Dave Childers on Finding Value-Add Apartment Deals in Today’s Market

Dave Childers (00:00)
What are my risks? We were coaching people to underwrite deals and stress test them, put the cap rate up. What’s your exit strategy? What happens if you can’t sell that? What happens if that five-year note comes calling? What are you going to do then?

I think more people should have done a little bit more stress testing and had multiple exit strategies.

Scott Bursey (01:55)
Welcome back to the Real Estate Pros podcast powered by investor fuel. I’m your host Scott Bursey. And today we’re locked and loaded with a guest who is a Titan in the capital markets. We’ve got Dave Childers, the driving force behind Cedar Rock Capital here to drop some serious knowledge bombs. Dave doesn’t just manage capital. He engineers growth and he’s bringing the fuel to today’s fire. Dave, welcome to the show.

Dave Childers (02:21)
Hey, thanks Scott for having me. I really appreciate your willingness to have me on and share my story. And ⁓ you you pumped me up way too much, but I’ll try to live up to your expectations.

Scott Bursey (02:32)
Dave, we are so pumped to have you here. And for those of our listeners who may not be familiar with your journey, please tell us how did your career begin and what’s your main focus now?

Dave Childers (02:42)
⁓ man, that’s a long story, but I’ll try to keep it short and precise. You know, moved here to Nashville in 2003. Road managed some Christian bands. Toured the country for a couple years. Was not going to be able to provide for a family, my family for that, doing that job. So in the meantime, I had met a gentleman out in California who kind of took me under his wing and owned a multimillion dollar business and really started partnering with him.

Buying rental property back in this has been 05 06 Buying rental property doing flip houses. We were featured on a show called flip this house on TLC No college education didn’t grow up in the business didn’t have an entrepreneurial family or dad or anything like that So yeah, I have just learned it as we went

And so a lot of my experience comes from, or most all of it, comes from actually doing the business. I always tell people, I’ve been on different podcasts, like, tell me your top 10 books or something. I’m like, I’m actually not a reader. So yeah, just practicing, doing this business over and over and over, making lots of mistakes. It’s kind of my journey, how I got started. So had a lot of good people. That’s why I love, like, you guys willing to put these podcasts together. I’m always saying like YouTube University, right?

learn so much from watching podcasts or watching YouTube or our social medias and gurus and we didn’t I didn’t have that right you had to go into like you know the bookstore and maybe grab a book that somebody read or all the conferences were $3,000 and now they’re $199 so yeah so that’s kind of my journey I’ve been doing it for you know how many years is that 20 20 plus years now

Scott Bursey (04:19)
That’s an incredible journey Dave, and let’s dive right on into what our listeners would like to know from you. What is the single biggest strength in Cedar Rock’s current acquisition strategy in your view?

Dave Childers (04:30)
I would say just experience I have. I think I can look at deals. I can analyze deals pretty quickly. I always try to teach people, like have a back of the napkin underwriting, which you can quickly go through deals and say, hey, no, I’m not going to waste time. A lot of my coaching experience, I would try to teach guys that because they’d come to me with a 15 tab Excel spreadsheet and didn’t know their way around it just to find out after hours or a week of analyzing a deal that

It just didn’t make sense. So, and just understanding where we are in the market cycle. I started this before the crash in 08-09

And so just kind of always understanding where you are in the crash or the market cycle definitely a strength But you know, you can’t replace 20 years of experience and I’d say, know I’ve got battle scars that probably have kept me from doing deals that I would have made a lot of money But it kind of limited maybe my risk tolerance a little bit So so that’s definitely a strength for me. But ⁓ yeah having you know, 20 years of knowledge here in Mill,

I know what it’s going to cost me to operate properties without thinking about it. I know how to look at the rents. I know where the markets are growing, which markets to stay away from. that’s hard to replace all that knowledge.

Scott Bursey (05:45)
It really is. The experience is so, so vital. And Dave, if someone’s listening to this and they’re thinking, hey, this is someone I’d like to partner with or learn from. What would you like them to know first about your business?

