“A young man came to my office, asking to work for me. He said ‘I’ll work for free — just give me something to do.’ Immediately, I noticed his work ethic, his intelligence, passion and that he was driven; I hired him.
“After a few months of working around the office, he posed the question: ‘Why don’t you give me a bunch of your money and I’ll go buy this 200-unit apartment complex?’
“Because of his character, I did it. This was a big risk for me, something I had never done before. About a year later, he came back to me with an 85% rate of return; I was absolutely stunned. This is what opened my eyes to passive investing. It made me pause and I realized ‘I could get used to this.’ I did nothing — he found the deal, carried it through, managed and refinanced the property, I just cashed the check at the end.”
This is Steve Davis’s Story. Now CEO of Total Wealth Academy, married for 35 years with two children and two grandchildren, Steve achieved financial freedom with real estate, and specifically real estate syndication deals.
Steve’s First Apartment Property
“My first apartment building was a small ten-unit complex in a rough area of southeast Houston, TX. Here, I truly started to learn real estate investing.
“The tenants were low income but wonderful people who spoke very little English. They paid their rent on time and took good care of the property. I spent $70,000 on improvements after I bought the property and the tenants really appreciated it.
“One grandmother gave me a hug one day when she saw me on site. Her daughter said that now that the area was so clean and well lit at night, her grandkids could play outside at night whereas they could not before. This was a life-changing experience for me and part of the reason I love real estate investing. You really can change and improve the lives of others if you know what you are doing.
“I only put $10,000 down plus the $70,000 for rehab on that apartment complex. The all in cost was only $210,000. It was an owner-financed deal with no credit check. After the stabilization period, that property produced about $3,000 in net monthly rental cash flow. Overall, there was a 45% rate of return on the $80,000 I had put into it. Just a little bit better than the stock market!
“I began to meet people in the neighborhood who also owned apartment complexes in the area. Most did not know what they were doing and were eager to sell. I bought three more complexes within a few years in the same area, all for very little down and with owner financing.
How the Syndication Journey Starts
“Once I started investing, I began to recognize that when I was getting out of bed in the morning and I had to go manage real estate, I wasn’t very excited.
“I liked the wealth that it was building, and yes, the money was motivating, but it wasn’t my passion. It was then when I made the huge decision to sell all of my real estate, and put that money into syndication deals.
“I started small and worked my way up to larger and larger deals. I eventually passively invested in over 4,000 apartment units.”
What Steve Looks for in Syndication and Vetting Sponsors
“As far as what I look for in a syndication, I’m really looking for a 20% internal rate of return (IRR) or higher. I only do value plays; I don’t do yield plays at all. I want the ugliest apartment complex and most beat up property that I can find. I want to rehab it and make it perfect. That is extremely rewarding when it comes to vetting my sponsors, also known as a syndicator.
“When vetting sponsors, one of the first things I look for is character, their honesty and integrity. The second thing I want to see is that they have a lot to lose, meaning they already own two or three apartment complexes. This is crucial because if they goof my deal up, it’ll goof their deals up. I like them to have families, good marriages, good kids, and a good relationship with their kids. This shows me that they’re balanced, they have purpose and they’re not going to burn out.
“The people that are only motivated by money, I see them burn out all the time. They’ll do two deals and they’ll skyrocket, then three years later, they haven’t done another deal because they have overworked themselves. People who are more balanced can do deal after deal.”
Accredited Versus Non-Accredited Investors
“I do deals with both accredited investors and non-accredited investors. The latter have to be ‘sophisticated investors,’ meaning they have to understand the deal.
“They have to have taken some classes on the deal. If you don’t have a million dollars, you’re not accredited, but you can take classes and become sophisticated.
“If you partner with me or my syndicators, even if you’re accredited, just because you have a million bucks that doesn’t mean you know what you’re doing. You have to take the course, have the knowledge and make yourself sophisticated as well.”
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Hardships Along the Way
I love asking people about their challenges and downtrodden moments along the way. It’s never all rainbows and butterflies, and the most successful people tend to have plenty of failures and hardships in their past.
“Coming home to a $20,000 pay cut from my full time job after winning a trip to Hawaii for a national sales contest was a big blow. I had been working 60 to 70 hours a week for five years, almost lost my wife, and needed to make a change.
“I was furious. I thought that if I worked hard for a company, sacrificed for the company, and was effective, I would be important to the company. I realized that this was just not true. I also realized that a job would never get me to my financial goals.
“I immediately started reading every book I could find on building wealth. Once I realized that 70% of the millionaires in America used real estate to become so, I started doing real estate. I bought over $30,000 worth of boot camps, videos, workshops, audiobooks, and books on real estate investing.
“Starting with bad credit and no money, I eventually was able to invest in over 4,000 apartment units. That ‘all is lost’ moment was the best thing ever to happen to me. I hope that everyone has an ‘all is lost’’ moment that wakes them up to the ineffectiveness of relying on a job alone for their income. This moment was a blessing in disguise as it propelled me toward my life’s mission: teaching people how to build a second stream of income with real estate.”
Which is precisely why we focus on financial independence/early retirement!
Plus, many apparent disasters turn out to be blessings in disguise. “I had to evict a woman that set a grease fire before she left. It burned down three units (no one was hurt). My insurance gave me enough money to rehab seven units from top to bottom. I will always be grateful to her.”
What Is Steve Doing Now?
“I am currently only doing passive investing in other people’s deals. I spend my time mentoring, teaching, and doing my radio show.”
Steve Davis is CEO of Total Wealth Academy in Houston and most proud of being a teacher and mentor.
“My wife Josie and my children were my biggest motivators for wanting to make millions in real estate. I wanted to provide everything that they needed not just to survive, but to thrive. Josie’s passion for me drove me to my success. I credit her for almost all of my success.”
Final Words of Advice
“Avoid trial and error and get educated first. Get a mentor you trust, and listen to them. Don’t waste years reinventing the wheel. A good mentor can cut decades off the learning process.”
His key message is that the secret to escaping the middle and lower class is to create passive income streams, and his passion is sharing how to do so.♦
What are your goals for reaching financial independence? What have your experiences with real estate syndications been?