Matt Williams:
Thank you Uptown for having me. I really appreciate that. This is a great opportunity. One thing that I really enjoy, obviously Terry's mentioned his teaching. I teach about 1000 people a year. It's a lot of fun. This was a great opportunity because it was a topic that I haven't taught on. I've put together this presentation here today, this will be the first time playing it. I don't know how well at times for the 50 minutes. I'm sure I can fill if I'm short. But it's an interesting topic for me because I think it's one of my areas of expertise. When I started putting the presentation together I thought, well, I wonder how many people know more about this than I do and at the end of the day it really comes down to experiences. How many deals have you been through? How many different ways to navigate a deal might there be and so hopefully everyone today will get at least one nugget and one takeaway from it.
Matt Williams:
The first thing if you're a realtor I just need you to raise your right hand and swear never to use any of these strategies against me if we're in the middle of a real estate transaction. That way I can continue. Otherwise, I'm selling my clients short which I certainly don't want to do. Let's get right into it here. I'm going to do a little share screen. There we go, okay, can you see my screen? Okay, cool. Obviously, negotiation is navigating every deal for a win. Reason navigating comes up and it's so important in my mind is that to be a hard negotiator or a really great negotiator it's really you navigating a lot of different elements. We as investors are consistently in that position where to do something new and something that makes sense you have to try to make something out of nothing.
Matt Williams:
You have to communicate with someone who feels differently from you. You have to put yourself in the position of the other party shoes and you get an opportunity most likely to play both sides. Maybe not at that specific transaction but certainly of transactions if you buy a property at some point you're going to sell that property. That's something certainly to be thinking about. I put the picture in there because I want everyone to understand if that guy can invest in real estate and have somebody trust them, you can too. It's interesting when I jumped on here there were several comments about the mustache. I'm sorry, I grew my beard out by accident. That's my COVID costume. But let's go over just some of the things.
Matt Williams:
Those of you who don't know me or aren't familiar with me these are just some high points. I've been a licensed realtor for almost 20 years. We close about 16 to 20 million in volume a year. I have two people on my team. A majority of that is investor real estate. We do a lot of direct transactions as well but I really enjoy the sales side. I owned a property management company which I sold and combined with Garcia Group Real Estate Services, and then I do the real estate side. But what I found in doing both property management and real estate is that I didn't really have time to be the best at both and also be investing as consistently as I wanted. What I really enjoyed doing was helping my clients plan or strategize their investment career which is what we're doing tonight.
Matt Williams:
As I mentioned I do a little bit of public speaking. I also have a podcast called Invest In The West. There's my shameless plug, feel free to pull that up and listen to it. On my investment side I currently have properties which include three mobile home parks, one commercial building, a 4-plex in three separate states and I have eight partner owners within all those properties and those are in four separate entities. But as you can see I have a little bit of a diversified portfolio with a little bit of a specialty in the mobile home parks which is definitely my sweetheart. But that's what I enjoy doing and diversifying, putting these together, we're going to go over a couple of those deals at the tail end of this just to give you an idea of how I put some of those together.
Matt Williams:
All right, it's always said know your enemy but I think know your enemy is not your enemy. Because a lot of times transactions can become somewhat adversarial and it's like the landlord tenant relationship. A landlord versus a tenant is different than a landlord with a tenant. What I like to explain to people, clients oftentimes, is you have to put yourself in their shoes, don't have an emotional reaction and try to navigate the process from your perspective with an end goal. You want to understand your skill set and where you come in. For me the reason that I have eight different partners within my real estate investments is because I am not 100% great at every single thing. There are some things I need and sometimes that need is money.
Matt Williams:
I bring people who have money into the deal and I make them money. That works well because they might be wrapped up in their own life doing their own thing and all they want is the return and if that's the case they're perfect partner because I want total control to make us all money. That's where you jump in and start building your team. Then you want to collaborate with your team and their expertise and their knowledge and then you're obviously going to be collaborating with a seller. If you're a buyer and a buyer if you're a seller. Then you keep repeating it because we're all about growth. When it comes to finding the next deal you want to focus on repeating some of the positive things that you've done and then repeating the process and developing it having learned from the mistakes that you've made.
Matt Williams:
Okay, investing in Hebrew is the art of backward planning. You read Hebrew backwards. Many of my clients say, "Okay, well how do I get started?" I always tell people, "You have to start at the end." You have to identify your goal. Goals are set to be reached. What is it exactly that you want out of that? Is it cash flow on a monthly basis so you don't have to work anymore? Is it the return? You're essentially looking to replace your 10% return with a 20% return? Is it equity and properties where you can at some point down the road far in the future sell everything and have $2 million in the bank? Which play are you looking for? Then you want to establish that process. You want to say, "Okay, well, how do I get to that goal? How do I reach it?"
Matt Williams:
That process allows you to plan and to put together an actual business plan which some people don't call it that but it certainly is because if investing is your business you're planning your end goal. Then the other thing that plan does is expose weaknesses. What am I missing? Who should be in there? Where am I going to get the money? What loan product is this? How many seminars do I have to go to? Who should I be connecting with? Who has the products that I want? Who's closed real estate transactions like the ones I want to close? There's a lot to that I think. Then you're going to put together your budget and structure and that shows what your realistic options are.
