Today’s episode features Stephen Davis. Stephen is the CEO of a real estate coaching program with over 2000 members. Has helped hundreds of thousands of people learn how to build wealth with real estate through his daily radio show and one on one consulting.
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[03:14] – [04:40] Finding passion
[04:41] – [09:52] How to scale commercial real estate
[09:53] – [13:00] Who is your first hire?
[13:01] – [16:33] How have things shifted?
[16:34] – [19:09] Financing for under occupied properties
[19:10] – [21:11] Preferred investments
[21:12] – [23:18] Mistakes to avoid
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Connect With Stephen
Facebook: https://www.facebook.com/TotalWealthAcademy/
Website: http://www.totalwealthacademy.com
Email: steve@totalwealthacademy.com
Connect with Sam Wilson
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
[00:00:00]:02 – [00:00:09]:16
Sam Wilson
What are some of the key hires? When you think about that, you say, okay, we’re going to go scale. Like who? Who is the first person you typically recommend? Someone brings on?
[00:00:09]:17 – [00:00:26]:02
Stephen Davis
For me, it’s the property manager themselves. Later on, it’s the asset manager. But I want a pit bull in that office. A woman or man who is driven by the numbers.
[00:00:26]:13 – [00:00:52]:11
Intro
Welcome to the How to Scale Commercial real Estate Show whether you are an active or passive investor. We’ll teach you how to scale your real estate investing business into something big.
[00:00:52]:17 – [00:00:54]:00
Sam Wilson
Stephen Davis, the CEO of a real estate coaching program with over 2000 members. He has helped hundreds of thousands of people learn how to build wealth with real estate through his daily radio show and one on one consulting.
Stephen, welcome to the show.
[00:00:55]:16 – [00:00:56]:24
Stephen Davis
Good to be here. Thanks for having me.
[00:00:57]:06 – [00:01:05]:22
Sam Wilson
Absolutely, Stephen Pleasure’s mine. There are three questions I ask every guest who comes on the show in 90 seconds or less. Can you tell me, where did you start? Where are you now and how did you get there?
[00:01:07]:18 – [00:03:13]:01
Stephen Davis
Well, I started back at age 27. I was you know, I had the corporate America mindset. And I thought that’s how you got wealthy and you just climbed the corporate ladder and things like that. So I worked for five years, 70 hours a week, won a national sales contest, got one a trip to Hawaii. When I got back from Hawaii, they cut my pay by 20 grand a year.And what it did is it woke me up to the stupidity of depending on a job as your sole source of income. And I couldn’t sleep at night. And people don’t like this joke. But when you’re working 70 hours a week, who’s romancing your wife? It ain’t you. And I was about to lose my wife, and I’m broke. You know, I had negative cash flow, and I couldn’t sleep at night, so I was up watching these late night infomercials. Carlton Sheets. Dave Delgado I bought every one of them, bought every one of them, spent about 30 grand and took the boot camps and stuff. But when I got back from the boot camp two months later, I was making more money wholesaling than I was at my job. So I quit the job, saved my marriage, moved on to flipping, then single family rental had over a hundred single family. Then I learned about apartments and started doing little apartments ten, 20, 40 units. And then learned about big apartments, 200, 500 units, and then learned about passive investing. So as soon as I learned about passive investing, I realized that I was a good apartment operator, but not great because it wasn’t my passion. My passion is teaching. So I found people that were great at managing and owning apartments, and I gave them my money as a passive investor, sold all of my real estate and do nothing but passive. I’ve been in as many as 4000 apartment units at one time.
[00:03:13]:07 – [00:03:35]:08
Sam Wilson
That’s really, really cool. I love I love the transition there. You know, you went from one to the next to the next and then figured out along the way what you’re good at and what you’re not. How how did you really, I guess, build what it is that you do today? Because I think those are you know, they’re two different components of the same thing. But it is that question make any sense? Like how did you go from activity?
