Brief Summary
Cody Davis and Christian, partners in real estate, share their journey of building a $25 million portfolio, emphasizing creative financing, strategic partnerships, and a focus on long-term wealth accumulation. They discuss their initial challenges, key investment principles, and the importance of continuous learning and adaptation in the real estate industry.
- Creative financing and strategic partnerships are key to building a real estate portfolio without significant personal capital.
- Prioritizing the deal over capital and focusing on long-term wealth accumulation through holding and optimizing properties.
- Continuous learning, adapting to market changes, and building strong relationships are crucial for success in real estate.
Introduction: Building a $25 Million Real Estate Portfolio
Cody Davis and Christian, share their backgrounds and how they started in real estate. Cody, a college dropout, acquired 30 apartments by age 21 using seller financing and debt. Christian, after working at CoStar Group, bought two duplexes and then partnered with Cody to scale their investments. Together, they acquired a 38-plex, marking the beginning of their successful partnership.
Robin Hood Village Resort: A Unique Acquisition
Cody and Christian showcase the Robin Hood Village Resort, a 12-acre property on the Hood Canal in Washington, originally built in 1934. They acquired an adjacent property, the White House, also with seller financing, adding 2.5 acres to the resort. The resort features 18 cottages and generates significant revenue, especially during the summer months, with about $3,500 per day, totaling around $100,000 per month.
Creative Financing: Buying Real Estate with No Money
Cody explains how he started investing with no money by using debt and seller financing. He got the seller to finance over a million dollars and borrowed an additional $125,000 from an investor at 12% interest for the down payment. The investor was secured by a clause that allowed them to take ownership of the property if Cody couldn't repay the loan. Cody emphasizes that investors primarily care about where their money is going, the stability of the investment, and how they will be repaid.
Acquiring the White House: Expanding the Resort
Cody and Christian discuss the acquisition of the White House, a triplex adjacent to the Robin Hood Village Resort, for $900,000. They financed the purchase with seller financing and brought in an equity partner with a buyout agreement, allowing them to acquire the property with no money out of pocket. The White House is now operated as the Robin Hood Lodge, with two long-term rentals downstairs and a master lease from the Robin Hood Village Resort upstairs, generating consistent income.
Initial Challenges and Accounting
The initial challenges they faced included learning accounting and bookkeeping. Cody mentions the difficulty of transitioning from a small portfolio to managing 55 units and dealing with complex accounting questions. They initially handled the bookkeeping themselves but now recommend hiring someone from the start if the cash flow allows.
Scaling the Portfolio: 90 Apartments in One Year
In their first year of partnership, Cody and Christian acquired about 90 rental apartments and the Robin Hood Village Resort across seven or eight transactions. They focused on areas like Moses Lake, Renton, and Tukwila, with a significant emphasis on Moses Lake due to the opportunities available there. Cody learned about seller financing and the Moses Lake market through a real estate agent.
Overcoming Setbacks: Dealing with Drugs and Evictions
The biggest setback they faced was dealing with drugs and non-paying tenants in a 38-plex. They overcame this challenge with time and money, using cash for keys and evictions. They learned the importance of being kind but firm when dealing with difficult tenants.
Refinancing vs. Holding: Where the Real Money Is Made
Cody and Christian discuss the debate between refinancing and holding real estate for long-term wealth. They argue that the real money is made by holding real estate and paying it off, rather than over-leveraging and refinancing. They emphasize that owning properties outright minimizes obligations and increases long-term cash flow.
Blitz Time: Rapid-Fire Questions
Cody and Christian answer rapid-fire questions, including whether risk scales proportionately with larger multifamily properties (less risk with more units), a guiding principle in times of uncertainty (deal then debt then equity), and how to get started in a market with few multifamily properties for sale (meet with the owners of existing properties). They also share a weird tenant interaction and the biggest misconception about real estate (that it's complicated).
Personal Insights: Dinner with Influential Figures
Cody and Christian share who they would have dinner with, dead or alive. Cody would choose Mike Klug, a local real estate mogul, to learn how he assembled his massive portfolio. Christian would choose Mark Cuban to gain insights into his consistently successful business ventures and simple take on money.
