How Steve Davis Is Buying Houses With $30K–$100K in Equity

Stephen Davis (00:00)

I think you’re gonna have some that do it because they get greedy, they want a higher cash flow to show to their investors. they’re gonna do it, but that’s high, high risk. So I’m telling my syndicators, pay the fees, get those fixed rates, and I’m not getting any pushback from them because they’ve seen their own deals get slaughtered by the adjustable rate mortgage. So

I think that it’s very dangerous Just stay away from those adjustable rate mortgages if you can.

Dylan Silver (01:04)

Hey folks, welcome back to the show. Today we’re joined by Steve Davis, mentor and investor in the Greater Houston Metro. He’s also the founder of Life Wealth Balance Academy. Steve, thanks for joining us here today.

Stephen Davis (01:17)

Thanks for having me.

Dylan Silver (01:18)

What types of deals and activity are coming across your desk these days?

Stephen Davis (01:23)

Well, just about everything when it comes to commercial, we’re seeing, but in lower numbers. I’m seeing a lot of apartments that their notes are coming due. So they’re putting them up on the market. I’m seeing some self-storage, a little bit of senior living. But the big one right now for me happens to be single family.

We are buying more single family right now than we have since the recession. And we’re buying them picking up $30,000, $60,000, $100,000 equity on every single one of them. So I’m seeing a lot going on. It’s just as far as diversity, but it is a lower number on the commercial side.

Dylan Silver (02:06)

When we look at single family specifically, is this driven by financial instability in the part of sellers? What do those conversations look like?

Stephen Davis (02:15)

Well, almost all of the single family we’re buying has massive deferred maintenance. These people just didn’t take care of their homes and now it won’t sell. Many of them won’t even qualify for a mortgage. They’re in such poor condition. So we’re picking them up. and I know some people in parts of the country are gonna go, you guys don’t have two hundred and fifty thousand dollar houses. Yes, we do.

but we pick up a $250,000 house for $110, we put $60,000 in it, make it perfect, new roof, new AC, new bathrooms, new kitchens, new flooring, paint, make it perfect. And depending on how much equity is in it, we’re gonna either rent it out or we’re gonna flip it if there’s too much equity sitting there. The other side of it is of course, divorce,

Death in the family. there’s a few of those around as well, but the big one is deferred maintenance.

Dylan Silver (03:06)

is this a combination of inbound and outbound or these referrals, are these deals finding you? How do you come across these sellers?

Stephen Davis (03:13)

We look for them. a lot of times it’s just driving for dollars. You go, you drive through a neighborhood, you look for a property that’s being neglected, the tall grass joke. if nobody’s mowing the lawn, it’s abandoned or neglected house. we have a lot of professional wholesalers that bring us deals. But yeah, we find the majority of them ourselves and then from wholesalers.

Dylan Silver (03:36)

Now, when you’re underwriting these deals, of course location matters, but you’re also talking about heavily distressed properties themselves, scope of work comes into play and the complexity of the renovation there. do you see at all some instances where there’s just so much work that needs to be done that you’ll pass on those properties? Or, if there’s equity in the deal, you’ll buy it whatever state that it’s in.

Stephen Davis (03:59)

Yeah, nothing scares me. Foundation, AC, roof, nothing scares me on a house, but the numbers have to work. I’ll be in negotiations with people and they’ll hit me with a number that they want. And you’ve just got to look them in the eye and go, How could I possibly do that? Can you show me how I could pay you that and still make a profit? And they can’t. So

You’ve got to walk away from a lot of deals. But if there’s equity or there’s cash flow or both, we’re going to do it. I don’t care how much rehab there is.

Dylan Silver (04:31)

Now you mentioned driving for dollars. in Texas in particular, there’s so many ways to find distressed properties You’ve got driving for dollars, you’ve got wholesalers, direct mail, you can do digital methods of lead magnets pay-per-lead, pay-per-click, You’ve got other avenues as well, such as the Roddy Report and foreclosure auctions.

Is there any one preferred method, either any of those or something else that you have for single family acquisition?

Stephen Davis (04:59)

I think if you were to say the preferred method would probably be the one that brings us the most deals. And that’s the wholesalers. These guys go out there and gals and they work the system. They’re doing the direct mail. They’re looking at the foreclosures. They’re going to the courthouse steps. They’re getting those deals and bringing them to us. So that would be the number one source. But I think people need to keep all sources open.

Because you can’t run your business off of any one source, in my opinion. If you’re trying to pick up, say, twelve houses this year, you need all sources working, all cylinders firing.

Dylan Silver (05:37)

Now, working with wholesalers is sometimes challenging, right? you do have to underwrite the deals yourself. And if you have a relationship with a wholesaler, you maybe understand how they underwrite deals, but no two deals are the same, no two sellers are the same. There could also be issues with title and so forth. When you’re working with wholesalers, are most of that administrative paperwork element, those title issues, are they

wrapped up by the time they get to you or will you sometimes see issues where there may still be issues with title or with the seller and so forth?