[00:03:35]:09 – [00:04:40]:09
Stephen Davis
Yeah. What happened was what happened was a lot of friends were asking me what I was doing, you know, because I went from a Ford Festiva to a Ferrari and they were like, What in the world are you doing? And I found myself loving, sharing the ideas. Then I started working for a little real estate investor group and all I wanted to do was teach, and it was just so much fun for me. So when I found passive investing, I was reading Stephen Covey at the time and he brings up a lot of points about your purpose in life and your passion. And I started questioning that, and that was when I said, you know, when I wake up to go to an apartment complex, it’s okay. But when I wake up to go teach a class, I’m fired up. I don’t even need coffee. It’s like, man, I can’t wait to get in there and share these ideas. So that was how I found my passion. And that’s what I do now.
[00:04:41]:10 – [00:05:04]:04
Sam Wilson
That is awesome. Let’s talk then about the types of students you work with. The and really the thrust of this show, you know, is how to scale commercial real estate. So, yeah, you’re inside view of what people are maybe doing right, what they’re doing wrong, what kind of floor is yours to kind of take that idea of how to scale commercial real estate and tell me how you incorporate that into what you do?
[00:05:05]:21 – [00:08:06]:10
Stephen Davis
Well, my students range from beginners who are wholesaling and flipping to medium, advanced, medium. I would say somebody who’s got 20 or 30 single-family houses. I think once you move into commercial, you’re advanced, even if it’s just a little ten unit apartment because you now control the value of your apartment raising, you know why and so on. And I think that with the advanced investor scaling is probably the hardest thing to teach. It’s very easy to teach someone who’s aggressive, wants to change their life, to run an apartment. You just get in there and you bust your ass and you learn all the skills and get it done. But getting that second apartment where you start scaling up, that’s where the challenge comes in. And one of the big things, Michael Gerber wrote the book The E-Myth. He brings up the point that you only own a business if you can disappear from it for a year and make the same amount of money as if you’re there. If you disappear and you make less money, you’re just self-employed. Well, most of the what people who call themselves entrepreneurs, they’re really self-employed with these apartment complexes. They’re running it day to day. Well, if you’re going to scale big, you’ve got to move towards not all the way you can move all the way to business owner, but you’ve got to do less and less and less inside the actual business and take on more of a leadership role. And where I see it the toughest is simply and this is said with respect because these are good people, but we all have an ego and we all can get arrogant at times. And when people are scaling and they’re bringing on a team, they sometimes think, you know, nobody can do it as good as I can. And that type of arrogance will hold you back. Okay. Let’s say you’re right that no one else can do it as good as you can. You’re screwed. You’re dead in the water. Whatever you can handle in your 40 hours a week. And I hope people are working much more than that. It’s just not healthy that you’re screwed. That’s it. But if you’re humble and take on the leadership role and really focus on training your people to be almost as good as you. That’s when scaling occurs. When you’ve got a team you can depend on and you can throw another 300 units or another 400 units, and that’s just the sky’s the limit at that point.
[00:08:07]:08 – [00:08:35]:07
Sam Wilson
It really is. And I think I think one of the challenges that many of us probably face is that when is the right time to bring that person on or person’s Yeah. Team in? It’s like, well, we’ve got to have cash flow in order to pay those people to come on. But we got to have it’s kind of like which one, which one comes first? And I bet it’s probably unique to every situation, but what are your kind of thoughts around when the right time to build that team is?
[00:08:35]:13 – [00:09:52]:16
Stephen Davis
Yeah, the first thing comes to there is never a right time, you know, it’s one of those where you just got to leave. It’s just like when you first bought your very first apartment. If you waited for it to be the perfect time, you waited too long. You know there’s never a perfect time. You got to just jump. Now it needs to be with wisdom and education, but it’s never going to be the right time. The way that I’m seeing it is people are like one of my guys, Robert Martinez. He had about four or 500 units. I think it was just two complexes. He just made a decision that he was going to hire. He bit the bullet and hired the people. He’s now over 5000 units because he bit the bullet, paid the money and trained the people. And he’s an excellent trainer. He’s got an ego, he’s proud and so on. But he knows how to be humble too, and really train people to do what he does.
