might cash out one or two investors and then we'll just refinance and everyone will stay in. So we just continue to own it. I've actually never sold a syndicated deal. We've always opted a voted to renew it. In the event that investors decided, hey, we'd rather get cashed out. I'm still probably going to be the buyer. So the GPs will go ahead and get financing and go buy the building from the LPs, which is a little bit more nuanced for tax purposes. Since it's a one of the owning entities taking over, it's kind of a nightmare with you with your CPA or your enrolled agent. But my typical structure, I don't actually sell. Well, you just described it really God because your motive is not to sell. It's to hold indefinitely. And you just you just solve something that I think a lot of people are wondering like, how do I pay off my investors? How do I, you know, because there's got to be an exit. There's got to be an event. And what you just describe quite simply was like, well, what we do is we vote and those that want to stay, we refinance and those that want to go that want to exit the remainder of us, we buy them out and we all stay in the deal. That is a very simple explanation to a complex problem. So I just don't want to freeze that because especially in hotels and hospitality, like, you know, a lot of people, they want to hold these legacy properties because they're active income. They typically produce a little more higher cash flow. And so not everyone is looking to get their money back. They just want to continue to receive cash flow. But some people are dependent on that. They're expecting, hey, if five to seven years, I want my money out. So having that written into your, I don't know, would be your, you know, the terms of the green it. Yeah. It's a real private placement memorandum, your PPS, the syndication. But like I said, syndication, I know I'm going like into the details of like, this is why we do say it's less than 10% of the deals I do. Like I would not call myself a real estate syndicator. I will, it is a tool in the tool belt. When appropriate, it will come out on larger raises when we have an amazing deal that is beyond when I can hit in my own network. That's pretty much how I view that tool. It is my least used tool in the closing things arsenal. Yeah. So let's circle back to it where you brought up is, hey, here's the cheat code. It was find the deal. Then line up the debt and then you could arrange the financing and I'm sorry, the equity raising capital basically. I think that many people get tripped up on the raising capital and they stop themselves before they get started because they're so concerned about raising money. You've just explained like, no big deal, like a, right? No guy at Starbucks and just raised $90,000. Like it was very easy. Most people get tripped up by this. You just kind of said, hey, look, one step out of time. I think that's a very unique approach. What happens if you can't raise the money? So multi-family strategy we've had a lot of students. We have never, ever, ever in five years seen a failed cap or a's that following the deal debt equity, if you have a deal and you land off the debt product and you're looking for partners on a deal that is making money already day one, I have never seen a cap or a's fail. So I honestly couldn't tell you because I've never seen someone fail to raise money for a good deal. And every time I think like, oh my gosh, this is more money than we ever raised, I get nervous too. We've always raised that last one. Like a million was the most I'd raised and then we did a deal where you had to raise four and a half million. And I was like, well, theoretically, this should be like raising a million. And then we went out and did it the same process. I found people who had money in water to invest and closed the deal on time. Great deals tend to attract great money. I just found that it's so much easier to attract money to a good deal than it is to actually find the great deal in the first place. It's never been the hard part. I've never seen the capital be the sticking point on a deal for anyone. The only times I see people fail to raise capital is when you look at their deal and you're like, maybe this isn't worth raising capital for. It's almost always a deal structure thing. Well, then how do you find the good deals? I've always got a different strategy. What's your simple approach? It's all relationships. So the brokers do a cool thing. They list properties online for you, which is phenomenal. So you can see who actually has these listings. You build relationships with those brokers. That's super easy to do. I was like, wow, I've seen this name on four listings in this area. They probably sell multi-family. Meet them. Owners is kind of the same thing. If you're in a market and you've ever transacted, it's really easy to call the people around you and say, okay, I just bought the property down the street from you. Let's grab coffee. It's a little harder to do that one if you've bought nothing. You can still do it. That's how I started. But once you've once you're in the game, you're another owner. Owners want to meet other owners. That's just an easy, easy, easy in. Yeah, I think hospitality is a little more tricky to connect with owners, but I'm sorry, I think multi-family is a little bit more tricky. Hospitality is one of the easiest avenues to connect. Yes. Everyone wants to meet up and talk and event and market. The hospitality is just a wide open field of people who want to participate and share ideas. A hospitality is the friendliest community that I have found in any business, hands down. Yeah. If you want to get in touch with the owner and you're not looking at a $50 million dollar marry out, for example, you're looking at more of a Bateco tell in the style of what you bought. You just walk up to the front desk and you say, hey, I love this hotel. I'm in the market to buy a hotel just like this. Is there any chance I could speak with the owner because is there any way in any chance in the world this owner would be willing to sell this property? The front desk person is