Property Management and Goals
Cody and Christian discuss their property management strategy, with Christian running the property management company. They focus on individual hubs to avoid spreading out too wide and emphasize the importance of focusing on individual areas. They also share their initial goals of retiring their mothers, which they achieved within 11 months of partnering.
Capital vs. Deal: Prioritizing the Right Order
Cody and Christian emphasize that focusing on capital first is a backward strategy. They prioritize the deal, then debt, then equity. The deal dictates the debt and equity needed to close it. They share an example of raising a million dollars in one meeting for the Robin Hood Village Resort by presenting a compelling deal to equity partners.
Seller Financing: Key Principles
Cody and Christian explain the key principles of seller financing, including the promissory note and the deed of trust. They emphasize that trust is the number one thing in seller financing and that building relationships with sellers is crucial. They focus on learning how sellers built their businesses to gain their trust and secure better deals.
Identifying Properties and Off-Market Deals
Cody and Christian discuss how they identify properties to acquire, using a Monopoly-style strategy of buying up all the properties in a specific market or neighborhood. They find off-market deals using Google Maps to identify apartment complexes and then use county assessor sites and online tools to find the owners. They emphasize the importance of meeting with owners to learn from their experiences.
Investment Mistakes and Lessons Learned
Cody and Christian share their biggest investment mistakes and lessons learned. Cody regrets not buying deals that made sense for his criteria, while Christian regrets staying in the 9-to-5 job too long and buying too small. They advise investors to ensure they have more options than obligations and to focus on deals that bring in positive cash flow.
Negotiating the Robin Hood Deal
Cody and Christian discuss the journey of acquiring Robin Hood Village and the lessons they learned in terms of negotiation, due diligence, and seller financing. They made the mistake of revealing too much information during negotiations, resulting in less favorable terms. They emphasize the importance of optimizing cash flow and choosing the right debt product for the phase of business.
Profitability and Future Goals for Robin Hood Village
Cody and Christian confirm that Robin Hood Village is profitable and that they do not regret purchasing it. They increased the top-line revenue from $620,000 to over $730,000 in their first year by implementing more marketing and holding events. They are aiming for $850,000 in 2024 and $1 million in the following year, with a goal of netting about $600,000 to pay debt and generate cash flow.
Surprising Real Estate Insights and Avoiding Financial Pitfalls
Cody and Christian share that the most surprising thing they've learned about real estate is that everybody's broke, meaning they put all their money back into real estate. They emphasize the importance of generating cash flow to regenerate quicker.
Real Estate as a Side Hustle and Investment Focus
Christian recommends getting into real estate as a side hustle, as it doesn't take as much time as people think. He suggests focusing on commercial-residential properties, specifically apartments, as the most stable asset class. He recommends starting with 6 to 20 rentals, as values are based on performance.
Key Decisions and Communication Skills
Cody shares that the most important decision he made was committing to learning how to communicate with people. He practiced communicating with Starbucks baristas to improve his conversational skills.
Negotiating Seller Financing Deals and Mentorship
Cody advises keeping seller financing deals simple with standard loan products and avoiding complicated clauses. Christian adds that it's important to ask for what you need and to attend their mentorship meetings to learn from their experiences.
Negotiation Skills and Rapport Building
Cody emphasizes the importance of keeping negotiations simple and being willing to shut down deals if necessary. Christian highlights the importance of rapport building, which can take months or years, especially with sellers who are financing the deal.
Perceptions of Wealth and Long-Term Strategies
Cody and Christian share their perceptions of wealth and long-term strategies. Cody initially thought a couple million dollars would be enough but realized it's not enough to expand and be safe. Christian emphasizes the importance of optimizing everything and paying off debt in its entirety.
Challenges in Real Estate and Book Recommendations
Cody and Christian discuss the challenges of getting to the first million in real estate, which they attribute to people buying little deals. Cody recommends reading "Deals on Wheels" by Lonnie Scruggs, while Christian recommends "Principles" by Ray Dalio.
Business Ventures and Financial Discipline
Cody and Christian share that they pay themselves $60,000 a year each and reinvest everything else into the growth of their assets. They emphasize the importance of delayed gratification and avoiding lavish spending to ensure long-term financial stability.
