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Multifamily Investing with Charles Dobens

SHOW SUMMARY:

Charles Dobens is a successful attorney and consultant to multifamily investors. He has owned over $20,000,000 worth of apartments and has been involved, on behalf of his clients, in over $3B worth of multifamily transactions.

In this episode, Charles talked about multifamily investments, the 4 roadblocks one needs to overcome, and many more.

SHOW HIGHLIGHTS:

  • Charles' background
  • How he got into real estate investing
  • How his consulting program came about
  • Overcoming the 4 roadblocks
  • Earnest Money Deposit Program
  • Purchase and sale agreement
  • Transaction attacks in Pennsylvania
  • Size of deals
  • Key principals
  • Equity Assist Program
  • Contingencies when going into a multifamily deal
  • On finding the right deal
  • Analysing a deal
  • Trailing a 12-month financial statement

Quotes:

  • "Successful business is all about building systems."
  • "If you're not making offers, this is nothing more than a very expensive hobby."
  • "The first 2 deals are your hardest deals."
  • "Always remain in control of the deal."

RESOURCES AND LINKS FROM THIS SHOW:

SHOW TRANSCRIPT:

Larry: Welcome to the Brain Pick-A-Pro show live from Lake Wylie, South Carolina, and all the way up in the Northeast in Boston. My good friend, and I’m actually a student of his, Charles Dobens. What’s going on, buddy?

Charles: How are you, Larry? Good to see you again.

Larry: Man, I am doing great. I am doing great. For those of you who may not know who this guy is, I mean, he is a mover and a shaker. He is a successful attorney. He is a consultant. He consults people in multifamily. He has owned over $20,000,000 in multifamily himself and worked with students for over three billion with a B in multifamily transactions, and, Charles, I don’t know if you know this or not, but I’m actually a student as well. I bought some of your programs.

Charles: Yeah, thanks. I appreciate that. That’s such a vote of confidence. I love that.

Larry: That’s awesome. That is awesome.

Charles: Yeah, that’s cool.

Larry: I was going to come to your Charlotte event that you had scheduled and then I ended up just buying the videos for that instead.

Charles: Yeah. I’m speaking all over the country so just check my schedule and I’ll be back there again.

Larry: That’s awesome.

Charles: The video that you bought happened to be a Charlotte event from the year before that I did in Charlotte. So, yeah, I like Charlotte. Charlotte is a good, good place for multifamily too.

Larry: It is a good place. It really is, and that’s something that I’m expanding into. I have done very, very small tiny amount but I want to get in to the bigger deals, the hundred-unit-type deals.

Charles: Yeah.

Larry: So, why don’t you start out and tell our listeners a little bit about yourself.

Charles: Well, I am a real estate investor and I’m also an attorney and the nice thing is, you know, I started off in the insurance business. I owned an insurance firm. I was a lawyer and I said, I cannot stand insurance business. I have to get out of it. It’s going to be an early grave. I mean, as I say, if ever you have a child that comes to you and says, “Hey, Mom, Dad, I want to be an insurance agent.” There is something wrong with that child. There is something very, very wrong. It’s like when did they decide to give up on life, so I told my wife and I said, “Listen, I can’t do this anymore. I want to do something different.” She said, “What do you want to do?” I said, “I’ve always wanted to own apartments.” She said, “Then that’s what we’re going to do.” So, I sold the insurance business and we started buying apartments and we built up a nice portfolio, and then, just like everybody else, the market crashed and what happened with me was we lost some of the properties, we kept some of the properties but I had made such good friends with other multifamily investors, that they were going through the same problems I was. They came to me and said, “Hey, can you represent me as an attorney? You know how this goes and what to do,” and I thought, sure, I can definitely represent you and see if I can help you out of the situation, but the problem was at that stage of the game, there wasn’t much I can do for them. I just could hold their hand through the process and tell them there’s going to be life at the other end. What I realized was, as I was helping these people look at their deals, I thought to myself, why did you ever buy this property. This is not a good deal. There is a reason why it’s going back to the bank. You should never have bought it even in the good period.

Larry: They should have called you before they bought it.

Charles: Exactly. Well, that’s really why I hate hearing that. You would not believe how many times I hear people say that to me and I dread those words. So, I decided I can do more help to these people if I teach them beforehand how to buy the property the right way, so they don’t get themselves into trouble. That’s how my whole consulting program came about. Every lawyer that I talk to now is so green with envy of my business because, you know, I have all of these plans, all over the country. I – technically, Larry, you’re going to laugh at this, but they can call me anytime and I answer my phones. My students have direct access to me but, technically, I only work Monday nights from seven to eight PM on my kickoff call. That’s the only time I’m scheduled to do anything, and so all my lawyer friends, like how do I get that gig and not have to practice law. That’s what I do so it’s a lot of fun. I love it, I love it.

