Episode #44 – How To Buy Cash Flowing Properties With Special Guest Lindsay Davis

 

What is a cash flowing property, and how do you acquire one (or more)? In this episode, we dig into the strategies you need to invest in cash flowing real estate.

P.S. If, after listening, you decide to reach out to Spartan Invest, tell them Jack sent you. 😉

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Listen to the podcast here

 

How To Buy Cash Flowing Properties With Special Guest Lindsay Davis

I’m excited to announce that I’m finally offering the ability for you to work with me. Many of you or probably every single one of you reading has been thinking every day when you wake up, “When do I get an opportunity to work with Jack? That fucking guy is so awesome.” Probably, very few of you are thinking that, but I do want to give you the opportunity.

It is now open. I’ve got two options that you can finally pick my brains if you’d like to get more in-depth mentoring and coaching. You go to my website, MyIndestructibleWealth.com, and there’s a tab that says Work with Jack. Click that, and you’re going to have two options. There’s going to be one-on-one and book a call with me. If you want to book a single, “I want to pick your brain for an hour and see if I’m on the right track, bounce some ideas off you, or talk about some strategies and building my business.” However, I can serve you.

I’ve built 4 LLCs or S-Corporations, 4 different entities to over $2 million. I have fourteen different multiple streams of income and a multimillion-dollar portfolio. You that you guys already know probably all of that. I know what I’m doing. I have so much to learn, but if you want to pick my brain, do it. If you don’t, keep reading the free content and engage, that’s great too. I don’t care. I’m not doing this for the money as you guys probably are well aware.

It’s a passion project, but at the same time, I can’t do things for free like you don’t want to do anything for free either. No matter how much you’re passionate about it. Go to the website, click on the link, and follow along. You can watch a video that tells you a little bit more about the mastermind course that I’m offering.

That’s a really affordable way for you to get in-depth training on multiple streams of income, debt paydown, all kinds of real estate specific opportunities that you can do, speculation-type plays like crypto, tech stocks, and pre-IPOs, retirement accounts, fundamentals investing into you, and charitable giving. It’s a complete course that’s going to take you quite a bit further along in your knowledge of what you need to do in order to build indestructible wealth.

It’s very action-oriented and there’s a basic mindset, but it’s not just, “You need to think more positive type thing or you need to work on your mindset.” It’s that and about how you’re thinking about your strategy, and then it’s also specific opportunities that you can take advantage of and start building your own portfolio of assets. If you’re interested, hit the website, and if you have any questions on that, you can feel free to email me at [email protected] or you can hit me up on Instagram, on direct messaging. I respond to those on a daily. I wanted to let you guys know that.

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A lot of you are reaching out and asking, “How do I buy real estate?” It’s a great question and it’s a tricky answer because there are so many different aspects and ways you can go about building your real estate portfolio. When I first got started as a real estate investor, I bought turnkey properties. I went to a turnkey company because I was busy. I didn’t want to pick up a hammer or try to fix something. I don’t have that skill set. I’m awful at that. I didn’t want to do management. I wanted to buy the asset class and have its cashflow. That’s how I got started.

I do recommend still to this day that if you’re looking to get started and you don’t want to do the actual heavy lifting, get involved, and be an active investor, active meaning where you go scout properties, fix them up, hire construction graders, figure out the management, and all of that. It’s pretty tough. It’s a tough business and process to try to figure out on your own.

Turnkey real estate allows you to be able to buy properties that have all that done for you already. As you all know, I started a turnkey investment company, high return real estate a couple of years ago. I don’t know if it’s a turnkey company anymore, we certainly still do business, but we’re mostly holding our properties that we purchased. I’m bringing on a special guest. She’s running a huge organization. She’s super young and has a lot to offer in the turnkey space. You are going to be blown away by what you’re going to read from this gal. Lindsay Davis, welcome to the show. Thank you so much for being on.

Thank you, Jack. Thanks so much for having me on. I appreciate it.