Dave Childers (06:45)
Well, the business is just me really, you know, I’ve tried I have not ever wanted to be the guy that went out there and raised You know capital from a hundred different people I I keep my partnerships very tight With people that I know and trust and have done business with now for a very very long time Not saying I’m not willing to partner with people Because people were able to take are willing to take a risk with me to partner So I’m always looking for that young ambitious, you know, I would say God

like me and I I always told people you know when I met my first partner he had money and capital and you know credit worthiness and I had no money and no credit worthiness but I had time and hustle and he was just busy doing his normal business so you know our two skills really came together or what our assets at that time so now that I’m kind of in the position where I have capital and credit worthiness I’m always looking for that

you know, next guy who, ⁓ you know, wants to get out there and, ⁓ you know.

beat the roads and find that deal. So yeah, so I think that that’s our, you what I’m always looking for and just strengthen in my current relationships with, ⁓ you know, the next generation. I was just golfing with a broker on last week and, know, I realized he’s like 20 years younger than I am. And so I’m like, okay, you were in, you know, high school when I started doing this and I want to give back, right? I’ve had so many guys, you know, mentor me and take me under their wing and teach

teach me simple things of how to calculate NLI and cap rates, right? And now I kind of am like, okay, now I need to start doing that. So that’s kind of what I’ve been focusing my time on.

Scott Bursey (08:26)
that’s wonderful. It really is giving back. And that is really what it’s all about. We can appreciate that. Dave, what is the one market weakness you’re actively hedging against now? If you could pinpoint one or two.

Dave Childers (08:41)
Yeah, Nashville’s an interesting spot. mean, it just keeps growing. People just keep moving here. And there’s a lot of locals that are pushing back against growth. And I can say locals, people who lived here four or five years, And I don’t know if you’re going to be able to stop it by regulating land use and all that. It’s just going to drive the prices higher and higher. Do there need to be smart decisions on what goes where? Absolutely.

But locally where I live, they’re pushing back on a new sewer treatment plant because apartments and.

just any kind of growth and you know it’s going to be a place where you know it’s going to end up like another type of state that you know our kids won’t even be able to afford to live here if we keep pushing back. you know politically you know ⁓ taxes right I mean property taxes you know just continue to rise you know and so I think that’s something that we always have to be mindful of.

you know, so locally that it is challenging land prices, you know, our cost per units has just drastically changed. And so for me, I’ve had to change my mindset, like, oh, I’m not going to find that $50,000 a door unit anymore, right? I have brokers like, you know, kind of give me a hard time about, you know, having to pay more. And so I’ve had to change my mind and go, oh yeah, that’s like not an $800 rental, that’s a $1,500 rental these days. And, you know, not living in the, you know,

20 years ago past when it comes to analyzing deals. So it’s definitely a hard thing to do. And the young guys, they’re ambitious. Again, they don’t have that street knowledge of 20 years of doing this.

That’s always something, and we talked about just politically, culturally, people don’t understand that affordability comes by having more rental units. As they’ve grown in certain areas, some of my properties, the rents, the vacancies have gone up because there’s just more availability, right? So there’s more availability, prices come down, and that’s simple stuff, but some people still don’t understand that concept.

Scott Bursey (10:36)
That was an excellent breakdown. you for that, Dave. And Dave, we’ve got to know, where do you see the greatest overlooked opportunity for the value add investors in the next 12 months?

Dave Childers (11:21)
Yeah, I think we’re going to be having a lot of lenders working out deals with borrowers. If you can get to the lenders prior to foreclosure. I think, again, if you’re always building relationships, you’re not going to sit behind your desk and I would say do any business. You’ve got to get out there and network and know who the players are in any industry and in multifamily, real estate, whatever is the same.

you know, having your name out there that you’re actively looking, you know, is, you know…

what you need to be doing, you know? Meeting with bankers, right? I bankers that are calling me, asking me evaluations. And I do a lot of that. Like I’ll just talk to a banker and say, hey, this is what I could pay for it. Just to give you an idea of what it’s worth. You know, if you do take it back, I’d love to be the first call. But here’s, you know, my perspective on it. Here’s kind of my thinking. I’ll walk them through my analyzing. Recently had a new construction, some Airbnb units.

trying to figure out are they long-term rental plays or should they be sold off as individual units. just trying to get you know and again I think that’s something you can do for a lender, a banker, you know just to give them an idea of where they stand on you know how much how many millions they’re gonna lose. So again I think just again just being in the market understanding where the market is is really you know that what’s gonna be your superpower.