Stephen Davis (06:48)

It’s not unusual for a seller to lie to a wholesaler and say, yeah, I don’t know anything. I don’t know child support. I don’t have any other liens and things like that. But as soon as it goes to title, you find that stuff real quick. So I would say out of the last 10 or 20 deals I’ve done, only one of them had a problem like that. And that was he had not paid his child support. As soon as he paid his child support, we went ahead and closed the deal.

Dylan Silver (07:15)

Fix and flip, buy and hold, short-term rentals, midterm rentals, right? there’s folks who are putting ADUs onto properties, although that may be somewhat less common actually in Texas. and then you have folks who are doing small multifamily, and you’re involved in commercial, folks who are buying, tiny homes and putting them on land and so forth. Is there any one of these, we’ll call it deal structures or asset classes that

you personally are interested in or you’re seeing more deal flow in them.

Stephen Davis (07:43)

Well, I stick to single family long term rentals, year leases. I don’t like short term leases. I’ve got a friend who’s got forty-two and they’re phenomenal. they’re beautiful. They’re in Austin, Texas, in the hills. But at the end of the year, his cash on cash rate of return is about the same as mine. But I didn’t do all that work, laundry, all this other stuff.

one year lease is my favorite. Then I like the small apartments. pick a favorite. Man, that’s rough. I think you need to do all three. My most successful students have a combination of single family and passive apartments or self storage, senior living, whatever.

They have, say, thirteen or twenty single family homes, but they’ve got five or six passive investments as well.

Dylan Silver (08:31)

when we look at the apartments, and I want to differentiate this from those single family investors for a moment here. In many cases we see people quote unquote graduate from single family into small multifamily and then small apartment complexes, then maybe larger deals. But we’re talking about being able to do both, operating in both areas.

Is that a type of mentality, type of person who’s going to be open to doing both and to having their hand and multiple fires so to speak, I don’t want to say multitask, but on some level be able to do both simultaneously?

Stephen Davis (09:07)

Well, remember what I described. They’re active running their twenty houses, say, but they’re completely passive. They’re in a syndication in their apartment complexes. Now, there are the top of the top students, they’re in both and they manage both. Take Frank Haydn. I think he has four apartment complexes, 100 to 200 units each.

But he’s got 13 or 14 single family homes as well. but he manages all of that himself. Now, you ask the question, what’s the person like? You’ve got to have a burning desire for success to pull that off. And the thing about Frank is he’s extremely balanced. In other words, he’s working out three or four days a week. He’s spending time with his kids, he’s romancing his wife, he’s running his business, he’s

involved in the community. And I think that’s why he’s so successful because I got unbalanced once. And I was just work, work, work, work, work. And my productivity started to go down. Even though I was working more, productivity was going down because I got unbalanced. So it’s going to be a balanced person and someone with a burning desire for wealth.

Dylan Silver (10:20)

Life Wealth Balance Academy. It’s in the name, right? Walk me through how this came about, how the Academy came about.

Stephen Davis (10:27)

Well, I’ve been a mentor for about thirty-five years, and I actually started teaching when I was just a wholesaler. I was teaching other people how to wholesale. And then I started doing flips and I started teaching flipping. Then I started doing single family rentals, had about a hundred houses. I taught single family. Then I started buying little apartments, 10, 20, 40 units. I started teaching that. And

I think I have to give credit to a book. It’s The 7 Habits of Highly Effective People by Dr. Stephen Covey. I was heavy into that book, and I noticed that the real estate investor clubs were just teaching people how to make money, but not teaching them how to design a life. So what I wanted to do was incorporate the seven habits into a real estate investor group.

Also incorporated Tony Robbins’ teachings. And that was really how it came. If you look at our logo, it’s eight-sided. One of each of those sides represents a different part of a balanced life: family, romance, fitness, charity. And we focus on

Staying balanced while building wealth and keeping out the idea that money solves all your problems. In fact, money just creates a different set of problems, And I like Tony Robbins’ comment. He goes, Look, I’ve got more problems now than I’m rich, but I ride in a limo to my problems now. Well, it’s the same for me. I take a Ferrari to my problems now, they’re totally different.

building wealth does is give you higher quality problems. So it’s very difficult for some people to build wealth and maintain a balanced life.

Dylan Silver (12:09)

I’ve seen this on the show, I’ve seen this in person, especially when I was living in D F W.

Flippers in particular, if they’re managing multiple locations, and I won’t just say flippers, anyone doing a value add rehab, if you’re managing multiple, you have to be good at managing chaos.

Stephen Davis (12:25)

Yeah.