[00:09:53]:04 – [00:10:02]:15
Sam Wilson
What are some of the key hires when you think about that? You said, okay, we’re going to go scale. Like who? Who is the first person you typically recommend? Someone brings on?
[00:10:03]:24 – [00:11:38]:04
Stephen Davis
Yeah, for me, it’s the property manager themselves. Later on, it’s the asset manager. But I want a pit bull in that office. A woman or man who is driven by the numbers that understands in a why that you can lower the expenses or raise the rent and affect the. You know, I I’ve gone to apartment complexes and what we call an intervention where an apartment complex is doing poorly. And I go there with a couple other syndicators to show them what they’re doing wrong. And almost every time the team doesn’t know what you know is it’s like the whole every thing you do every day, all day long is to increase the you know, I and you guys weren’t even trained to understand in a why there’s the big problem they need to know how an apartment runs, how apartments are valued. They need to even understand cap rates, which I don’t fully understand cap rates. And I’ve been at this for 33 years, but they need to have a general feeling for cap rates and in a way and understand that’s their mission. But yeah, I like the property manager. Then when I get when I, when I see people get above that third complex, they really need an asset manager as well.
[00:11:39]:09 – [00:12:01]:20
Sam Wilson
You define the difference. Obviously the property manager is at the property level, but an asset manager. What how does that differ, I guess, for the team, if it’s if it’s a team insider or your key hires inside of your own in-house team, I think a property manager is somebody that could be or property management could be third party.
[00:12:01]:20 – [00:12:29]:09
Stephen Davis
Yeah, I’m not objected to third party. I’ve never been real happy with them. But if it it can leverage your time and then you can move on to the asset manager and the. All right. The way I define it is the asset manager look at all the complexes or all the commercial property at the same time while a property manager is looking at one space.
[00:12:29]:09 – [00:13:00]:05
Stephen Davis
Yeah. So I think that’s a simple it’s a simple definition, but it works for me. Once I’ve got the asset manager, that’s more free time for me to go hustle the next deal to negotiate, do my due diligence and put that thing in the portfolio. So yeah, I think the first one for me is having that property manager where you can sleep at night knowing that in a way is being looked after.
[00:13:00]:18 – [00:13:33]:06
Sam Wilson
Right? No, absolutely. I love that. I love that you get a front row seat to a lot of deals, a lot of different sponsors, a lot of just stuff really across the country. I would imagine that we’re recording. Yes. April 11th, 2023. What are some things how how have some things shifted in the last 12 months? And what are some strategies maybe that you guys are changing on, especially, I guess, is it pertaining to the multifamily space? You sound like that’s what you deal with quite a bit.
[00:13:34]:11 – [00:15:02]:04
Stephen Davis
Yeah, we do. We do self-storage, we do senior living, we do some hotels, things like that. But probably 80 or 90% is apartments. The trend that I’m seeing. And it’s not a major trend, but with the interest rates being a little bit higher, there’s more people in distress situations when the government, you know, their solution to inflation was to raise the interest rate. Well, when you pick up one end of the stick, you pick up the other end. Well, they crushed the stock market. They slammed people with bridge loans. So there’s a lot of people out there with bridge loans that the interest rate has doubled and now they have no cash flow and they want to let the asset go. And there’s some a symbol. I think the last three apartment complex we bought had a symbol portions and we bought them and we assumed, say, 60%. Then all we had to finance was 20% at the higher interest rate, but it was locked in. It wasn’t adjustable. And that way we were able to turn it into a safe, secure deal where they couldn’t because they had that bridge loan. So I think that distressed property is what we’re really focusing on over the next 12 months.
[00:15:03]:09 – [00:15:24]:09
Sam Wilson
That’s interesting. And it sounds like you’re already beginning to see some of those properties come to the surface. I haven’t really you know, I’ve heard people forecast distress. I’ve heard people say, okay, you know, when these bridge loans come due, when X, Y or Z happens, then we’ll see opportunities to go, you know, pencils back up again and start buying. But it sounds like you’re beginning to see that.