Matt Williams:
Because my portfolio of properties that I have is not the first portfolio I bought. I didn't go out one day and say, "Look, I'm going to buy a few trailer parks, a commercial property and a 4-plex." Instead, I started with a house I moved that to a duplex I moved that to a commercial property and then started adding and retaining. There's a plan with that you have to know where you're going to start and find that starting point. That starting point has to be a project that in the end will increase your likelihood of a successful finish. Because if you get into a product that you have no idea what you're doing, how you did it, or how you should do it, or who you need on the team, even if you have the money to do that but you don't have the right team, you've got a problem from the start.
Matt Williams:
The reason we're going over some of this background things is that every time you see any sports team come out on the court or on the field or the pitch, you're watching a team that has been practicing these plays, has been planning it as been putting together, they've been mentally prepared, they're physically fit, and that's what we're going to start with. It's important to remember to prepare. Okay, as far as your end goal let's walk through that just a little bit here. Are you trying to build an empire or are you just adding another arm to your retirement plan? How active Do you want to be in this? That's one of the things that you really need to be thinking about. Are you using each property for a specific target? This is a really interesting concept that I learned probably 15 years ago. I was very early in my real estate sales career.
Matt Williams:
But what I did was when my kids were born I bought a house for each of them. They didn't live in the house although the way that they cried made a mess I wish that I could have put them in a separate house. I ended up buying that home because if you think about it from an investment perspective those kids are going to spend 12 years in school, another four years plus they're not even going in till they're five. They're what? 23 years into a 30 year mortgage if you buy a property the day that they're born. Then the day they graduate from college you're 23 years into an asset that you've been writing off depreciating, the property itself is appreciating and now it's got pretty significant cash flow. For me, I'm thinking, okay, I earmark each of those properties for a specific purpose. Now I have multiple properties in a specific entity for a specific purpose because that fund needs to grow.
Matt Williams:
My retirement fund need to grow more than my kids college fund. Because the college fund at the end, one of my kids, my 13 year old, the property that I bought for her has about $262,000 in equity on that property and she's 13. Unless college skyrockets even more than one could assume I think she's going to be alright and I'll be able to pay for that. The key is to not tell her anything about it otherwise she just won't really care too much about going to college or trying to be a respectable human. You want to be thinking, is it a vacation home? Is it legacy building that you're trying to do? Do you want the cash flow? Are you going for the write-offs? How long do you have to reach the finish line? If you're 55 years old, you have a lot less time than a lot of people just starting in Real Estate Investing.
Matt Williams:
How much do you have to spend? Are you going to be putting cash into this? Or do you have to be the person out beating the streets and bringing the deals to the table for the people that have the money? How much do you want to leverage? This is a really tricky question. Because when I started investing in real estate, actually, when I was in real estate and we had the crash in 2007, eight, nine, 10, a lot of the clients that I had that were over leveraged lost everything because they just hadn't really thought ahead and tried to figure out, "Okay, how much of a buffer do I need? How much do I need in reserves?" That's something that you may learn or you can learn from someone else. Are you focused on the cash flow, the appreciation, depreciation or all of it?
Matt Williams:
If there's one sticking point that is more important to you, you can focus on that. I highly recommend you at least consider looking at a well-rounded investment and then analyzing those assets in that way. Consider the tax impact on the purchase and the sale. That's obviously for investors who are familiar with the tax strategies and whatnot. A 1031 exchange is an invaluable tool. Understand your limitation and contributions. I think this is really critical because oftentimes people, investors specifically, can be a little bit stingy in who they let in on the deal because they want to keep more of the deal. When in reality you can lose more than you win in keeping it. If you focus on your skill set, if you're a financial analyst and you're specific to a financial position, that might be something that you're contributing your time to which can save people thousands of dollars.
Matt Williams:
Some people are very creative. They have an eye for a great deal. They see that they're a visionary, they see something in an upcoming neighborhood, the number of people who have said if I would have bought and sell it back in the day it would have been great or move a village or right now it's Callie and Woodstock and Rose City. You see these neighborhoods that back in the day were nothing and everyone comes to you and says, I had an opportunity for $10,000, I had a three bedroom, two bath. If you are one of those people, that's still a contribution. It's not maybe the same contribution as the guy funding the down payment but it's an opportunity for you to contribute and certainly there's value in that.
Matt Williams:
Do you have relationships? I have a couple clients who are really well tied into people who have a lot of money. They have an opportunity there because they know a ton of people that are physicians or are Intel folks. Those folks don't have the time energy or expertise necessarily, they're choosing not to I'm not saying that they categorically don't have that ability, I'm just saying in general those folks may not want to be putting their time into that and so they would be happy to partner with some of those folks. Are you drawn to a particular area or property type? Mobile home parks is not everyone's cup of tea. A majority of it is stigma. The stigma of a mobile home park is that you're a slumlord, it's the bottom barrel. For me it's cashflow, it is bottom barrel which to me is stabilization.