I’m super excited for you to give your perspective. You’re in totally different markets than what I’ve experienced in Indianapolis. I’m looking forward to the convo. I want to serve the readers in terms of helping these investors to be able to enter into the real estate game and avoid the pitfalls that are pretty common when people go to buy into this asset class. Tell us a little bit about yourself. How did you get started in business, real estate, or background? Take as far as back as you’d like to like family, kids, all of that, whatever you’d like to share.

I started my career at Cintas, which is uniform facility services. That’s where I met my business partner and he started flipping houses, purchasing off the courthouse steps and foreclosures. He would do 1 or 2 at a time. He said, “This is something I’m going to go pursue this full-time.” He left Cintas shortly after I joined him. We moved to Birmingham from Tuscaloosa to focus on our flip on HGTV. We would stage the houses on a little bit higher-end.

This was back from 2011 to 2012 when the market is not near as good as it is now. We were suffering through those winter months, from October to February where historically, no one’s buying and no one’s even looking at buying properties. We were hurting to pay rent and all our overhead. It was he and I, but a small company and only two people, if you’re not selling properties, we weren’t making any money.

We went out and purchased a ton of single-family homes for rental properties. We started managing them ourselves. The revenue from those rental properties was paying for all of our overhead through those slower times. After a little while, we’re like, “There’s a real value that we could provide to others through these rental properties.” We knew the market and already had our team of contractors, wholesalers, real estate agents, etc. to get that process started. The transition to single-family was pretty seamless.

We started the property management company and then Spartan Invest, which is the turnkey operating company. We have continued to grow from there and right now we’re about 300 properties a year. We started a new construction company, Corinth Construction, to help meet demand with the low inventory, and sell new construction to investor clients, and owner-occupants. Personally, I’m married with three kids. We’re always at some ballpark or cheerleading events outside of the turnkey real estate.

Real estate is hands downs one of the best drivers of true wealth. Click To Tweet

It’s never-ending. Are you an on-demand Uber driver like I am with my two boys?

Yes, tips are terrible.

They don’t pay well.

They never tip.

Not even a thank you. Do you own Spartan Invest? Did you start it?

I do.

That’s amazing, 300 in a year. That’s incredible. You’ve got some systems, processes, and amazing capital partners. You’ve got the whole thing bound in. That’s no easy feat. Congratulations. Why real estate? Talk to us about the asset class. A lot of our readers don’t own properties. They want to, but I’d say most of them probably don’t.

It’s no secret that real estate hands down, comparatively speaking to other investments, is one of the best drivers of true wealth for individuals looking to plan on retirement, cashflow, good returns, or whatever your goal is. Real estate is one of the best vehicles to get you there. For real estate, we like to focus on you’ve got your depreciation tax benefits and the benefit of your appreciation.

Our markets are Birmingham, Huntsville, and Tuscaloosa in Alabama, and also Chattanooga, Tennessee. Those areas don’t see the appreciation like Southern California or New York. However, it is consistent. It’s a consistent 2% to 3% year-over-year. You’ve got a great rate of return where our cash-on-cash investors see around 7% and leverage investors are experiencing anywhere from 11% to 15% returns.

 

 The ideal investment.

There are million different reasons why real estate. It comes with its own set of risks. Anytime, I’m talking to anybody about Spartan, turnkey, and rental properties in general, I always try to make sure that I do highlight risks because no investment is without them. However, the rewards far outweigh the risks.

I did a show and said, “It’s the IDEAL investment.” The acronym IDEAL means, I is Income from the rents, D is the Depreciation tax benefit, E is the Equity that you build up as you amortize the loan down, A is Appreciation, and then the L is that you can use Leverage. When you got all of those five components cranking along, as you said, it’s an incredible way to store wealth and grow wealth. They’re not making any more real estate. It is a finite asset class. I want appreciation. We all want the asset to go up, but even if it doesn’t go up, the investment with the cashflow and the other benefits, it’s still worth it. Do you have any thoughts on that? What’s your opinion?