[00:15:26]:01 – [00:16:32]:07
Stephen Davis
Yeah, we’re we’re very aggressive from the point of view that we understand we make money in both the up and down markets. You know, that’s the glory of real estate, man. I love it. But in this little depression, we’ll call it not a recession yet there are a lot of opportunities in Houston. One guy lost like 22 buildings. We picked up a couple of those. And I just think there’s going to be a lot more people with these bridge loans coming due and they’re not the greatest operators. So the banks looking at them going, we’re not going to refinance you. You know, you’re 65, 70% occupied. You need to sell. Well, because of our educational system and our total wealth academy, our properties are 94, which is really as high as you can get, 90 to 94%.The banks are refinancing us.
[00:16:34]:08 – [00:16:45]:06
Sam Wilson
Our how are you underwriting those deals and or getting financing on those deals if they are not 90% occupied, maybe they’re 80 or 70%.
[00:16:45]:06 – [00:17:29]:16
Stephen Davis
Yeah, we’re having a good luck. Yeah, that’s an easy one. Larger down payments. We weren’t you know, we went from 25 to 35. One of them we paid literally cash for. But this is not an exaggeration. It appraised for 23 million. We picked it up for 15 million cash. So it just depends on the deal. Sometimes we got to put up bigger down payment. Sometimes we have to pay cash, sometimes we have to have CPAs with millions and millions of dollars in the bank, you know, to get into the deal. We had one deal where the KP, it went from no deal to a deal because we put in a guy with 11 or 12 million bucks in the deal.
[00:17:30]:17 – [00:17:59]:02
Sam Wilson
Wow. Well, let’s talk about that for a second. I like I like that strategy, bringing on a key principle to help take those deals down. And I’m sure that these are long term relationships for you where they know what you do and understand how you know how the process works and have confidence in what you do. Let’s talk real quickly then, just if you don’t mind share. And how do you structure that with a key partner or a key principal on a deal like that? How do you incentivize someone in that position to come on board and do a deal with you?
[00:18:00]:00 – [00:18:31]:21
Stephen Davis
Yeah, he gets part of, let’s say that the sponsor is getting 30%. He may give the CP five of that 30% to be the KP. Well, the KP may put $1,000,000 in the deal and have like the example I gave you and still have 10 million in the bank. But his million dollars, his rate of return is going to be 40 something percent because he gets 5% of the deal plus the percentage he got for putting up the million.
[00:18:31]:21 – [00:18:34]:18
Sam Wilson
It becomes pretty easy math then at that point.
[00:18:35]:03 – [00:19:10]:00
Stephen Davis
Yeah, yeah. Being a KP, you know, people talk about it being risky. Yeah. Every first off, everything’s risky. Asking a beautiful girl out, going to the grocery, everything’s risky. To avoid risk is to avoid life. But it’s an educated risk when you know the sponsor. This sponsor had won like 15 awards as real estate investor a year from National Apartment Association, Texas Apartment Association, Houston, a bar, you name it. So it was a worthwhile risk for him.
[00:19:10]:00 – [00:19:38]:21
Sam Wilson
Sure. Absolutely. Absolutely. Thanks for taking a few minutes there to share. Just kind of you guys how you guys are structure in those because that I’ve seen it all over the map and I’d love to hear different ways different people are setting those deals upset. That makes a heck of a lot of sense. You’ve moved into the passive investing phase of your career here. Many, many years ago. What are things you are currently investing in and what are things that you are avoiding and why?
[00:19:40]:08 – [00:21:11]:10
Stephen Davis
I like just about all spaces. If I’ve got a strong sponsor, I like self-storage, senior living in apartments, the best. Most of my money’s in those three spaces. The only thing I won’t do is college towns. And I’ll tell you why. One of my good friends bought a college dorm college apartment complex, covered here, and the college added 60% more on site housing. Needless to say, that deal was sold for less than they paid for it. So that’s the only thing I really avoid anything. That’s just a normal survey as to families in residential or service, to companies in commercial. That’s where I like to keep my money, where I’m really focused on how is this particular asset helping and serving others. If it’s helping and serving families, man, that’s a no brainer. If it’s helping and serving businesses, I think it’s a little bit riskier. But if you’ve really got a good product and you can really help a business, they’re going to stay with you. So I like all I like those three the best.