Matt Williams:
At some point, if the market tanks and those folks lose their home and they can't pay $600 a month in space rent, the guy who was paying 1200 a month in rent can pay 600 a month in space rent. For me that's okay. I can go in and clean up the park and make it a great clean healthy safe environment. There are different skill sets there. Do you know the market? Do you know the process? Are you familiar with the risks that are involved in that? I think that's really critical for you to know maybe your market knowledge and expertise is something you can present to others. Do you have the threshold of pain needed to invest in real estate and does your partner? I think that is critical because the number of divorces that are a derivative of a real estate deal gone bad are probably significant.
Matt Williams:
It's important to know is this an asset class that you have the ability and the stomach to really seek and be a valid investor? Are you a fixer type person or do you need to find a turnkey property? I'm not a turnkey guy. I am a stabilization guy. I like to find properties that are under managed or under maintained and then stabilize those properties. I'm also not a fixer guy. I don't own lawn mower anymore which it's a little bit embarrassing but I hire people to do those things because my time is valuable. In that situation if I'm not a fixer guy and I need a contractor to do it there are two options. I can either hire contractors to do it and pay contractor wages or I can bring a contractor in as a partner who has money and the expertise to come in and knock it out.
Matt Williams:
Someone who's vested in the project. We're going to talk a little bit about developing your team here in a minute but understanding who you are and being honest about that I think is a critical piece of it and building your team and as you get into negotiating some of these deals because if you buy a fixer and you're going back and forth on whether or not they're going to decommission an oil tank, repair the sewer line or replace the roof, you need to know if you have that area of expertise and be honest with yourself about that. If you don't, what's the actual cost there? I know that we're not into the actual going back and forth in negotiating, this is more self-searching. But I think it's really a critical aspect of being a good negotiator.
Matt Williams:
All right, on your team if you're a realtor in the audience, obviously you can see yourself here. You are a part of someone else's team. That's where I found myself for years. It wasn't really until about four or five, let's call it six or seven years ago that I got serious about investing. Because prior to that I was busy in the business and my investment in life and in my legacy or building up wealth was building a business. Then I got to the point where I looked at the money I was making other people. We were managing 275 properties and I was looking at the tenant ledgers and the P&L and I could see all the money that my clients were making and I said, "Wait a minute, I'm the one making all the money for them." I'm managing the asset. I'm finding the deal. I'm putting the deal together. I'm negotiating the deal.
Matt Williams:
That was a pivotal point for me. Not to criticize all you realtors, I commend you for being here on this class because over the years I have come to understand that realtors are literally the worst real estate investors categorically than any other profession. It makes sense if you think about it. When the market is hot and everything selling and they're selling high what are realtors doing? They're making a ton of money. What do they do? They buy a house and then the market tanks, nothing is selling, everything that is selling low, they need to feed their lifestyle because they're not closing any deals, what do they do? They sell their asset that they bought high. They bought high and they sold low. That's obviously not what we counsel our clients to do.
Matt Williams:
We build a team to really help us understand how to diversify, how to take the tax benefits, how to manage the asset, how to do the attorney if you're going to be putting entities together, if you're going to be having partnerships together you have to be very careful at what point does it become a syndication and you're putting out a public offering. Insurance agents, that's your highest and best first layer of defense is going to be insurance. Then obviously you've got contractors, inspectors, handymen, all of those people. But the important aspect there for me in my business people ask what I do and it's a little bit interesting because my kids for a long time thought that I was a property manager. They're like, "He's a property manager." I always got offended by that.
Matt Williams:
I didn't ground him or anything but I wasn't happy that was the pigeonhole that they put me in. Over time, I've been trying to develop some type of 32nd elevator speech of what I do. It's a little bit challenging because at the end of the day I'm a little bit of a lot. I put deals together, I put people together, I'm a contact guy. A lot of my friends say, if ever I need anyone at any trade I call Matt because he's got a guy. I got a guy for that. I got a painter, I got a [inaudible 00:19:42] guy, I got an indoor air quality guy and gal. I've got all of those people and that's really important because that building of the team has been such a focus of mine over the last 20 years that I didn't even really take it seriously directly for myself until about six or seven years ago.
Matt Williams:
That's when it really all came to fruition. Then we get in a deal. That's all the background information. One of my favorite quotes is bite off more than you can chew and chew it. That's exactly how I am. For me, I learn inside a deal. If I have to watch a video about it or if I have to read about it, I'm just not that guy. I need to be doing it to understand it and I need the problem to get to the solution. If the problem is there, I can find the solution, figure it out, fix it and keep it together. For me, some may say it's cart before the horse but that's not how I work it. Now, part of the negotiation here first, as I mentioned, is having a team so that your CPA can say, "Hey, dude, these numbers don't work. You should not be doing this deal."
