If there is one thing many successful investors know about this industry, it is that real estate is not a get-rich-quick game. Instead, it is hard work and paying your dues, even before reaping the rewards. But just because it can be tough doesn’t mean you should stop starting a business in real estate. After all, won’t the challenges make the successes even sweeter? In this episode, Sam Wilson is with the co-founder of Spartan Invest, Lindsay Davis, to talk about Lindsay’s journey from flipping houses to selling rental properties. She shares what Spartan does to help other investors sell, what building their team and management looks like, and what are keys to successfully launching a company. Join this conversation as we go deeper into Lindsay’s story of building her business into what it is now.
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Starting A Business In Real Estate Selling Rental Properties With Lindsay Davis
Lindsay Davis cofounded Spartan Invest and has led the company to be ranked on the Inc. 5,000 fastest growing companies in the country for eight consecutive years. She’s a Millennial entrepreneur and also played an integral role in creating five brands and four companies and generated a combined revenue of $50 million. She’s been awarded numerous honors and titles, Birmingham’s Top 40 Under 40 of the Decade, CEO of the Year and Female Executive of the Year. Lindsay, it’s a pleasure to have you on the show.
Thank you so much. It’s a pleasure to be here. I’m excited.
There are three questions I ask every guest who comes on the show. Can you very quickly tell us where you started, where you are now and how you got there?
I’m originally from Georgia and moved to Alabama to attend the University of Alabama Roll Tide. After that, I stayed in Tuscaloosa and started my career at Cintas, a uniform and facility services company. I was a management trainee there and worked there for about four years. That’s where I met my business partner and that’s when we both left Cintas and started Spartan Value Investors. Spartan Value Investors was strictly real estate investing, but we were flipping houses, very HGTV, flipping properties to owner-occupants. This was back in 2011 and 2012 where the market was nowhere near where it is now.
It was pretty rough. During the winter months, Q3 and Q4, that time of year was tough on us in closing properties to owner-occupants. We went and purchased a ton of rental properties. The income from those rental properties was helping pay all of our overhead and payroll. You start a company and you’ve got two people. If you don’t sell a property that quarter, you don’t make any money. We were riding the struggle bus pretty hard. These rental properties were keeping us afloat during the months that we were unable to close properties.
That’s when the concept for Spartan Invest came to. We’re like, “We can sell these rental properties to investors.” We started the turnkey portion of the company and the property management company as well at the same time and started selling rental properties to investors. We started selling them all over the country. Now, we’ve got clients all over the world that we will purchase, renovate, rent their property and then sell it to them and continue to manage it after that. Essentially, your one-stop shop for real estate investing in single-family homes.
Long-term growth in single-family homes is to protect the management piece of it.
We’ve talked to a few people on this show, not many because we typically focus on commercial real estate, but this is fun because we get to hear the founder from the ground up, like how you guys did this. You came up with the idea, but it’s one thing to have an idea and it’s another thing entirely to say, “Let me find a buyer.” How did you guys even market for the first buyer and get that idea to show that it had legs?
It was tough. Unfortunately, in the State of Alabama, we’re sitting here looking at the numbers and it’s like, “Wow.” We’re buying this property for $80,000 and we’re running it for $900 a month. This is serious income. Nobody knows about this. We felt like we were screaming from the rooftops because Alabama had a very negative connotation that we could not get investors interested. There’s another turnkey company.
There are not that many that do a larger volume, but we were recruiting one of the sales consultants. Within that company that’s outside of Alabama, it’s like, “Where are you getting these investors?” Everything like that. She joined our team and we were able to work directly with referral sources. Wealth advisors would give you tax strategies and passive income ideas. They would recommend turnkey real estate and then refer them to Spartan. For several years, we were flying investors out to Alabama doing Birmingham tours, taking them to properties, paying for their trips just to come, meeting our operation and the team, and seeing the properties’ numbers. It snowballed from there.
A labor of love in the beginning that a lot of people probably missed is getting those things done. One of the things you said working with referral sources was talking to money managers and people like that that maybe had clients looking for places to put money. One of the challenges I’ve heard in doing that is that either, A) If they’re with a big shop, they can’t advise outside investments, or B) Establishing the track record to make that money manager confident in what you’re doing and also getting them compensated. How have you overcome both of those hurdles?