Larry: That is awesome, man. That’s really good and you’re really good at what you do. You got a huge following. I’ve watched many, many, many of your videos, bought your videos, and you got some really unique things and one of the things that you really kind of focus on for your students in helping them is overcoming the four roadblocks, right?

Charles: Yeah, exactly. What happened was, as I’m going through this process, I’m coming to the realization, obviously, owning a business, a successful business, is all about building systems, and to build a system, you have to identify those repeat items that happen every single time. As I was going through all these transactions from my students, I came to the realization that, boy, we’re hitting all the same roadblocks every single time. If we can just come up with some way to just overcome those problems, we can solve it, and so I’ve identified four roadblocks that people have. The first one is a proof of funds letter. Now, unfortunately, I had a great blog post with a video on proof of funds letter. I think proof of funds letters are the biggest waste of time. All it is is a way for the broker to try to prove his worth to the seller. We are trying to weed out people but I can get you a proof of funds letter in no time flat if you ever needed one. But I also try to teach you like, this is how you need to get around that so you don’t need that proof of funds letter anymore. Because what was happening, and this killed me, people would become students of mine, would become clients of mine, and they would start going through the process, and then what happened was a broker would ask them for a proof of funds letter, and their career would be over.

Larry: They would freak out.

Charles: They would never overcome that. It’s such a huge roadblock. You know, there goes my career, so let me ask you this. When you’re sixty-five years old and you’re sitting there waiting for the mailman to deliver your social security check, are you going to sit around and telling everybody that you could have been a success in multifamily if only that broker had not asked for a proof of funds letter? Is that really the thing that holds you back? So, that’s the first one, I can take care of that for my students. That’s just – it rolls right over, and more importantly, this is the key thing is, it always seemed to me that the inexperienced and the novice investors were always the ones getting asked for the proof of funds letter. You know, the guy that knows what he’s doing and knows how to talk his way out of a traffic ticket, they never get asked for a proof of funds letter, so it’s also – part of training the people is how to deal with brokers, how to speak to brokers the right way.

Larry: Right. It’s because they could smell a newbie.

Charles: Exactly.

Larry: They can tell they don’t know what they’re doing, but if you learn the lingo and all that good stuff, then they don’t even ask for that. They know you know what you’re doing.

Charles: Exactly. Of course, I mean, if you’re in the business, a broker should be embarrassed to ask you for a proof of funds letter.

Larry: You should make them feel that way, anyway.

Charles: It is like, what did you say to the broker that made them ask for a proof of funds letter? Well, I told them this was my first deal and I don’t have any money. Like, okay, I can understand that. I can understand why you did that, that makes sense.

Larry: I don’t have any money, credit, or experience.

Charles: Exactly. And they come back and I say, “Listen, from now on, you only tell that to me. You don’t tell that to anybody else, alright?” Nobody else needs to know that.

Larry: Right. It’s like the newbie wholesaler is trying to tell a broker that they’re going to wholesale this property before they close on it.

Charles: I’m sure the broker loves to hear that.

Larry: Exactly.

Charles: Wow, what a great idea.

Larry: I love it.

Charles: Why didn’t I think of that?

Larry: So, what’s the second thing?

Charles: Oh, the second thing is the earnest money. The type of people that I tend to, you know, tend to come look for me, use my services, have been in the single family business. They’ve been doing it for years and they’re looking now to get into the bigger side so they can start getting cash flow because they know the single family business, you know, you’re only as good as your last sale, just like the insurance business. So what they would do is to get a deal on the contract, sometimes they would write a check for a hundred bucks or a check for a thousand dollars and the realtor would hold on to it and wouldn’t even cash it. That goes on all the time in the residential world but you don’t do that in the multifamily world.

Larry: No.