Matt Williams:
Or your lender can say, "No, there's no way that this deal will finance." So that they are going to keep you out of trouble if you've got the right people behind you. I think that is something that all of us really want an opportunity to do. Then you get in a deal. It's all just time and money. You have to understand the rules, know how to play the game, you want to know who's involved, what the time is, what the cost is. For time, you want to be thinking, "Okay, how am I going to finance it? What's my down payment amount? How am I coming up with it? What are the carrying costs? Then what's the rehab cost?" Because when you're looking at a project and you're thinking about stabilization, that's what I call it, at the end of the day I want stabilization.
Matt Williams:
Stabilization to me is when the asset is performing and it's done. Whether that'd be a rehab or a flip, or if it's a long-term hold. If it's a turnkey property, your carrying costs are going to be fairly low and your rehab costs are going to be fairly low but you still have to figure out the financing and debt payment piece. Whereas if it's a rehab and stabilization you've got all those things to figure out. Then you want to research the opponent. This is a little bit easier when you're not dealing with an agent. I'm not advocating that you don't deal with an agent on the other side I'm just saying if you're out door knocking, you can do a little bit more research and you have time. If you're waiting for someone to hit the market, and you're dealing with a listing agent on the other side, there's a filter there that they're not going to be telling you the things that a lot of times a seller will tell you.
Matt Williams:
They'll be very open. I just got to get rid of this thing. Those are golden words. What's your motivation? What's their goal in the end? Are they trying to do a 1031 exchange? Do they have a timeline specifically? How did they acquire it? When did they acquire it? That's something if they've had it for 20 years, they may not care if you get it for 700 or 550. Because they bought it for 150. But if they bought five years ago for 700,000 you know you're not getting below 700 or they're taking a loss on it. It helps you strategize there. Is there a tax strategy for them? I came across a mobile home park couple days ago and the guy he owns 75% of it, his mom still owns 25% of it. He's been buying her out over time. She's ready to move out of the park and into a home.
Matt Williams:
She lives there currently as one of the units. She wants out, she wants $200,000 to buy a house, cash, in the area where they are and he said I don't need out of the deal. To be honest, I would rather wait and pull out a third of the remaining balance over the following three years. Ideally he wants to do owner financing so that he can have the tax benefit of spreading that out over multiple years. That's a really important piece of information because you can come in a little bit less than someone going full price but the tax dollars add up so that he has a benefit if you can spread that out over years. Then you got to figure out, "Okay, now how do I arrange that financially?"
Matt Williams:
Because if I'm giving them 200,000 in the first year and then I owe him 200,000 for three years in a row I can't just do a cash out refi or finance a quarter of the property for four years in a row. I'm going to have to come up with $200,000. How do I do that? Obviously, it may come with some type of challenge but that's not to say you couldn't win the deal in utilizing his end goal or his in tax strategy. Second, or lastly, is that their only asset? Because I talked to another guy two weeks ago, he has a park that I'm looking at and he's trying to sell this one but he said, "This is my lowest maintenance property." I said, "Really? Well how many properties do you have?" "I have 62." That's a pretty significant opportunity. Excuse me.
Matt Williams:
That's an opportunity for you to say 62, which are the ones that are your highest maintenance? How much would you like to get rid of those properties? Then you're not looking at market price you're looking at below market price because they're a pain in that guy's butt. Then you're in a position then when you can flip the script a little bit and say, "I'll pay your top dollar on this one if you give me property number six and 18 for below market. At the end of the day, you lose two headaches, you have full price on the high property that you think is easy and turnkey and we're both happy because I just acquired three properties instead of one." That's a really good opportunity for you to just have a conversation, relate to the person because at the end of the day you're a human and they're a human. You got to know the numbers and this is something that not a lot of us are super interested in.
Matt Williams:
We want the end number. We want to know at the end of the day, what am I going to make? What's my cash flow? But to really dig in on this a lot of us especially realtors are deal slingers and sales men. We're not really number crunchers. To have someone on your team that does that or to fine tune this tool is really critical. Because you can come into a sweetheart deal, looks great, it's awesome, I love that neighborhood, I love this, I love that, all of those are emotional responses. You need a financial response to every single deal. You need a pattern and you need a way to analyze that asset. You can see on this slide some of the things that I'm using to analyze what those look like. Then this spreadsheet I plug all these things in and then I can push those over to the other tabs.
Matt Williams:
Then by the time I get to the other tabs it tells me what I want. At the end these are trigger points for me personally. I want the annual return on the initial capital and I want to know also the return on total equity. The return on total equity for me is going to tell me how much equity I have tied up in that property and if it's working for me. But the return on initial capital is really critical because if you look at these numbers, those are crazy numbers to an investor. This is on that park that the guy told me that this is the lowest maintenance property. You can only imagine what he's looking at versus what I'm looking at. If he's analyzing and saying it's low maintenance, I take 600. He was asking 600,000 for it which I think the value is probably higher but I went conservative on that and then I offered 525.