Appreciation is the cherry on top, so if you get it, that’s fantastic. If you don’t, it does not diminish the return for real estate. It’s still a very sound investment. I completely agree. In fact, we don’t advocate the appreciation because you’ve seen over the last few years how inflation has driven the market prices up and it’s been all over the place. the last few years are not a very good example of what your property will appreciate. For the most part, you can foresee your overall future return based on rental income, property characteristics, location, etc. It’s not 100% in the bucket or in the bank.

Tell us a little bit more about the markets that you’re in. What’s good about them? I remember one time, this guy from Alabama that I know well. People were asking him, “Where are you from?” He said, “Alabama, have you ever heard of it?” They looked at him like deer in the headlights. We know where it’s at, but what about the markets? I’m not familiar with these markets well. I’ve maybe driven through a couple of times or one of them.

There’s a lot going on in Alabama. It has a bad rep. We’ve had some investors come to visit us and ask, “Am I going to see people on front porches playing banjos?” You won’t see that. It’s not that rural. However, there has been a lot of growth in the Birmingham and Huntsville areas. Outside of the markets that we focus on, what makes a market a good “turnkey” market is where to start in looking at this. There are a few characteristics that would be an indicator of where you might want to invest. That would be a low cost of living, lower property taxes, and a diverse economy when it comes to jobs and your projected growth. You want somewhere where people are wanting to go and move to, and also work.

Huntsville is one of the fastest-growing cities in the country. It surpassed Birmingham has the most populated city in the state. There are a ton of manufacturing and other companies coming to the area. It’s got its Rocket City where NASA has put a headquarters, the US Space and Rocket Center Station. You’ve got Facebook and Google Data Centers being built. It got the Toyota Mazda Dealership, hat’s adding over 4,000 jobs in construction.

There are a ton of very well-paying manufacturing and diverse different companies coming to the area as well, providing jobs. That increases your pool of qualified tenants for your rental property. You got the low property taxes, which helps in your return. Alabama has the lowest in the country when it comes to property taxes.

What are they capped at for investors?

It is not advised to use your hometown lender when purchasing a rental property. Click To Tweet

Around 1%, if not less.

That’s incredible.

It’s insane.

Taxes make a huge difference on rental property. Some markets go up to 3% or more which hurts your returns and cashflow because that’s coming out of your net income. That’s strong. One of the good things about the markets that you’re in is that they’re not appreciating so fast. You’ve got the coastal markets, like California, New York, East Coast, West Coast, and Florida. There are still some areas in Florida that are pretty decent to buy in, but coastal-wise, no. They’ve gone up so fast that you can’t even cashflow in there. Being that you’re in these markets, the stability that you’re talking about allows people to continually have the opportunity to buy into them. Am I on track?

Yes, very much. We’re going to see a consistent 2% to 3% appreciation. You’re not going to see a jump from 15%, from one year to the next where the availability of inventory for an investor to reasonably purchased over time is very attractive and doable in Alabama, and the markets that we are in.

The cashflow then is going to be so much stronger because of the fact that they are going up 2% to 3% and the rents can keep pace with the appreciation price of the property. Can you give me a couple of deal examples, so that readers have an idea of the type of product that you offer?

In Birmingham, I can talk a little bit about averages. I feel like that’s a good point to start when you’re looking at, “What’s the average purchase price?” It may not be the one that I give, but overall, I’m probably going to see houses in the $130,000 range in Birmingham. A lot of investors, especially those in Southern California will fly all the way to Alabama to make sure that they’re not buying a shoe box in a vacant lot because you can’t purchase a property for $130,000.

They’re talking at least $500,000 minimum for that type of product.

On average that’s where we are, for a 3-2 your rent is right at $1,000, we’re about $990 on our average rent. With that, you’re going to see a little over 7% cash return. You’re going to see about 11% to 12% return if you finance that property. The majority of our investor clients will finance their properties. I don’t know how much you want to go into that, but if you have the capability, it does allow you to generate a higher return. Capital contribution is a lot less and you’re able to acquire more. You’re out the down payment then you have a tenant who’s paying off your asset, providing the equity that we talked about in your ideal investment in regards to real estate.