Scott Bursey (12:46)
And you hit home on relationships. Relationships are so critical in this business, Dave.

Dave Childers (12:51)
Yeah, absolutely. mean broker relationships, right?

Property management. mean, those guys know who’s going to be selling, right? Sometimes I get a call from a property managers and they still tell me, this, you know, our sellers or our owners are thinking about selling. We actually own a construction business that works on apartment buildings. So there’s that, you know, just being, you know, neck deep in the industry in any way you can. I used to get the calls when I was a broker, multifamily, and somebody would be trying to describe a property without actually telling me where

it is and they wouldn’t tell me the exact units and I was able to go, oh, I know, you know, Joe that owns that in this town and that many units. And they’d be like, how do you know that? Cause that was my job, right? Was to know everything that was selling, you know, where the rents were. Um, you know, I love, one of my, biggest things I try to coach people with is get the, the, the broker’s documents and just read through them, get the OMS and just read everything to understand the market. Even if you’re not interested in that property.

Go on loop net go on those just request the information They love sending it to you it makes them look good that they’re they’re sending that stuff out and just go do tour properties if you’re not inconveniencing them and just just immerse yourself in that market know everything where people are working where they’re going to the grocery store where their kids go to school just everything you can know you know knowledge is power in that sense and You know the more of an expert you can become in a market, right? And you can’t you can’t

be trying to do that in Kalamazoo, Michigan and Florida. Just pick a market and just immerse yourself in it.

Scott Bursey (14:29)
And speaking of markets, what’s your strategy for your local market for let’s say the next 12 to 18 months Dave?

Dave Childers (14:35)
Yeah, I mean, I’m always open to more markets. I have done stuff outside Middle Tennessee. I think as kind of I get older, I’m not that old. But you know, I kind of want to keep stuff close to home just because I know it. I’ve got such a fantastic property management company I team up with that, you know, I just really trust them. I really want to find properties that they will manage ⁓ because there’s been such a good relationship there. And if I could just buy it, put the pieces together and then

hand it over to them, you know, they do a fantastic job. So definitely Middle Tennessee, but with that being said, deal’s a deal.

So if it’s in another market that I, you know, had to do my research on, I’m definitely open to more markets. I’ve invested in Florida, but you know, obviously over the past couple of years, Florida has just been crushed with insurance costs. So I was glad to get out of that market before that happened, but I’m in Tennessee, Northern Alabama, you know, I always coach, try to like be a day’s drive max from your property. Cause I helped a lot of people from California,

when

you buy in Nashville back 2010, 2012, and they weren’t, or actually prior to that, and they couldn’t just drive by their property. They would have me drive by it because they’re 24 hours driving away, and they just don’t know. I would walk their property and say, hey, did you know that you don’t have a rent-ready unit? That’s why you can’t rent it, or there’s a tree fallen on your property, and we coach people managing the manager, right?

you that this is a mailbox money business, they’re a liar. There’s no such thing. You have to be managing the management company and that’s hard to do when you’re a flight away. I would do, I go to my properties unannounced, right? We make unannounced visits and I think that’s an important thing. Not because I don’t believe them, but they just need to keep on their toes and so.

obviously being able to drive by your property and not get on an airplane and show up to your property is a whole lot easier. So I don’t know where we started that question, but that’s my answer.

Scott Bursey (16:35)
Okay, awesome. And now Dave, it’s time for the money question, the secret sauce, if you will. What is your recipe for successfully raising and deploying large amounts of capital? Our pros need to know.