Charles: It’s a totally different – you know, typically, you got to put down 1 percent of the purchase price as earnest money and if you’re making a bid on a five-million-dollar property, you’ve better be able to write a check for $50,000. There’s your other roadblock. People say, “Oh my gosh, I can’t overcome that. What do I do?” I say, listen, when I was buying all my properties, I was short on cash at times too but I didn’t want to let this deals go by so I needed to come up with a way that I could stroke a check for the earnest money deposit and make it happen. So I went down to meet a friend of mine and I wanted him to invest in one of my deals and he tells me, “No, I just sold some stuff and I got about a $1,000,000 liquid.” I’m like, oh baby, this guy, he’s going to be a great investor in my products and so he says – I say, well, I’m working on this property, we need to raise about half a million dollars, if you’d like to come in, that would be fantastic and he says, “I’m not really looking to tie up my money for a long period of time. I’m looking for ninety-day deals.” I’m like, okay, well, that kind of just kills anything I have and then I went back to my office and started thinking to myself. Wait a minute, he’s got the cash, I have the need, how can we marry the two so that we can get that money and put it to use? What essentially I came up with was what I call the earnest money deposit program, but what it really is it is like hard money lending for earnest money. Hard money lenders secure their investment with a hard asset, with the real estate in the first position. With earnest money, you don’t have that. There is nothing to secure it with so it’s really all based upon contracts, and as an attorney, I can work the contracts, I draft all the contracts, I hold the escrow money and I monitor it so what I end up doing is I match you up with an earnest money deposit partner who I have in my stable of clients and I’d put the two of you together and you two become partners through the first couple portions of a transaction, and at some point, you’re going to have to replace that money or get out of the deal, which is what you’re going to have to do anyway. So, that’s – the earnest money deposit program allows all of my students to know, they can just make offers on properties and we’ll have the earnest money deposit for them. It really removes a huge roadblock for investors, and the other thing, Larry, and you’ll know this, it gives them absolute confidence that they can just go out there and make offers.

Larry: Right.

Charles: As I always say, if you’re not making offers, this is nothing more than a very expensive hobby.

Larry: So, at some point, they’re either going to get out of the deal by turning that deal over to somebody else that does have the capability to close and it’s almost like they’re wholesaling the deal, for lack of a better term, is that correct?

Charles: That is one of the options that they have. They can wholesale it, they can just walk away from the deal, or they can replace it with – like I got a guy right now, we’re replacing $25,000 that I’ve given him and he’s replacing it with his – a family member’s 401k money and that was in the deal because he likes this deal and he wants it to go forward, boom, he’s in, and he was able to get the deal on the contract two months ago because I gave him the $20,000.

Larry: And you’ve basically looked at the deal and said, yes, we should move forward with it.

Charles: No, I don’t do any of that.

Larry: You don’t do any of that.

Charles: I look over his shoulder to make sure he’s analyzing the deal correctly and make sure that he’s going through the due diligence correctly. I am with my students every step of the way, but, you know, ultimately, it’s their decision. I always have to play Switzerland in these deals. I mean, if it’s a really bad deal, I’ll tell you, man, stay away from this deal.

Larry: I’m with you, that’s good. Now, when you were an attorney, do you actually handle the closings or you just hold in the EMD?

Charles: No. I act as the escrow agent in those transactions, so I actually appear in the purchase and sale agreement as the escrowagent. We used my programs purchase and sale agreement which is what I’ve drafted over years of doing deals. It’s a purchase and sale agreement that is designed to protect the buyer. So, they’ve got those protections every step of the way, but I never act as a lawyer. I always tell my students. I am lawyer, I am not your lawyer. You’re going to hire a lawyer. I provide all the contracts. We write up the contracts based upon the offers and what have you and then I say, now you have to give it to your local counsel to have it blessed because it’s amazing the stuff, and I’m going to tell you one in a moment, it’s amazing the differences in state law to make a real estate contract valid. Like, for instance, twelve states in the country have an independent consideration clause which requires that, you know, oh I put down $50,000. Well, if you get all $50,000 back, the state courts say that’s not a valid contract because you never had anything to lose. What those states do is they put a clause in the purchase and sale agreement called independent consideration, so instead of putting up $50,000, you put up $50,100 and in the event that you cancel a contract, you only get $50,000 back, you lose a hundred, and twelve states in the country have that wording – they require that wording for real estate contract. So, I cannot know all the state laws, that’s why you have to have local counsel in your area. Get a load of this one, Larry, you’re going to flip at this one. I had a student in Pennsylvania – have you heard about this one in Pennsylvania, the transaction tax?

Larry: Ah-huh.

Charles: You’re going to love this. So, the tax board in Pennsylvania has come up with a new rule that says if you put a real estate contract in place, in your own name, Larry Goins, and you decide you’re going to buy this property and just before you close, you create a single purchase entity and you transfer the – you sign the contract to the single purchase entity and the single purchase entity buys the property the next day, Pennsylvania says that’s two transactions and you get taxed twice on that.

Larry: Wow. Even though it’s a lateral move.

Charles: Even though it’s your own company, you’re the only one involved, that’s what they came up with, so there has to be wording within the purchase and sale agreement to protect the buyer for that, and so we have special wording for that. It’s crazy. You have to have local counsel always looking over your shoulder.

Larry: Wow, that’s crazy. That is crazy. Tell us a little bit about it and I know we really haven’t gotten any details but I want to let everybody know what size of deals, you know, like number of units and purchase price and stuff, are we talking – we’re not talking duplexes and quads here. We’re talking about bigger projects.