Those heavily regulated by the SEC have stricter guidelines, and they can’t necessarily refer clients to us. That’s been a challenge that we continue to face. However, the other wealth strategists working with clients had our referral sources do the same thing we were doing with our investor clients. They were like, “Come out here, let us show you the properties, the renovations, the market in general and see what’s all happening.”
We’ve been very fortunate that the markets in Alabama have taken off in the last couple of years. I know everyone has heard all of the manufacturing and big companies coming to Huntsville. It’s one of the fastest growing cities in the country. It surpassed Birmingham as the largest city in the state and its rapid growth has gotten a lot of attention.
As far as Huntsville and its massive explosive growth have helped us sell Alabama, we haven’t had to focus necessarily on that as much. The price points and turnkey real estate in general has become very much attractive in the last few years. A lot of those hurdles we’ve eventually overcome with the growing popularity in alternative sources of passive income.
I love that. You always want to ride the wave if you can. That’s the founder story that I love. I was speaking with someone else who also was in the turnkey business. He goes, “I slogged it out for eighteen years.” He goes eighteen years. “It wasn’t in the last 2 or 3 years that we had meteoric growth.” He goes, “That’s the way wealth is built.”
That’s a reminder to all of us that this is not a get-rich-quick game. This is work. Work hard, you pay your dues and you can reap the rewards from it. Once you guys got the turnkey model down, you got the assets you were buying. You get your pipeline full of assets coming in and get your system in place. What was the next iteration of the company? Talk to us about the future.
The purchase, renovation, and building the team are essential, especially when you’re talking about that most of our investor clients are from out of the state. Most of them are from Southern California, Hawaii and New York. Building that team that will handle the asset with trust and care for our investors is important.
The biggest hurdle that I know that many other turnkey providers struggle with, is having internal property management. What you’ll hear a lot of other turnkey companies are like, “We partner with a property management company.” Once you’ve purchased the property, they hand off the management to another company. There are a couple of reasons for that. There’s not a lot of money to be made in property management and property management sucks.
It’s terrible. It’s hard work. You have to deal with a lot of insane incidents. We should have a show for all of the crazy things that we hear on the property management piece. It’s difficult. It’s a hard business to be in. That’s another reason, but we feel like that is the best way to protect our investors. Long-term growth in single-family homes is to protect the management piece of it. Our property management company is not set up to be the profit center for Spartan.
Our property management company is set up to help Spartan sell properties. We’re not up charging on all of these maintenance fees when we have a turn, when a tenant moves out and if we have to handle the eviction of a property, which comes with a lot of extra labor. We’re not up charging the investors on that.
We’re able to renovate the properties by focusing on your large CapEx items. We’re doing water heaters, HVACs, Newton roofs, and all of those things that will keep the property’s long-term maintenance down as much as possible. Our property management company is able to protect that and the incentives aren’t aligned.
If it’s the same building that if a property gets released and it something’s wrong with it or we miss something on the construction side, my director of property management is walking right up the stairs. They are getting on our construction manager as far as, “Look at this property, you need to send the contractor back. We missed X, Y, Z.” Those types of things aligned the incentive that all benefits the investor.
That’s interesting because I’ve commonly heard that property, especially in the single family-side, the property management and the investor have misaligned incentives. You get paid on a turn in a unit and it’s like the investor is losing out and property management company is making money, “There are repairs and maintenance. We’re going to do that plus 20%.”
The work ethic speaks more to success than anything else.
All of a sudden, you start stacking them all up and you go, “We have totally different objectives here. You make money when I lose money and I make money when you don’t make money.” That’s a unique approach there. You brought in-house property management in. What else have you guys done?
We also started building new construction homes to both sell to owner-occupant and sell as turnkey rental properties as well. In this way, we’re able to offer a little bit more diversity to invest our clients. Some investors would rather pay a little bit higher price for a property to have it brand new, keep that long-term maintenance down, and get the home warranty and the rent a little higher, so our turn rate or eviction rate is a bit lower for our new construction properties. You got a little bit bigger pool of qualified tenants that can afford the higher rent. There are different pros and cons to both, but being able to do both in-house and then continue to manage them in-house helps offer our investors a little bit more diversity while building their portfolio.
You guys are GC-ing the build to rent entirely in-house.
We started in 2019 with a few properties that we had and outside home builder build for us. It was good, but we thought that we could control the process a good bit more if we brought it in-house. At the beginning of 2020, we decided to start a new construction home, not knowing that COVID would happen and building supplies would blow up. We went ahead and started the company and we’ve been building since June of 2020.