Dave Childers (17:31)
long-term debt. think that’s, I’m pretty, it’s funny, I’m gonna say I’m risk-averse. Most of my friends would be like, no, you’re not, you’re buying.

million apartment buildings, I’m sight unseen some days. But yeah, I mean just having a good operation, right? I think there were some other podcasters that talked about buy right, finance right, you know, I think that’s kind of probably why we’re in the cycle we’re in right now is guys getting short-term debt, right, and not locking in, you know, on true value add and not foreseeing that the market, you know, was not going to continue to go

up and cap rates were not going to continue to go down and interest rates were not going to always stay where they were. know, like I said, 20 years of experience, we saw people doing this in the single family home market thinking prices were just going to continue to rise over the years. And then finally we had a correction. And I think the correction we’ve had is obviously cap rates, interest rates, insurance rates, cost of operating apartment buildings. So

So yeah, I’d say, mean, again, my superpower is not raising millions of dollars of capital. I have not done that. Have I raised money? Absolutely. So if somebody was to say, Dave, are you a syndicator? Absolutely not. That’s not what I’ve done.

But I have partnered with people and again, I think you’re always having to have a crystal ball and look at the future.

What are my risks? We were coaching people to underwrite deals and stress test them, put the cap rate up. What’s your exit strategy? What happens if you can’t sell that? What happens if that five-year note comes calling? What are you going to do then?

I think more people should have done a little bit more stress testing and had multiple exit strategies.

And I think that comes back to, if you wanna talk about capital, like qualifying your capital for that. So I would love to sell it in five years and give you this X of a return, but if that doesn’t happen, this is what we’re gonna do and your money might be parked for a long time. I think that’s the, I’ve always looked at multifamily

investing

is long-term wealth building and a lot of people in the recent years and they’ve made tons of money. Look, I can’t deny that but have turned it into a house flipping business and just like everything people got stuck with their hand in the cookie jar. So I have not, I have always, I want to have generational wealth that I can pass to my children or nonprofits but that’s kind of how we’ve, if you hear me on other podcasts, I talk

about a slow cooker, right? I can talk about, you know, planting an orchard worth of fruit trees that are now, you know, bearing fruit for me to live off of. And some people just treated it like a, you know, buy sell. Would look at me and honestly go like, man, you missed this one. I was like, well, yeah, because I don’t think that way. I don’t think about buying and selling like in three years. And maybe my thinking has been wrong, but this is the way I’ve done it. So.

Scott Bursey (20:27)
that was an excellent breakdown of playing the long game. And I totally agree. Dave, this has been an absolute masterclass. You brought some serious fuel to the conversation today. Thank you so much. And before we sign off, go ahead, Dave.

Dave Childers (20:40)
Well, thank you. mean, we, yeah.

I gonna say, I love to talk about this stuff. It gets me excited. I was just on the phone before the podcast to say, man, I I get excited. You know, I think when you know something and you just, do enjoy it, right? You know, I’m teaching, I’m trying to teach my kids, like find something you enjoy, not maybe love, but just enjoy, you know, and I just, love running numbers. I love talking to managers and I think it comes down to personal, like, you know, my saying, I’ve done this, I’ve been on another podcast like 12 years ago and it was like,

Clean, functional, affordable has been, I want to provide that for my tenants. I think it comes back to my college years of living in the worst house they could imagine. think that the landlord was a criminal and I don’t want to be that way. I want to provide clean, functional, affordable homes to people where they can raise their kids and hopefully they don’t last. I never have a plan of tenants living with me forever. It’s a temporary place.

they’ll move on. But you know we’ve seen children grow up in our apartments and you know I have a respect for the hard-working people who ⁓ you know pay the rent on time and I provide you know like I said clean functional affordable housing.

Scott Bursey (21:56)
and your passion certainly shows. Thank you so much. And before we sign off, I always like to make sure that our pros can connect with the best in the business. So for those of our listeners that want to follow your journey or collaborate with you, what is the best way, Dave, for them to reach you?

Dave Childers (22:12)
Yeah, I mean just email me at [email protected] You know, give me a little bit about you and a contact number and ⁓ you know, I’ll reach back out but it says [email protected]

Scott Bursey (22:25)
Dave, thank you so much for being here with us today.

Dave Childers (22:28)
Well, again, Scott, we appreciate guys like you who are willing to put all this together, to put these podcasts together. And I know you’re a wealth of knowledge and you’ve had great guests in the past. so I always it’s way too much work for me to do it. So I appreciate guys like you that put it all together and, you know, are continuing to just keep the knowledge and education coming to all of us.

Scott Bursey (22:55)
We appreciate your kind words Dave and for our listeners. If you receive value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests just like Dave. We’re making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode everyone.