Charles: We’re talking from five units on up. When I come out to speak, my class is called how to own a thousand apartments in five years. That is what I train on. That’s what I rope everybody in on. I tell them it’s a lot easier than you think. All you have to do is start with twenty units in the first year. Can you do twenty units? If you can do twenty units in one year, you can do a thousand in five and it’s just all exponential – listen, I’ve done it and it works. So, the five units and up is considered commercial, anything below that is residential, so five units and up is where we start to work, but I’m always – you know, these guys would say, go big or go home. Okay, fine. Yeah, that’s great but the whole point here is for you to get to a thousand units. You’re not going to do it in a day. You’re going to build a business that can support that type of infrastructure, and so you have to do it the right way. If you grow too fast, you’re just going to implode, you’re going to hurt yourself. I want you to build a business the right way so that in five years you’ve got a phenomenal business that’s going to take care of you for the rest of your life, and that’s how I teach my students. So, I tell a story about one of my students who – I kept telling him. Okay, he’s looking at twenty, okay, he’s looking at a hundred units, and he comes along and he says, “I just got these three properties under contract.” I said, oh great, great. What’s the purchase price? “Well, it’s going to total about $36,000,000.” I’m like, really, your first deal? You didn’t – he says, “Charlie, I just found that it was easier to do the bigger deals than it was to do the smaller deals and I figured I might as well just go for it.” I said, okay, alright, let’s go through this and make sure that we’re doing everything right and ninety days later, the guy owns three student housing complexes at $36,000,000. Great, I’m going to give the guy kudos. He was a CPA. He knows numbers. He’s a very bright guy so he knew what he was doing. He knew what he was getting himself into and he’s going to do very, very well with it. I don’t recommend that you do that but, you know, there’s always some guys who doesn’t listen to me.

Larry: That’s awesome, man. I love it. Go big or go home, right?

Charles: I know, I know.

Larry: Most people aren’t going to do that but they can start with twenty units or forty units or sixty or whatever.

Charles: Exactly. Four 5s, five 4s, two 10s. Get twenty in the first year. Learn the business. Understand – the first two deals are your hardest deals. After that, this business is just going to flow for you. People are going to be dropping deals on your desk because they know you’re a performer. So, it’s just getting through those first two deals, and as I tell my students, I said, you’re only going to need me for the first two transactions. After that, you’re on your own but we’ll be friends and you can call me any time you need me.

Larry: That is awesome. What is the third roadblock?

Charles: Okay, the third roadblock is one that I came up against early on and I don’t see anybody else talking about it, and it’s a real issue, is that if you’ve never done a multifamily deal before, you’re not going to qualify for a mortgage. If you are out there making offers on three-million-dollar properties, Fannie Mae is not going to give you a mortgage. They’re going to say you lack experience, you lack net worth, you lack liquidity, and so right away, geez, I wish I had known that before I started making all these offers on three-million-dollar properties that I don’t even qualify. So much for the property qualifying, now they’re asking me to qualify and I don’t qualify. So, I talk to myself, how can I solve this problem? And what they’re asking for is what’s called a KP, a key principal, and I talk to myself, you know what, I got tons of clients who would easily and do easily qualify for multifamily mortgages, and so I’m going to ask them to partner with my students to help them get across that finish line, so now I have students that will sign on the dotted line for you and with you. One guy, he takes 20 percent of what you own of the deal and he will sign on the dotted line and get you across the finish line, and you know what happens after about three transactions? You become the KP, so my students just – it just continues to grow and so I have several students that will qualify as key principals and will help my other students get across the finish line. It all comes down to – you know, these guys, the KPs come to me and says, “Hey, one of your students contacted me. Should I do this deal?” and I said, yeah, that’s a good student, you want to do this deal. If someone who is not in my program tries to use my KP, they call me up and I said, no, stay away from this guy. No, I don’t want you getting your name in with that guy. So, that’s – one of the other roadblock that we can overcome is getting over that hurdle.

Larry: Well, number one, you want to make sure that that student has been trained correctly before you want that KP to get involved.

Charles: Exactly. I know if they use my contracts, I know where all the exit clauses are, I know how to get out of that deal if things start going south. My number one rule, and every one of my students knows this, my number one rule is to always remain in control of the deal. You’ve always got to remain in control of the deal. If the seller gets control, it’s not a pleasant place to be. I teach my students how to remain in control of the deal every step of the way.

Larry: That is great. That’s really, really good. So, what is the fourth roadblock?