 

In Huntsville, our price point is a bit higher. I’ve got an example of one particular property. We call it an investment property description, IPD. We like to be different. This one is a 6-bedroom and 2-bathroom. It was built in 1964. It’s on almost a 1/2 acre, a little over 2,000 square feet. The rent on this property is $1,600 a month taxes were at $1,325 and the purchase price is $197,000. We haven’t released this one yet. If you’re financing the property that puts you right at an 11% return, whereas if you purchase all cash 7.1%.

I don’t have any real estate that is not leveraged as far as single-family homes, duplexes, or even in my self-storage syndication fund. We use bank leverage in that as well. I’m with you that it should be leveraged. You can buy more and you can amplify your returns. If the banks are willing to lend you money to buy real estate, it’s the only asset class that you can do that. Why not take advantage of amplifying returns and being able to take your cash and get more properties?

I’m 100% with you. Do you have lenders that are working in those markets that partnered with you that allow people to access easy financing? If I go to a bank in Michigan, they’re going to say, “You’re buying in Alabama?” We don’t want to touch that in case I don’t make my monthly payment then they got to take over a property.

I completely agree and I would not advise using your hometown lender when purchasing a rental property because there are lenders out there that specialize in investment properties for investor clients. We do have a preferred list of lenders that are very easy to work with. They know our business model and know where we provide their license in all the states so it doesn’t matter where you are versus where the property is. That can all be provided, but we have a list of lenders.

I completely agree. I don’t want to drop a bank or anything, but don’t go to your local lender that you may have purchased your personal property and try to purchase an investment property. You can, I’m sure a lot of them will attempt to work with you, but if it’s not what they’re used to and does not specialize in it, throws off their underwriters, and tend to require a ton more documentation, which can then because a lot more headaches.

Let’s talk about the management because I feel that the management makes or breaks the investment, in terms of not the cashflow, but the experience. It’s not a good thing to have an investment that makes decent money but is an anxiety-type terrible experience. There’s no investment that’s worth that. What can you talk about in terms of the management that you offer? What does that look like? What’s the experience been?

It’s a huge deal. If you’re interested in purchasing a rental property, whether it be from Spartan or any other turnkey provider, the renovation that they do, where the property is, and all of those things are very important. However, the property management piece, I completely agree with you is the make or break and the marathon of your return.

It’s not a sprint. You need to look at the long game when you’re looking at purchasing a rental property. The property management piece is the partner that you’re choosing to go with you on that marathon, for the investment. I completely agree. Make sure you’re interviewing and doing the due diligence and research on any property management company that you choose to go with.

Our property management company is in-house. We only manage properties that are sold by Spartan Invest. Our property management company is Atlas Rental Property. We manage about 1,500 single-family properties throughout the State of Alabama. We’re the largest single-family company in the state. Our property management fee is 9% and then we have leasing fees. Our fees are fairly standard.

Property management fees are the make or break in the marathon of your return. Purchasing a rental property is not a sprint. Click To Tweet

One of the biggest things that stand out from our property management company would be our CSM Team, that’s our client services managers. Those are the point of contact for the investor with the property management company. When we first started the company, we were interviewing investors, “What are you like in your PM company? What are you don’t like, etc.?” The number one complaint was communication that they wouldn’t know about larger maintenance bills, issues, or a potential eviction until it was too late.

Our goal and mission are to be the one-stop shop for rental property investment. We purchase, renovate, resell, and then manage the property all in-house. We are all in the same building, even though it’s two separate companies. We’re all the exact same team that is doing the renovations and managing the property. That distinction as well, when you’re looking at a turnkey provider is very important. If you want to purchase from our real estate agent and have another property management company manage it after the fact, their incentives may not necessarily be aligned.

Our client services managers are your go-to and they’ll communicate with you every month regarding your property. We have some investors that prefer to be called or some investors who’re like, “Please leave me alone until the house burns down. That’s fine. I want it to be completely passive.” We have a lot of other investors that are very active and they want to know everything that’s going on within the property.