Matt Williams:
Now, I might end up at 600 because I think the value is probably a little bit closer to 675 but I'm going conservative on the value because I want to put myself in a backup position that if I had to liquidate it I could do it or if I end up wanting to flip it for a park that makes me more money, I could do that as well. Anyway, you may not nerd out on this stuff but once you try it a little bit, it becomes a little more sexy. When my wife walks in and I'm looking at spreadsheets, she rolls her eyes and walks out. Which is totally fine. But to me this is what I enjoy doing now. I don't mind looking at the photos of the park and going through the inspections but when I'm looking at this thinking, "Holy cow." By year five because I usually look at year five and year 10.
Matt Williams:
If I'm pulling in 36% return on cash I'm feeling pretty good about that. Know your deal breakers. At what point from an investment perspective, it's always different when you're buying your own home. I know that my wife has preferences on the house that we buy and we've got to be on the same page. She has some things that are deal breakers. Whether that be a master bathroom or a view that doesn't really matter. Is there a deal breaker and if so, what is it? For me it may be different from you. You'll see this a lot with flippers. Flippers will say okay, my deal breaker is I got to make a 10% return. That's when I started seeing the people that were losing all their houses. Because a 10% return is so slim on a flip, it's not worth it. You got to be in the 30 40% range, I think. You have to look at what your risk is.
Matt Williams:
Is it a 20% return? Is it a flip or a 1031 timeline? Are you trying to get it in season wise or does a faster close make a difference? Does possession make a difference? Does construction time make a difference? Are you wanting a nonrecourse loan because you want to minimize that liability? Or maybe there are tax benefits. I've got a couple of transactions where some of my partners are self-directed IRAs. They're not mine, I brought in partners that have money and they wanted to make money on their money. One of my self-directed IRA partners, well, any of them they don't need the tax benefit. You can set up your entity so that if there's a self-directed IRA in the deal they don't need the tax benefit. Maybe they get a little bit more cashflow. Maybe you get all the tax benefit.
Matt Williams:
But the return is really what they're looking for because they want to beat what they're getting in their IRA. If you remember what your focus is and what the deal breaker might be, you can stay on track and you'll know that when you're negotiating within the transaction that if the seller says no, I'm not going to do that you're not a walk. You want to consider the cost of not doing the deal at the same time. If you don't buy this, what are the alternatives especially in situations where you're in a 1031 exchange. It might be a deal breaker because you're only making 18% not 20% on this deal but you're out of time. You have to close on a deal or you're going to take a 30% hit on capital gains. That's a fairly significant difference. You have to go back to your spreadsheet, change the numbers and say okay, well, what return am I not getting.
Matt Williams:
You want to identify the difference between the preference and the must have. Always focus on the net. The purchase price minus the expenses and then that's going to give you what you actually end up with next. Be honest about what your style of negotiation is because you can't come into a deal and do a little bait and switch. No one likes that. The realtors out there for sure know that the bait and switch is the best way to turn the seller off. You come in and make a deal, make an offer of full price and ask for $50,000 off the price. That's not going to work. Because obviously unless you can justify that. Within the negotiation what I tell clients typically is, let's not go in thinking we're getting a different price. Let's go in with a reasonable purchase price.
Matt Williams:
Be straight and direct about when we can close, how we can get it done and then put ourselves in a position where if something major comes up we can negotiate on those items. But if we treat a seller with respect and give some dignity there, you want to be on the positive side of that. Inspections and escape clauses. Escape clauses really are just that. Typical real estate transaction has quite a few escape clauses. Your contracts can be loaded up with those and the financing escape clause is probably the strongest hammer that you've got because it's fairly ambiguous in my opinion on what you have to provide to show that you no longer qualify.
Matt Williams:
At any rate number one, you want to give yourself time. Don't over promise and under deliver because you put yourself in a position with a straight shooter seller who says, "No, you said you're going to close on the 13th we're closing on the 13th. I'm not extending. You said it was going to be done, you said you could do it and that's why I went with your with your offer. I'm keeping the earnest money if you can't close." You want to look at balancing the repairs and the purchase price. Again, that goes back to knowing your net. You want to just focus on your total project costs and what the return is after that.
Matt Williams:
I would not recommend threatening without intent. A lot of people say, this is a deal breaker. If you don't do the roof we're out. Okay, I'm not doing the roof, go ahead and send over the termination. Then you come back, say, "Okay, well, we'll move forward." At that point they say no I didn't really like the tone. If you were kidding about that, you may very well have been kidding about the sewer scope as well. We're not doing the sewer or the roof. You can talk yourself out of the deal pretty quickly. I'd be very careful about that.
Matt Williams:
I always recommend having a backup plan. Especially if you're a flipper. Analyze the property both as a flip and a long-term rental. Which obviously you have to look at some type of cash out refi or refinance at a rate where you can still rent that property out. You go in, sell, I'm sorry, you buy a flip, you're delayed a month you're over budget 20 grand and then the election 2020 happens and regardless of who wins everyone hates everyone which is obviously a recipe for disaster. Then you add COVID and the whole thing just ignites. You have to put yourself in a position where you're not over leveraged and you can turn that flip into a rental. There's always an escape plan along with your escape clauses.