Give us some keys to the success of launching not just the company in general but, more specifically, adding on different layers to your business.
The keys to success without sounding extremely corny and saying the obvious is you have to work hard nose down and push through it. Property management and construction are hard industries to be in, dealing with outside contractors, maintenance techs and tenants. It’s a difficult business. It’s one of the reasons why those two industries along with the restaurant industry, have the highest turnover out of any other industries out there. A reason why is because it’s tough.
Sometimes, you got to grit your teeth and get out there. I’ve had to jump in as a construction manager or construction supervisor. Getting your hands dirty is probably the best way to push through. Nobody has a crystal ball, so I can’t even say that we could predict the future, but the work ethic speaks more to success than anything else. I don’t have a magic key or anything like that. I wish I did.
When you look at adding a layer to your business or adding on a new line of business, how do you go about strategically tackling that such that you don’t just add yourself another job? What are some things you guys plan out? How do you forecast what it’s going to take to add that person? What do you do as far as designing a job description? How do you handle hiring? What are some those things that you say, “This is how we do this such that we don’t make this more challenging that needs to be?”
That’s one of the biggest struggles with any small company as they grow, when to bring on and add labor and what does that need to look like. We’ve done a good job in positioning every person we bring onto our team and train. We let them know and it’s like, “We’re a rapidly growing company. This is the job now, but it might change in six months, just a heads up.” No joke as we tell everybody that upfront and that, “This is the need right now.”
We assess the need by our geographic footprint. One key factor that a lot of people might not take into consideration is that, “If you’re looking at the volume of miles that we have to travel in order.” Alabama is a pretty big market and we’re in rural parts of Alabama, so you have to take that into consideration. Dollars and cents at the end of the day, it’s like, “Can you afford to bring on this person? This is the need, but do the numbers work? Do the numbers make sense?”
We try to take a more quantitative approach when to hire and when not to hire. Outside of that, we still do warn everybody, “This is the need. We know that we need this person, but it might change.” We might get in there and be like, “I probably need you to do this now.” We’ve gone from 3 employees to 55 in the last couple of years. There’s been a lot of that. The type of person that we target for employment is somebody who is adaptable. That’s not everybody. We’ve had people that are like, “I don’t like change. I like to come in and know exactly what I’m doing, so this isn’t for me.” We try to head that off at the get-go.
Another key component that I probably have not heard much about on this show is that finding that adaptable personality. Not everybody can deal with that, which is fine. There’s a job and a position out there for that person, but when you get involved in these early-stage companies, you’re going to wear a lot of hats. Being comfortable switching hats is a valuable skillset. How do you guys test for that other than saying, “Can you wear a lot of hats?”
We have a couple of assessments that test the multitask function and have the conversation upfront to that individual. We don’t necessarily hire on the experience. In fact, our controller and construction manager are the only two people that we’ve ever hired and required to have that type of experience. We’re hiring the right person and we’ll teach you how to do the job the way that we wanted done. If we were trying to hire somebody with a specific turnkey real estate experience, I don’t know that we would ever hire anybody.
It’s not a widespread transferable industry, so hiring the person and the culture fit is far more important than hiring the experience. Having the conversation upfront about, “This is the company. With your ability to change, there are also so much opportunity for your professional growth and development.” We are able to offer that as well to people coming on. It’s finding that person that wants to grow in their career and take on more responsibility, but also be adaptable at the same time.
If you rewind eight years, what are some things if you could do them differently, you would do differently?
That is tough because I feel like every mistake we’ve made and every issue we’ve run into has made us better. For example, when we started our property management company, we benchmarked with other property management companies about what they’re doing and what their business practices are. We took surveys to investors, “What do you like about your property management company? What do you not like? What are your biggest issues?”
We found one thing was leasing and that everyone was moving towards the electronic boxes and self-showings where you do it on your own schedule. The tenants were not responding well to that. They still wanted somebody to physically walk them through the property. That’s what we did. We were bringing on licensed real estate agents because in Alabama. Even to lease a rental property, you still have to be a licensed realtor. We were having our real estate agents show our properties around. Our occupancy was the best. It was the highest of any other property management company that we benchmarked with.