We have that team to provide that service for our investors. Whatever level of communication or involvement that an investor wants, we can provide that which is very difficult for other property management companies to do because the margins are very slim with property management. It’s a tough business. Nobody wants to do it. It’s hard.

I’m with you. I’ve had experience with multiple property managers and it is an extremely difficult business to deal with. There are a lot of moving parts. It’s not a great way to try to make money.

It’s difficult. Anytime you add the human element to your investment and one in which your return is dependent on people, it can complicate things. As I said, it’s one of the risks and it’s one of the downfalls with rental properties as an investment.

What are the risks? We got tenants, toilets, and trash.

The trifecta. You got potential evictions and damage to the property are going to be your two items that can damage your overall return. The latest eviction moratorium hurt some investors. For the most part, our overall portfolio performed well-through COVID. However, we did have a handful of properties that took advantage and chose not to pay rent for the duration of COVID until when CDC moratorium was overturned by the Supreme Court.

We had absolutely the same thing. Mostly, it performed better than I thought. When this thing came down the pipe, I’m like, “How many are going to take advantage of this?” I was bracing for impact and it turned out that there were a few that wanted to take advantage of the situation, and that’s always going to be the way it’s going to be. What an unforeseen risk too. Who would have thought that that would have been a potential risk that we would have as real estate investors? You’ve got to remember that there are the risks that you can see and then also the risks that you can’t see coming. It’s having realistic expectations about the investment.

 

We did the same thing. We were bracing for the worst when everything shut down in March of 2020. We were in full panic and told every tenant that we had, “If you pay your rent on time for April and May of 2020, we’ll give you a discount. We’ll take $75 off of your rent.” Some incentive to try to drive people to make sure they pay. It was the overwhelming majority of our tenants. It was the ones that weren’t going to pay with or without COVID were the ones that didn’t pay. I was very pleasantly surprised at the number of tenants that continue to pay rent as usual.

What do you see happening in the market real estate market over the next couple of years? You don’t have a crystal ball, but you’re in the trenches every day. Is government printing going to continue to drive up the prices? Are we going to brace for a crash? What’s your gut or smart mind telling you?

It’s really hard. We’ve already seen a slowdown in our state from March and April of 2022 to August, where everything was flying off and prices were going over. Maybe everybody hit a wall where they were, “I’m tired of overpaying.” There was a frenzy. Our inventory is still very low. That’s going to stop any potential crash. At the end of the day, people are going to need a place to live. That’s another great benefit of real estate, while it’s not recession-proof by any means, it is recession resilient. At the end of the day, your rent may not be as high, but you’re still going to be able to find a tenant for a property because people will always need a place to live.

We’ve seen some of the material costs come down for the new construction side of our business. We’ve seen that stabilize a little bit. I am very concerned if the inflation rate continues to rise that it’ll continue to artificially push all of the market values of the properties, and continue to make them more difficult to purchase. As I said, we’ve already seen a slowdown with the acquisition of properties in our area. I wouldn’t necessarily see a crash, but I see it halting a little bit and cooling a smidge. It’s not near as bad as it was about a couple of months ago.

When you say a smidge, the property’s not going to get fifteen offers over the asking price, in all likelihood. That can’t sustain itself.

No, there’s no way. I’m glad that that has stopped because it means that people are being smarter about their purchases. Even when everything is going crazy, we are still not buying those properties that don’t fit in our model. If it doesn’t run through our calculator and spit out the number that we say we can purchase it for if it doesn’t meet that we are not buying it. We’re not going to buy stupid. That sounded mean.

I’m a lot meaner than that. Don’t worry about it. You’re good.

I’m from the South. We try to be nice.

Southern bell politeness, that’s not my jam. I’m not as bad as a New Yorker, but I’m a step below. What do you see in terms of inventory availability? What do acquisitions look like? Are you going to have a new product coming? Do you have anything right now?