going to be like, I don't know, but let me go ask. Sure enough, you leave your phone number. I'd say nine times out of 10. You'll at least get a call back because that is the biggest compliment in the world you can give someone is saying, hey, I love your property so much. I'm willing to buy it. Even if they're not interested in selling, they're not ever going to be offended. They're going to be stoked. I know you get a million things that you got to do and I could pick your brain for a million years. I just have one area that I got to ask you. Look, you've been at this now for a couple of decades. Let's just call it close to it. And you've achieved financial success. You're at a point now where your wife doesn't need to work if she doesn't want to. You have enough passive income to where you could retire if you don't want to work anymore. What's driving you? Like, what is in the game for you now to where you're still driven to want to go and continue to grow? For myself, I do, can't be others, but I do, personally, I have a lot of fun running the companies. I really do want to see where we go with these. But there's a certain point where it's like, I have, my son is getting close to ring two around his birthday is when my daughter scheduled to be born, so I'll have two kids. There's going to be a point where I'm like, hey, you know what? I really want to spend more time being a dad because I have financial freedom and we don't have to put in this much work. For me, I have a specific number that I've always wanted to hit on the exit of my companies. It's just a personal goal. And so that's where I'm jumping off. My PM company is gotten quite large. I have a price where I'm like, hey, when we are valued, I own 40% of it. I have two partners. When we have a company that is valued and someone gives us an offer for $25 million, I'm in. That is my exit point there. I'm going to keep scaling that until we get there because I've always wanted to do that. It's a goal and it's important to me. I've wanted to have a $20 million exit to see what it feels like to have a $20 million exit. And that has been important to me since I started the PM company. So we will continue to grow, which we're probably [BLANK_AUDIO] eight or nine years away from, it's not, I'm not like almost at a $25 million company, but that is the target there. And real estate, I can't imagine not doing it because buying real estate has never taken me a lot of time. I do four transactions a year. It helps manage my tax liability a lot by continuing to buy and cost a few of them. I can't imagine not doing it, but it's kind of like, if you're going to be buying real estate it's kind of like any hobby. It's like when are you good enough a guitar if you're a guitar player? So you keep, practice is just what you do. It's my hobby. I love buying real estate. I also don't do a ton of volume. So it's not like a strenuous, difficult activity. So the answer for me is I will get out of PM when someone offers me $25 million for my company and not a moment sooner and hopefully not far after. Because that is enough. There is no reason that I could think of to continue working if someone wants to pay me $25 million to do my job for me. And that is too much money. Real estate, I'll just keep buying because it's, I love it. It is so fun and it's so simple. I can't imagine a reason not to do it. So we'll do it just because why wouldn't we? Everything else, yeah, that's my grand exit from everything. Multi-file strategy, I have no idea. When it stops being fun, I love coaching. I also don't have, I sincerely don't have to coach. I'm not trying to earn my way through something. I don't have any impending disasters in my portfolio. That is the only job that I have that is optional. It is profitable. And I do make, I do make a lot of money coaching, fine sharing that. But I don't need to coach. It's the only thing that I do sincerely only for fun and I could stop if I wanted to. So that one, whenever it's not fun, I'll stop. - Fair. All right, cool. Well, Christian, I appreciate you being on. If someone wants to connect with you, maybe they want to go and watch your YouTube channel or learn about your mentorship program, where should they go? - If they want to check it out, so do the free stuff. Again, I am not here to sell you a mentorship. So if you want to check it out, go to multi-family strategy on YouTube. I have over 2000 videos going over creative finance, operations, you can see the Robin Hood. I have tons of videos on site there. You can see my portfolio. I'm actually on site doing the job as opposed to online talking about it. So you can see all that there. If you guys want to check out a book, and you guys want to spend like $20 on learning this stuff, the book on creative real estate is on Amazon. You can do my name, Christian Osgood, or the book on creative real estate, find it there. It goes through actual deals, actual creative clauses that I actually use to close real estate. So there's literally no theory in there. It's only practice. Really proud of that. I have spent a lot of time writing that. If you're like a physical book person like I am, that's the only thing that I feasibly have to sell you unless you're actively like I need to be mentored, in which case, let's talk. - Dude, I got a matter of respect for anyone that takes the time to put life force into putting something in a print that an audience can learn from. That's so, hey, hats off to you for that. I'll check the book out, man. I'll find your name on, I'll buy your book. So I appreciate it. For anyone listening, hey, listen, if this episode was valuable, which darn it, this episode was really valuable, leave us a review. Man, share this episode with someone who is either thinking about investing or wants to get into real estate, could benefit from this. So that's the way that we grow this show is through people sharing these episodes. So thanks again for tuning in. This has been another episode of the Hotel Investor Playbook. I am Michael Russell, and he is Christian Osgood. We'll catch you again next week. Uh, loha. (upbeat music)