Matt Williams:
Let's see, running to the problems as soon as you can and as soon as you know that there's an issue I think is one of the major faults of both real estate agents and investors. Once you know that there's a potential problem either with your financing or with the timing of your financing and closing, or if you have an issue with the inspections, many people decide that they are in a position where they're going to hold off and try to fix it at some point or it'll all work out. I say get in there, get gritty and fix it. Place a value on your own time. That's something that a lot of people don't understand if you're working in Intel and you're spending 20 hours a week doing real estate stuff or managing your own assets, should you be maybe not managing your own properties and have a property manager do it with their level of expertise and you go out and find another deal?
Matt Williams:
Or work harder so you can pay for another deal. You really have to be prepared to say no and pull out to any transaction. A lot of people are just really hesitant because the fear of missing out is certainly prevalent. You need to just be ready to say, "Hey, look, I lost a deal. Maybe I've bent too low, maybe on that park at 600 I offered 525. Maybe I'll lose it." And I've lost a couple. I lost mobile home park they're asking 1.8 million, I offered 1.7. Another offer came in I kept my offer at 1.7 because in my mind it wasn't worth one seven because I wanted X return. Well, at that point. I probably could have made it work with another 100,000 on a project that size. I should have reanalyzed, put the numbers in and said, okay, is that really my deal killer?
Matt Williams:
I learned from that but you can't be afraid to walk away. I'm going to go over a couple of examples of some deals that I've done just to give some context to it and then we're going to open it up for some questions and whatnot. Be honest, I don't know what time I started. I'm not sure that I've gone long enough but I'll make sure that we do. Let's go through a couple of these and if you have some questions, or you want something a little more nitty, let me know. Okay, this is my commercial building that I bought in northeast Portland back in 2016. I purchased it for $300,000. I gave him $5,000 down with 1800 dollars a month triple net and it was a lease option. Technically, I was the tenant, I bought it With an option to purchase at 300,000, I gave him $5,000 down to be contributed towards the purchase price and I paid him 1800 dollars a month plus the triple net.
Matt Williams:
I put about 150,000 into the build out, I spent about $47,000 on rent and expenses within the next two years. I paid him his 1800 a month in rent and whatnot and then I had my 150 and then I received 39,000 in revenue in 24 months because I fixed one side, rented that out and then continued completing the second side. It appraised at 600,000 in 2017. I did a cash out refi of 425 which returned to the 125 invested back to the investors. Then I have a mortgage on it. The market value of that currently is 700,000 in 2020. On that deal I've got five partners, they are three individuals and two self-directed IRAs. My total invest is 197, I had income of 39,000, I had purchase price at 300 so I had a total project cost of 458. A value of the property is 700 so I've got 242,000 in equity. That's my commercial stabilization project.
Matt Williams:
Then I have this Vancouver 4-plex example. I purchased that one in, let me see what was that 2000? I think that was 2006 no 17. Late 2017. I bought it for 375, I put about 15,000 into a remodel. My out of pocket expense was 82,000 down with a loan of 300 which I did hard money on this one, short-term. I did a cash out refi at 400,000 and I bring in $4,100 a month in rent. By expense for vacancy maintenance, mortgage taxes and management it's 2,938 per month and all my cash out refi in early 19 it upraised at $690,000. On that one there's just two partners, myself and one other partner. Then we invested 97,000. We bought it for 375, our monthly income's about 4100. Our monthly cash flow is 1,162 and the value is 690. On that one I've got about 290,000 in equity by the time we're done.
Matt Williams:
Those are a couple deals that I've worked on. Obviously, one is the commercial project in Portland and then the other one's up in Vancouver multifamily. I was going to put one in here for mobile home parks but those are so different. I figured most people don't really deal with a mobile home park, it might be a little bit wonky because the land lease versus the number of units you own it gets a little bit complicated. Let's talk about takeaways because every deal you're in you should have a takeaway. Every class you go to should have a takeaway. Try to figure out the best way to go with each of them. First off, you can negotiate if you're not in first position. That's really important because people they go into a deal and say, "Well, I don't want to overpay for the property. I want to go and I know that there are multiple offers on the property but I want to come in at full price", or I want to come in at 5000, less, or 20,000, less whatever that is.
Matt Williams:
Unless you get the seller to say yes to your offer, you're not even in a position to negotiate. Negotiation doesn't really start with the offer it starts with the setup of the deal and getting them to say yes. Once they say yes, at that point you get into negotiations whether that be on terms, conditions or the actual repairs and whatnot they're done with it. We talked a little bit about bait and switch. It's not popular. I'm telling you, man, I've learned a lot over the years you don't want to go in and on one price to get the acceptance and then try to swap it out for the number that you want. Unless you can put yourself in a position where you can point to the actual things that are going to cost or the things you didn't know prior to purchasing.