What differentiates real estate from other investments is that it is a necessity for everyone. Click To Tweet

We don’t have anything right now. That’s not from an inventory shortage. We have about 79 properties under contract for us to purchase.

You’re going to reload too?

We constantly reload. We’re purchasing properties every single week. Once we’ve purchased the property, we put all the information into our IPD that I was talking about to display it for investor clients, and it gets snatched very easily. Our inventory goes very quickly. However, we have a pretty good team, with boots on the ground that work with real estate agents and wholesalers. We have the license to WeBuyHouses.com for 6 counties in Alabama, and then 2 counties in Tennessee where we market directly to owner occupants and try to acquire their properties. We have several different avenues in which we are sourcing the properties.

What else do I need to ask you that I haven’t yet? That’s one of the last questions. I don’t want to kick myself when I get off the show like, “I should’ve asked her this.”

Nothing that I can honestly think of, except for maybe a focus on our new construction as well. That’s one of the goals that where we’re going and with the inventory shortage. As I said, I don’t think that that’s going to go away anytime soon given that in Birmingham, per se six months of inventory is a gauge of whether or not the inventory is at a good point. We’re less than one month of inventory and have been for several months now.

For the inventory piece, we’re trying to accommodate that with our Corinth Construction with new builds in Tuscaloosa and Huntsville areas. It’s a push to continue to provide brand-new single-family homes to investor clients. There are several investors out there that’s going to want the price point a little bit higher to get a brand-new home, so their rent and the maintenance are a little bit higher. You’re not having to worry about maintenance for at least ten years like any heavy maintenance.

One I remember that Robert Kiyosaki said, “100 years from now, this house is still going to be here and somebody is going to be living in it. Either, they’re going to be paying rent or they’re going to be owning it.” Years from now, most of the technology companies that are here now will not be here. In a way, it’s almost an indestructible form of wealth. It could be considered destructible in terms of it can burn down and all of that, and that’s why you have insurance to protect that asset. What are your thoughts on that in terms of longevity and looking down the line holding 20 years, 30 years, or 40 years?

I completely agree with him on that. As I said, everyone will always need a place to live, whether that is a single-family home, an apartment, or a multifamily. People are always going to need housing that is never going to go away. If you can get a necessity, that is one of the biggest factors, and what differentiates real estate from other investments is that it is a necessity for everyone.

Putting that in, you say tech and a lot of these other Disney stock, or what have you, it’s not a necessity. We can continue on without it. Being able to actively invest in something that people will always need is a big factor in what makes real estate a great investment. Getting in as many rental properties as possible is the way to go, but that’s my opinion.

 

A little bit biased.

I’m slightly biased but I practice what I preach. Me and my husband have several rental properties as well.

You’re in the game, so you have to be keeping and building your own portfolio. How do people get ahold of you, if they’re interested in potentially getting some properties from you?

If you want to know more information, we have got our investor guide on our website at SpartanInvest.com. It breaks down into a lot of detail about every single market, even the ZIP codes that we’re in every single market. We’ve got a property management guy that details all of the aspects of our property management company and team. You can get all of those downloadable at our website.

Is there a way for them to be able to tell how awesome I am and that they came from this show or whatnot? How do we track that?

Yes. If you do want to talk to a Spartan any further, you can go to the contact us on the website, put in the show, and how you heard of us.

That will get you extra special VIP treatment. Thank you so much for sharing all the goods. I’m going to have you on my Instagram Story too to give a shout-out and a preview of this episode. People love my Instagram Stories because I say some off-the-wall things that are pretty funny. Thank you so much, Lindsay. I appreciate you being on. You were an incredible guest and I’m sure that there are going to be readers out there that are going to say, “I’m ready to go. I’ve been waiting for something like this.”

Thanks, Jack, so much. I appreciate you having me on.

That’s it from this episode. Stay tuned to the next one. See you guys.

 

Important Links

• [email protected]
• Instagram – Jack Gibson
• Spartan Invest
• Lindsay Davis
• Atlas Rental Property
• WeBuyHouses.com