Charles: Okay, so when I was first getting started in multifamily, the barrier to entry was the down payment and we had to go out there and raise the down payment, you know, we used friends and family, we did offerings, any way we could to raise the private money, then what happened was, one of my students was doing a deal and he needed a lot of money. He says, “My mortgage banker is going to bring me 95 percent of the deal.” I said, what are you talking about? He says that certain lenders will raise, not only, you know, get you a mortgage for the debt, but they’ll also raise a portion of the equity. So, in this particular case, he was getting a mortgage of 65 percent LTV and then the mortgage banker had his own stable of investors and they came into the deal for 30 percent, so he had 95 percent of the funds raised just by his lender.

Larry: Get out of here.

Charles: I’m not kidding you. He only had 5 percent. I said, wait a minute, hang on, here I am the guru, and this guy is teaching me about something I’ve never even heard of before.

Larry: So, you like, I’ve got to have that guy’s name and number, right?

Charles: Exactly. I feel like, are there any more people just like him, and it turns out there’s a mortgage banker who is a client of mine in the program and he calls me up, he says, “Charlie, I do that all the time.” I said, “Can you do that for my students?” He goes, “Absolutely.” So we have the equity assist program where if you come in, you know, and you do a deal over three million dollars and you use my student as the banker, as the mortgager, then he will raise up to 95 percent of the equity for you in the deal, and so you don’t have to raise that whole big chunk anymore and so that’s what I did, and what happened was the student who had to raise the 5 percent still couldn’t raise that 5 percent and he was going to lose this deal because – and he came to me and he says, “Charlie, I need $250,000. Do you know anyone?” I said, listen, I don’t know anyone, I’m not going to ask anyone for you but here’s what I will do. I have a ten-thousand-person email database, you write up something and I will blast it out to my list but, listen, I’m not here to raise you money, that’s not my job, but I will help you if this helps. I will send out a blast email. I send out a blast email, he gets the $250,000 in no time flat. Two other students come up to me and ask me for the same thing, you know, short money, $100,000, $150,000. I said, okay, I’ll do this because I take care of my clients as best I can but this is no guarantee so I sent out the emails, both of them got their deals funded, and so I thought to myself, listen, if I can do this for my students, I will do this for them. They can use my database and I will help them raise private money but that is not what my program is all about. So that’s the fourth roadblock is I am here to help you. I’ve done it, I’ve done it so many times. I’ve done it right and I’ve done it wrong and I’m there to protect you and help you every step of the way to get across that final, you know, to the close of deal, that’s the goal, get to the close of deal.

Larry: You know what, Charles, that’s huge for a student starting out. I mean, I know you don’t want to work with a broke, unemployed, no-credit, no-job type person. That’s not the kind of person that needs to be jumping in and buying twenty or forty or a hundred units, but if a person’s a little short, you know, but if they know what they’re doing, if they’re at least pretty sharp, you know, and they’ve gone through your program, then, man, that’s huge. That is huge you helping them out like that.

Charles: You know, the nicest thing, I have one student that put money into another student’s deal and I love it when this – the first always says I put money in that guy’s deal, it’s the best investment I’ve made so far in multifamily. That guy’s deals still spits off a lot of money every single month. I said, oh, I love hearing that. So – and I’ll never forget, when that student bought the deal, he came into my program and he had checked out every other guru and said, okay, fine, I like you, I’m gonna go with you, and so he signs up and within three weeks, he’s got a deal under contract and I look at it, I said, please don’t do this deal, I hate this deal. This deal is a dog. “No, no, no, you know, if I go through the due diligence process and I make these changes.” I said, no, no, no, I’m telling you right now, let’s save a whole lot of time and just kill this deal right now. “No, no, we’re going to go after it.” The day before the money goes hard, he says, “Okay, alright, fine, I’m going to kill this deal,” and he kills the deal and gets his money back no problem. Three weeks later he’s backing a contract, sends over the property and I look at it, I said, you’re buying this property, this one is a great property, you want to own this property, this is exactly the type of property you want to own, and to this day he keeps reminding me of that whole story as to how the whole thing came about. And now, he’s on to his next deal. That was a fifty-five-unit deal and now he’s on to his next deal. So, it’s a lot of fun. I just love helping out my students.

Larry: That’s awesome man, and that’s what he pays you for.

Charles: Exactly.

Larry: To help him keep from making mistakes.

Charles: You know, how do you like it, a guy who’s made every mistake in the book looking over your shoulder, whatever you need him, you know, I don’t do regularly scheduled coaching calls with my students. I would go out of my mind if I had to do that, but every student has my cellphone. They can call me, they can text me, they can WhatsApp me. We have a big WhatsApp group among all the students. And don’t call me up and say, “Hey, what time tomorrow is a good time to speak to you?” I say any time, just call. If I can answer the phone, I will answer the phone. If I can’t, I’ll call you right back.