Matt Williams:
Focus on building your team first, focus on the process second, and then the deal last. Don't put the cart before the horse there. In my opinion, you've got to have your team, you have to have a process, then you look at the deal. Now, obviously I told you earlier in the presentation that I learned as I go. That's not to say I don't prepare prior to. You're always going to learn something new in a product you've never done or a process you've never been through. But you can at least begin that process and development prior to. It's all about the numbers, don't be emotionally driven by it. Make sure you take something away from every transaction.
Matt Williams:
One of the things I really want to instill here is to reward your team and trust your instincts because rewarding your team will keep those people working for you and one of the things that comes to mind with that is having someone... When I first started out, I was 23 years old, I got my real estate license and I just farmed fizz bows. I would talk to them on the phone and then by the time that I met with them, they would look at me, I would show up at the door and here was this 23 year old who looks 12 years old and they would just say, "You're the guy I've been talking to?" I would say, "Yes, I've got the contract right here. Let's get this signed this day prior to DocuSign." They were still just really shocked because I showed up looking so young and it just wasn't what they were expecting.
Matt Williams:
I was hungry. I was young and hungry. Now, I couldn't tout experience at that time but I'll tell you my pitch to them was I'm the hungriest realtor in town, I'm the best negotiating, I'm consistent, I'm not aggressive but I'm assertive. I can put deals together. That was my pitch. Now my pitch is, "Hey man, I've got a lot of experience. I've done this a lot of times, I'd love to help you get where you need to go." Now am I hungry? Yes, in some ways, mostly for my own deals. But I'm also hungry to provide a great experience, I enjoy doing that and I'm very upfront about that. That's why I have a team that can do some of the follow up and follow through that may not fit within my time budget and may not fit within my area of expertise.
Matt Williams:
That's really critical and something that I have always trusted. I know who I enjoy working with. When it comes to trusting your instincts, and you get through a deal and you had to work with a slimy guy to get to the end of that deal and you just don't feel good about it, don't do a deal with that guy again. Or just remember how you need to approach that next deal with that specific agent. I think that's about it. I'm happy to open up for any questions that you guys may have. There's a slide that I've got. Obviously another shameless plug for my podcast. If you'd like to take a look at that. Then I'll go ahead and stop the share. If anyone has questions or anything I'm happy to answer.
Terry:
Okay. I know that we had a couple questions. I'm trying to retrieve those again.
Matt Williams:
Okay.
Terry:
It says no open questions but I thought there were.
Nicole Corwin:
I've got a few questions Terry that I've got pulled up from some of our attendees.
Terry:
Okay, perfect.
Matt Williams:
Cool. Go ahead.
Nicole Corwin:
All right, quick question. Are the investment properties for your children in their names and wouldn't it disqualify them for financial aid? I always thought that assets should be in the parents names until they're done with college so they appear poor on paper and get more grants or AIDS. Thoughts?
Matt Williams:
The properties are not in the kids names because if they end up not being positive humans and they're on meth someplace, I certainly don't want that asset transferred. That is absolutely not the case. The tax strategy and tax planning really isn't done for the child until later on. Because one of the things that I want to do is give options to my kid and I want the tax deduction. At the end of the day what I'm saying is worst case scenario even with the capital gains hit, I'm still going to end up ahead than if I had some type of college savings plan. If I'm just putting money in and trying to acquire cash without having my assets grow, that's obviously going to be a completely different scenario and I'm not going to make nearly as much money.
Matt Williams:
I can take the tax benefit and then just keep plugging that away and growing that like a mini portfolio. Then from a tax planning and a legal perspective on transferring that asset, once they graduate from college or if they don't go to college but they're a great human, I'm fine with that, at that point you can give them options. Do you want to move into the property? Do you want to sell that asset and buy your dream home because you and your husband have been smitten since beginning of high school? Do you want to keep it as a rental? Then we transfer that over a period of years. That's definitely a tax planning question for your specific situation at that time but when you purchase the asset to put that asset in a child's name would come with a lot of complications.
Terry:
Okay. I know I saw another one in here too. Sorry.
Matt Williams:
I see that one. Okay.
Terry:
All right. I'm not seeing it. If you have any other questions, I'm seeing super helpful. That's wonderful. I have credit hours down as long as people have been here the whole 50 minutes for the class. That's good. But I know we do have some more time too Matt if you want to share anything that's up and new. I know you're on boards, you more than anybody I know you know what's happening out there. Is there anything we need to know that might be helpful? I know they've changed some of the laws lately, just a little overview.
Matt Williams:
Well, one specific thing, obviously, one of the challenges that a lot of investors have really considered and maybe been affected by is the moratorium on evictions. We're in a world right now where we can't get a tenant out if they're not paying and they've extended that. One of the from a real estate perspective for you to keep in mind is that under Oregon law, you're not allowed to terminate a tenant for no cause unless you fit under a certain number of exemptions. A couple of those exemptions are if you are a family member want to move into the property or if you're significantly remodeling a unit to the point where it's not habitable like a kitchen, they're going to be without a kitchen, you can terminate the tenant, pay the fee and get the tenant out then you can go and sell it.