[00:21:12]:20 – [00:21:30]:03
Sam Wilson
That’s fantastic. I love I love your insight there. I’ve never heard that college towns comment before and that that makes a lot of sense to me and certainly appreciate that. If there is one mistake you could help our listeners avoid, what would it be and how would you avoid it?
[00:21:30]:03 – [00:22:21]:21
Stephen Davis
Going too fast, I think is the only big one. All the rest of them are easily managed. I don’t think that anybody should move on to their next deal until the rehab is complete, the property is stabilized and you’re paying cash out to your investor. There’s in other words, it’s rocking and rolling where I’ve seen a couple of syndicators or sponsors make a mistake. They’ve got two deals that are not quite stabilized, not quite there. And they go for a third. And then all their energies towards that third one, the other two get worse. So be wise. Get your initial property stabilized and cash flowing to your investors before you pick up another one.
[00:22:22]:11 – [00:22:43]:17
Sam Wilson
That’s sound advice. And I think that would probably correct me if I’m wrong here, but that would probably especially pertain in the early on phases. You know, if you’re at oh yeah, 19, 20, 21 properties at this point in number 20 is still in the stabilization phase. You’ve probably got the team that will go ahead and ensure that 20 gets done so you can buy 21. But if it’s one, go to two or three. Your point, I would think that.
[00:22:47]:17 – [00:22:58]:08
Stephen Davis
Is yeah, I can agree with that. If somebody’s got a team, he’s got 20 apartment complexes and one or two of them are not stabilized yet, that guy can do whatever he wants.
[00:22:58]:08 – [00:23:18]:18
Sam Wilson
Right? Right. But early on that going too fast. Yeah, it’s somebody said that to me here recently. It said something. You shouldn’t be so much afraid of failure as you should be, you know, afraid of not unexpected. But, you know, the to the growing too fast. Like unexpected success. Yeah. It’s like, oh, my gosh, we’re just. We’re growing so fast.
[00:23:18]:18 – [00:23:39]:02
Sam Wilson
We’re not prepared for it. So that’s that’s sound advice. Certainly. Appreciate that. Stephen. Thank you for taking the time here to come on the show today. This was certainly a lot of fun. I loved your insights there on team building on, you know, what assets are available to marketplace, where you guys are see and risk, where you get to see an opportunity, what you love to invest in certainly shared a lot of wonderful insight here with our listeners. If they do want to get in touch with you and learn more about you, what is the best way to do that?
[00:23:43]:17 – [00:24:18]:15
Stephen Davis
You know, they can and do two things. Go to the total wealth academy dot com if they want to check out our coaching program. I also on my radio show give out my email. I love email questions. Yeah. I don’t want anybody worried about bothering me. I, I literally get a dopamine rush every time I reply to an email. It’s bizarre. I don’t know why, but I do it. Steve at Total Wealth Academy dot com. Steve at Total Wealth Academy dot com. 24 hours a day firing.
[00:24:19]:04 – [00:24:22]:04
Sam Wilson
That’s fantastic. And Steve, what is the name of your radio show?
[00:24:23]:08 – [00:24:29]:16
Stephen Davis
It’s the Total Wealth Academy Radio show and they can find out information on it at Total Wealth Academy dot com.
[00:24:30]:01 – [00:24:40]:16
Sam Wilson
Total Wealth Academy dot com. We’ll make sure we include both of those. The email as well as the link there to your website here in the show notes. Steve, thank you again for taking the time to come on the show today. I certainly appreciate it.
[00:24:42]:04 – [00:24:45]:23
Stephen Davis
Man. I appreciate it. It was truly fun and and honor.
[00:24:46]:14 – [00:25:13]:01
Sam Wilson
Hey, thanks for listening to the How to Scale Commercial Real Estate Podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