Larry: Yeah, because the only time you’re busy is one night a week between eight and nine.

Charles: That’s right. I just told you the secret. Now you’re going to tell everybody. You’re absolutely right.

Larry: That’s funny, I love it. You mentioned a minute ago about the guy who called you up and canceled before the money went hard? Yeah, explain that to the students so they understand what that means.

Charles: Okay, so when you go into a multifamily deal, you’re going to have certain contingencies. The first contingency is what we call the inspection period and that’s where, you know, you’re going to put the earnest money up and then you’re going to have a certain number of days where you can go take a look at the property and decide whether you want to proceed forward. Now I have done a whole due diligence weekend course that all of my students get this program that is the best training in multifamily due diligence out there, so all of my students know what they need to do to determine whether the property’s a deal or not. And the way I write the purchase and sale contract is when we first make the offer, the last page of the offer lists every thing that we are going to need from the seller in order to perform the due diligence. So in the very first communication that we send to the seller, we tell them what we want, and that – all those documents get put into the purchase and sale agreement as well so the seller, right from the beginning, knows if this guy’s going to buy my property, I got to give him these documents, and then learn the hard way, we create – the way we write the purchase and sale agreement is we put the earnest money with the escrow agent three days after the effective date. Now, I didn’t say execution date, I said the effective date, and the effective date is the date that the seller has given us all the documents on that page. If he never gives us all the documents, we’re not going to write a check. We’re not going to put any money in the deal, and I have learned this the hard way. One of that happened to be a situation that ended up in a lawsuit. This new student, he got a deal and a contract, and then he called me, wanted to engage me.

Larry: After the fact.

Charles: Yeah, after the contract, he used somebody else’s contract and he, you know, goes into it. Now, the seller was in bankruptcy which is kind of a red flag. The guy goes out to the property to take a look at it, twenty units, four units they can’t even get into. Guy doesn’t have the key. Okay, drill it out. Well, we don’t want to drill it out. Well, I need to see those units. We’ll show you later. Okay. Tried to ask him for the financial records. Yeah, I’ll get those to you. We’re on the twenty-ninth day of a thirty-day window, and I’m telling the student kill the deal right now. Kill the deal right now. Terminate the contract. Keep your money in escrow but – and also, the seller’s attorney was holding the $10,000. Big mistake. Yeah. And so, I said kill the deal right now. “No, no, the guy told me he’ll get me the financial information.” I said he’s never going to give it to you, he’s never going to – he doesn’t even have it. “No, no, I’m going to get it, I’m going to get it.” Three days after the inspection, when we’re into the second contingency period which is the financing contingency, he finally says, “You know what, this guy’s not going to give me the documents, you were right, I should have terminated this, I’m going to terminate it now.” He sends out a termination letter. The seller’s attorney sends him back, says you acted in bad faith during the financing contingency, we are going to take the $10,000 and file an interpleader with the Virginia state court and you guys are going to have a lawsuit to get your $10,000 back. Because he didn’t listen to me and he waited two extra days. And I actually – because this guy’s a really good guy and I want to help him out any way I can, I actually flew down to Washington and testified in that case for him and he wins. He wins. He got his $10,000 back. You know how much his legal bill was?

Larry: Fifteen?

Charles: Pretty close. Exactly. It’s like, why didn’t you listen to me? That’s the whole point is we never want to – we have these contingencies built into the contracts so our money doesn’t go hard until we are darn ready, that we’re ready to move forward, but that’s what we mean by the money going hard. It gets put at risk, as I always say. I teach my students this. Whenever the money leaves your bank account and goes to someone else’s, it’s always at some degree of risk.

Larry: Right.

Charles: So even if you’re in the inspection period, you got to understand, you’re under an obligation to do something, so that’s what – I always want to stress that point to my students.

Larry: And I’ve got to mention this. Now they’re selling a lot of multifamily auction sites like Ten-X and now some of them look like pretty good deals but the problem is, and you’ve mentioned contract, contract, contract multiple times, but when you’re buying on auction even if it’s fifty or a hundred units or two hundred units, they want you to use their contract.

Charles: Yeah, exactly.

Larry: So you recommend not buying at auction or is there a way around that to get them to use your contract?

Charles: What you have to understand is that when you’re using those types of sites, your due diligence period that, you know, like I just described the thirty-day inspection period, you don’t get that. That inspection period happens before you make the offer. So they expect you to do all the due diligence before you make the offer because you’re not going to get a chance afterwards. And then you had better read their contract and understand how that contract works and it is punitive so you better understand that what happens to your money if you don’t perform on those contracts. So, remember, my number one rule, always remain in control of the deal. If you’re using somebody else’s contract, they’re in control of the deal. So if you can live with that, go for it. If you don’t feel comfortable, move on. Next.