We hit a higher growth and weren’t able to scale the bodies as fast as we could scale the properties. We didn’t realize that until it was almost too late. We were having an issue getting the leasing side of it caught back up. We were taking care of our investors. We were paying a lot of rents for investors. It’s like, “We’re going through a transition and a growing pain right now, so bear with us. We’re going to get you taken care of and revamp our leasing department to where we offered both.”
We brought on more leasing agents and offered the self-showing lockboxes, then COVID happened. We were already set up for the eBoxes for the self-showings and stuff. I look back and think it’s like, “If we didn’t have that bad leasing year in 2019, we would have been completely hosed.” It was those mistakes I wish I could have gone back and foreseen that that would have been an issue, but would we have been able to revamp and adapt the way that we were? I don’t know.
I’ve always heard, “There are no failures, only feedback.” That’s pretty great. Let’s jump here into the final few questions, Lindsay. Here’s what I got for you. On the topic of mistakes, if you were to help a passive turnkey investor avoid one mistake doing a passive turnkey investment, what would it be and how would they avoid it?
It would be the due diligence on the property management piece. I can’t stress enough that I often feel investors, especially when they come to us, want to know everything about the property. They want to know when it was built and when you added that addition. Even before we ever owned it, they want to know every little thing about it. What do the neighbors look like? What is the zip code? Where’s the school? They’re very focused on the actual property and that’s important.
You want to take care of the asset, but at the end of the day, your property will perform all vies with the property management company. Do the due diligence in the team that you choose. Ask the questions you want to know, “What’s your occupancy? What’s your maintenance ratio? How long does it take you to address maintenance issues? What is your AR? What’s your eviction rate?”
If they cannot answer those questions, that means they’re not tracking it. If they’re not tracking it, how are you going to accurately project how your property is going to perform? You can’t, so doing that due diligence on the property management piece, I can’t stress enough. The biggest mistake that I see first-time investors making is they could get too focused on the actual property and not the property performance.
The biggest mistake first-time investors make is they get too focused on the actual property and not the property performance.
That’s great because it’s the same thing we say even on large commercial deals. It’s who you invest with, and the deal is the last part of the equation. It’s the least important piece. I would not have thought about it from that angle because the property management company is who you’re investing with. They’re the ones running the show. If they’re doing a crappy job, you’re going to get a crappy return. That’s the way it is. I love that. Next question for you, when it comes to investing in the world, what’s one thing you’re doing now to make the world a better place?
We do a couple of things every year. We’re very invested in helping our markets in Tuscaloosa, Alabama, Birmingham, Huntsville and now Chattanooga, Tennessee. We’re always looking for areas to give back. We’ll be participating again with the Habitat for Humanity. We build houses for our investor clients, but we also participate in building houses for Habitat and allowing those that may not be able to afford their own home, we’re participating in this and then the Salvation Army. We’re in the process of doing our Angel Tree. We’ve adopted 93 children in the Birmingham area and so far, our company has on our team is very passionate about that.
During COVID, we did food drives and we had our leasing agents take the food around to houses that had signed up and registered that were not getting school lunches. We found that it was a big need when they first closed schools down. We did a couple of food drives and had our own team take them to homes and to areas to food banks that needed it. We’re always looking for opportunities to be involved in the markets that we do business in.
Lindsay, if readers want to get in touch with you, what is the best way to do that?
The best way is to visit us online is at SpartanInvest.com. In February 2022, we are holding our annual Spartan Summit. If you want to hear more and you want to meet us in person, you can join us for doing Birmingham tours and Huntsville tours. We got great speakers. Our keynote speaker is Daymond John from Shark Tank.
We’re excited to have him in Birmingham talking about investors and the mindset and jumping into the tank. We’ve got lenders and accountants to give you one-on-one information on how to set up your portfolio. It is tons of information. It’s going to be a lot of great content in February 2022. If you want more information on that or want a chance to meet us before deciding whether or not to purchase a property, you can get more information on our website at SpartanInvest.com.
Lindsay, thank you so much. This is great. I do appreciate it.
Thanks, Sam. I appreciate it.
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About Lindsay Davis
Lindsay co-founded Spartan Invest and has led the company to be ranked on the Inc. 5000’s Fastest-Growing Companies in the country for 8 consecutive years. She is a millennial entrepreneur and has played an integral role in creating five brands and four companies, generating a combined revenue of almost $50 million. She has been awarded numerous honors and titles, such as Birmingham’s top 40 under 40 of the Decade, CEO of the Year, and female executive of the year.