Matt Williams:
Currently under the new guidelines statewide you're not allowed to utilize those exemptions. They did keep the exemption that if you have a bona fide purchaser who's interested in purchasing the property and you're in contract with that person, you can still give the notice to the tenant so that's one nuance. I will give you a couple things. One of the things to keep in mind is that one of the things I did when this thing first hit I told all my investors, look if you have an investment property and you want to get ahead of the game with a forbearance agreement in case your tenants don't pay, you can call and try to get on board with that. Well, I had a client who was selling their house buying a new house and then on the purchase side they had in the beginning in case something happened, they had done a forbearance agreement, but within the forbearance term, they paid it back.
Matt Williams:
The problem is that on their credit, and their status with that lender still shows that they're in a forbearance agreement and even though they're current so now there might be a hiccup with them qualifying for their purchase. I would just be very careful because even though a forbearance agreement technically is not going to modify your credit score and you're not going to have those 30 day lates', it still may modify the way that the lender is looking at the deal. You have to be careful because they have quality control and underwriters. I also spoke with a lender that specializes in commercial deals and mobile home parks. He said that the Fannie Mae deals are being very specific with additional guidelines.
Matt Williams:
I would just be very cautious right now if you're going into a deal that you have an addendum because sometimes the commercial or the contract purchases they may not come with a COVID-19 addendum, but you want to make sure that you are in a position where you are protecting your earnest money utilizing some of those things. It's interesting just going through that process and whatnot. I hope that's helpful. A question just came in, says when you mentioned a hard money loan for one of your investments what strategy should I consider when purchasing multifamily with such a loan? Any other tips when going after hard money would be helpful. I'll be honest, if you can avoid hard money, don't do it.
Matt Williams:
Hard money costs a lot and it comes out of your bottom line. If you need it on a temporary basis that's the one and only time that I've used it and I'm not saying I'll never use it again but I really enjoy putting people together and I think that what you should maybe consider is begin building relationships with people who have money not working for them and bringing them in as partners. They can be silent partners, the flip side of that is that now they own a portion of the deal and they're going to get a portion of the profit. You might not make all the profits. I would analyze what does the deal cost me? What's my return if I'm using the hard money for a temporary time that to do a flip and then do a cash out refi and then get rid of the hard money guy, what does it cost me to do that?
Matt Williams:
Versus what's the return on cash if I bring a partner in who has the money, they provide the down payment or the rehab cost and then I put it on my credit or however you guys structure the deal. I have been able to get really creative with that and the return on the investment, especially for people with a self-directed IRA, it'll beat it every time. To give you an example, I own a mobile home park in Cascade Locks. My wife, Kurt IRA owns 20% of that park. She took $30,000 over self-directed IRA and put it into the park, or put it into the entity bought 20% of the entity and then I financed the park, we remodeled it and got it going.
Matt Williams:
We bought it for 500,000 put 200,000 into the park so we're in a total 350. I just did cashout refi and the park appraised at 1.1. In that scenario her portion or 20% of the equity is $250,000. That's a significant jump since 2016. Four years she went from 30,000 to 262,000 in equity and the self-directed IRA is being fed $2,000 a month in cash flow inside the IRA so without her contributing from the outside her IRA itself is making $24,000 a year. That's an amazing number. That's not something that an IRA is performing at. Just think a little bit outside the box. Really in my opinion a self-directed IRA investor as a partner is golden because they're using money, they don't need the tax benefits so you can shift those in the operating agreement with the LLC and you can buy more deals. That's one recommendation that I would have.
Terry:
You have with your wife, is there any other way that you're finding partners? How are you looking for your partners?
Matt Williams:
Well, it's interesting you asked that. Uptown has one out right now that they're doing which I think they're doing it brilliantly. So far I've only used colleagues and friends with skill sets that are complimentary to mine. I have a list of clients who are chomping at the bid because they're not getting the return. They're just not able to get the returns on a standard deal and I'm out knocking doors. My area of expertise is negotiating the deal, tracking it down, analyzing it and then stabilizing it. A lot of people don't have the time or expertise to do that. I have people come to me really and say, "Hey, I've got $100,000 I need to put someplace." Which is great, I love $100,000.
Matt Williams:
It makes better for me and it helps me afford a deal, utilize my area of expertise, and then make enough money to make them money and me money. Once you get that template and keep going it works super well. But the answer to follow up your question, anytime you start inviting outside of your immediate sphere, you get into that securities situation. You want to be really cautious about that and make sure that you're talking to an attorney about that. If you need an attorney connection, let me know. But you're going to have to be doing offer memorandum and it gets a little bit more sophisticated for sure.
Terry:
Okay, thank you. Anybody else have questions for our wonderful speaker? I'm not seeing anything. Taylor or Trent I think we're done. We've answered... I don't think we need to go we were going to end at 7:30. We ended a little bit earlier but we also started earlier, that's good too. Questions?
Matt Williams:
Thank you very much for having me. I really appreciate it. If anyone has any questions you can shoot me an email.
Terry:
You're so welcome. All right.
Speaker 4:
Thank you Matt.
Terry:
Thanks, everybody for coming. Appreciate it.