Larry: Yeah. That’s a really, really good point. There are – they do seem to be like some pretty good deals out there on Ten-X and what-not but, you know, you’ve got to stay in control.

Charles: Yeah. And Ten-X – you look at it now and they don’t have many – remember back in 2009, Larry?

Larry: Oh, yeah, yeah.

Charles: Exactly. Exactly. I mean, you know, they’re starving to death today compared to what they were doing in 2009.

Larry: Exactly, exactly. Man, this is really, really good stuff. I want to ask you a couple more questions and then we’re going to wrap it up because, man, this is good stuff. It’s going long but, man, I love it. I love it. It’s great. So, what do you recommend your students do to find these types of deals that fit the criteria.

Charles: Okay. So, you know, when you come to my one-day seminar, it – the first morning is all about how to find the deals. Ninety percent of this business is sales and marketing and it’s all about finding that deal and, you know, these people who comes from the single family side and they think it’s going to be different, it isn’t. It’s all about hustling and, you know, putting the shoe leather out there and finding the deals, knocking on doors, looking everywhere. The problem that I see new students doing is everybody comes out of one of these weekend boot camps and they all go rushing to LoopNet. They all sign up on LoopNet, you know? It’s like LoopNet must know when one of these guys has a boot camp because the registration skyrockets, and I say, listen, LoopNet is where deals go to die. If a broker’s got a good deal, do you think he’s going to put it out there on LoopNet? He’s got a stable of investors, guys who’ve already bought from him, who are going to get a first crack at that property, and I always tell the story about a broker one time that I had a deal and a contract with, next thing you know, he’s got a new deal up on LoopNet. I say, hey, why didn’t you let me take a look at that first? He goes, “Oh, you don’t want that deal.” I said, well, why didn’t you let me take a look? “You don’t want that deal.” Why did you put it up on LoopNet? Let me explain to you how LoopNet works. We put a deal up on LoopNet. Within the first three days, we get 1,700 requests for additional information, and that’s really easy to do on LoopNet, you just click the red button and, you know, it sends an email to the broker. Out of that 1,700, we may get about twenty to twenty-five follow-ups with legitimate questions about the material. So out of that we get maybe five offers, and then one person buys the property after we, you know, weed through those five offers. Seventeen hundred down to one. I say, now, the guy who bought the property thinks that he beat out 1,699 other investors, and the other 1,699 look at it and say like, “We took a look at this property and passed on it because it was a bad deal.” One guy got it. So, it depends upon which side of the looking glass you’re in. You know, it’s to say, hey, did this guy get the deal or did everybody avoid a bad deal.

Larry: Right.

Charles: And that’s – and LoopNet, you got five million eyeballs looking at your property, it’s not a deal, and so what I teach my students is all the places where you can find deals on the internet, right there sitting at your own home, that nobody else is looking for, that you need to do to get out there and find it. And I show them, I say, look at it, here’s a property right here, now let’s go over to LoopNet, plug in the address, and see if it pops up. Well, what do you know, it’s not on LoopNet, but you have to know where to look to find those types of deals. That’s how you’re going to get into this business.

Larry: That’s so important. That’s very, very, very important, because the first part of it is finding the right deal.

Charles: Yeah, yeah, exactly. And, remember, you do your first deal the right way, you’re in this business for the rest of your life. You do the first deal the wrong way, you’ll never do another deal. So that first deal is crucial.

Larry: That’s so, so important, which brings me to analyzing the deal. So spend a couple minutes on talking about analyzing – when you see one, what do you need to do to determine if it’s a deal or not.

Charles: Okay. The thing that you always want to get is what’s called the trailing twelve financial statement. The T12 – yeah, the T12. It’s an incoming expense statement, and you want to see it for a twelve-month window, alright? As my mother used to say, you got to see the woman in all four seasons before you marry her. That’s so – you know, you got to see the property in all four seasons to really know what’s going on with it. The brokers don’t like to give up that information, and a lot of times, you get, you know, rigmarole from them like, “Oh well, you know, once you get the property in a contract, then we’ll give you that information.” Well, that’s not really the way it goes. All we care about in this business is not the real estate. I’m sorry to single family investors, I don’t care about the property. I’ve been through three thousand apartment units inspecting them. I – never have to see another one. I know exactly what they look like. All I care about is the financial statement. We are not buying real estate, we are buying cash flow. The single family guys, you’re buying real estate. I’m buying cash flow, and the property is nothing more than a factory that generates a product called a lease and the value of the lease depends upon the value of the customer. So, that’s how we value this property. So I want to see twelve months. I’d love to see a rent roll so I can match everything up, and then I can put all this information into my cash flow analyzer which is a software program all my students get, that’s how we communicate back and forth, and then we can determine and look at it and figure out whether it’s a deal or not. And there are certain financial measurements that we want to make sure are in there, you know, to protect ourselves but, you know, I can tell you just by looking at the initial financials whether we’ve got a deal or not by knowing, you know, the expense ratios of the property and, you know, the cap rates of the property, all those types of things. This is the most fun I have in my teaching is how to analyze a multifamily financial statement better than your accountant.

Larry: That’s awesome. I love it.

Charles: And that’s how I teach – yeah.

Larry: Now, are you teaching your students to go out and buy a value-add type property or just based on the current cash flow?

Charles: Oh, okay, everybody’s different. For instance, I buy a performing asset because I don’t own a tool belt and my consulting practice, you know, takes up a lot of my time, I love it, so I can’t be out there, you know, turning units.

Larry: Right.

Charles: Other people, that’s all they do is buy non-performing assets and turn them around. That’s okay. So it’s really – either story is a great story. It all depends upon what you as an investor want your business to look like, and the thing that we do, and this is so key, is when I look at a multifamily financial statement, I can tell you exactly what a day in the life of that little old lady who’s been the property manager on that property for the last twenty years, I can tell you what a day in her life is like just by looking at the financial statements, and that’s what we do is you have to tell me, through the numbers, what the narrative is.

Larry: Right.

Charles: And, you know, if you say, “Well, the rents are going to go up by this much in the next two years,” I say, okay, build your model to look like that, because if you don’t build your model to show me what the potential is on that property, why would I invest in your property? It’s not a good deal. “Oh, it’s a good deal because the rents are going to go up by a hundred bucks a month,” you know, that type of thing. So it’s really – as I teach to my students, it’s the numbers and it’s the narrative. That’s what I need to see.

Larry: That’s good. Man, this is good stuff. This has been awesome, Charles. I appreciate this.

Charles: Yes. Always good talking with you, Larry.

Larry: That’s really good. So, how would somebody reach out to you if they wanted to follow you, come to one of your events, or what-not?

Charles: Yeah, just come to multifamilyinvestingacademy.com. Deb, my assistant, she posts everything up there and, you know, you can see my schedule for where I’m going to be. I’ve got two more events when we’re doing this and then we’re going to come up with another schedule. I love doing my one-days. They are so much fun. I get to meet people and it really is like a college classroom. I try to stay out of the hotels. I find amphitheaters where people can sit comfortably and ask me any question they want all day long, and when you’re done, we’re friends and, you know, you will become a client of mine because you see that I’m passionate about this business.

Larry: Man, and you can tell. I mean, I’ve watched enough of your training and, you know – and like you were talking about the equity assist program, I’ve watched a couple of webinars you did with your mortgage broker about that program. That’s a great program.

Charles: It’s so cool and it’s just – I developed these programs to solve someone’s problem, and that’s what it’s all about.

Larry: That’s huge, man. I love it. I love it. Well, multifamilyinvestingacademy.com, right?

Charles: That’s right. Yeah. Or themultifamilyattorney.com, it takes you right to the academy website. That’s all the same.

Larry: That’s awesome, man. That’s really good. Good stuff. I really appreciate you being on today. Thank you so much.

Charles: My pleasure, Larry. You know, when I got the call that you wanted to talk to me, like, yeah, I’d love to talk to Larry.

Larry: That’s awesome.

Charles: Cool.

Larry: That’s good stuff, man. When you coming back to Charlotte?

Charles: I don’t know yet. You know, it’s probably – Deb is coming up, you know, I love – Deb is my assistant and we’re virtual, she’s down in Florida, I’m up here in Massachusetts and she actually used to live in this town so she’s coming up for this – in August and she and I are going to sit down and map out my next schedule, so next bunch of events but I’ll – I like to stay in the eastern seaboard. I’m doing an event in LA. Now, the thing is, because my students have my phone number, they can call me anytime.

Larry: Right.

Charles: So, so far, all of my students have been on the East Coast and the same time zone. Now, I’m opening up to a bunch of people in LA. I might regret this. I might regret – you know, they’re going to make me work three hours later, you know, on the phone, and, Larry, you know how I am. I only work one day a week so – one hour a week.

Larry: Yeah. Well, set a rule, the people in the West Coast can’t call you until after noon.

Charles: Exactly, yeah. I’ll give them one hour – I’ll give them a one-hour window.

Larry: There you go.

Charles: Yeah. Perfect.

Larry: That’s good, man. Well, thanks so much for being on. I really appreciate it. Look forward to seeing you soon.

Charles: Me too. Thanks, Larry. It’s good talking with you.

Larry: Thanks a lot. You too.