Dylan Silver (12:25)

There’s no question about it. I’ve literally seen situations where people are trying to find their contractors and the guy’s sleeping and then we’re gonna have to go wake them up, And it’s like that wasn’t on my bingo card for today, gotta go wake up so and so. But

there’s a will and then there’s the ability to understand that, hey, this might feel uncomfortable and that’s gonna be the new normal for me. Okay, we’ve got a problem, good, we’re gonna go and address this. And I hear that when you talk about, driving in the nice car to the problems is because we’re creating more wealth, more opportunity, with that is inevitably gonna come its challenges and its hurdles.

But that doesn’t mean it has to cause us the same headache that maybe it did when we were starting out on our journey.

Stephen Davis (13:07)

Yeah. Let’s put it this way. Any business I’ve started has been easier than having a job. Playing the politics, being at certain places at certain times, controlling your time. The entrepreneur has a choice. And we choose what problems we’re going to deal with. And then we hire people to handle the problems we don’t want to deal with.

you make a little less money but you have no fewer problems. Is that kind of what you were asking?

Dylan Silver (13:39)

Yeah,

ultimately that’s the name of the game, right? I think to the outside looking in, and also this comes into the tired landlord thing, is there’s some people who are just simply not cut out for that, right? There’s no way where they could enjoy this because I forget what the exact saying is, but you rise up high enough where you’re dealing with problems all day. you think you get here and now your life’s easier. Well it turns out

you’re now at the point where whenever anyone else cannot solve the problems, that’s when they’re coming to you. So oftentimes when you get to that point or that peak, you’re now dealing with the problems that no one else can solve.

Stephen Davis (14:15)

Yeah, that can be difficult. That’s where training and honoring and respecting your teammates, your employees. I’ve got a friend of mine who loathes his employees because he has to pay them. And he’s constantly going through employees, though just like you described, the problems always fall back on him. You gotta love your employees. You gotta train the daylights out of them.

have high expectations for them and don’t hold anything back. I know entrepreneurs that won’t teach certain parts of their business to their team because they’re afraid they’ll go start their own business or whatever. Hey, that can happen. You gotta train your team that’s an insecurity. And insecurity is a form of insanity in my opinion. you’ve got to train your people.

And love and respect them.

Dylan Silver (15:42)

Two things that you said I just picked up on. Insecurity’s a form of insanity. That’s very powerful. I can relate to that, I think a lot of people can. And then also folks who think they shouldn’t train their team because you don’t want them to be, powered enough to start their own shop or, to maybe make too much money that they might be, in a position where they could leave.

I’ve seen this first hand. Do you think that mentality ever works? This idea of don’t train your team? Is there ever a time and a place for that? I can’t seem to fathom that there would be.

Stephen Davis (16:16)

I don’t think there is. I really don’t. I think that if you use control, that’s using power and control to control the behavior of your team. I’ve noticed in life that the more power that you use, the more control that you use, this is on your kids, your employees, or whatever, the more rebels you produce. They will rebel.

If you look at Star Wars, one of the comments that Leia made was the tighter your grip, the more systems will fall through your fingers. And that’s exactly what you’re talking about. If you try to control them, hold them down, they’re gonna rebel.

Dylan Silver (16:51)

Pivoting here, syndicators. Texas, it felt like and feels like there’s a lot of syndicators, but it also feels like there’s been some syndicators who’ve had trouble. I think that’s unquestionable. Especially if you look at markets like Austin, so much development, and then apartment complexes where they’re high vacancy and they’re having to give massive concessions in order to find renters where you wouldn’t have seen that coming in years past. If someone is

looking at investing in a syndication deal. Of course you have to trust the people in charge of that syndication, but how might a newer limited partner in a syndication underwrite that potential investment opportunity?

Stephen Davis (17:30)

Well, there’s 16 hours of videos that I require passive investors to go through if they’re going to invest with my syndicators. That’s 16 hours plus they have me to look over the deal. But what can the limited partner do? I think the number one thing that I’m telling people right now is

Make sure that your syndicator or someone on their team has been through an up, down, and up market. In other words, three stages. Or they’ve been in a down, up, down market. Three stages. The reason is a lot of these syndicators came out of 2014, 15, 16 when you could not do a bad deal. it was impossible. it was unbelievable.

And they got big heads and they thought that they had the Midas touch. Then COVID hits 21-22. They continue buying, but at full price. They were winning because they were buying way below full price. And now they’re not winning. The interest rates went up. they can’t make their mortgages. The vacancy is up because they overbuilt. So I think there was an exuberance.

in the early twenties, that killed a lot of syndicators because they’d only seen the down market, which is where you make all your money.

Dylan Silver (18:50)

Adjustable rates on these syndication deals. It seems like a lot of people, I think the vast majority, took these adjustable rate notes on these commercial deals. is that something that is changing now? Or are people going to pay maybe a higher fee for a flat rate, or will people still continue to do en masse adjustable rates to finance these properties?

Stephen Davis (19:10)

I think you’re gonna have some that do it because they get greedy, they want a higher cash flow to show to their investors. they’re gonna do it, but that’s high, high risk. So I’m telling my syndicators, pay the fees, get those fixed rates, and I’m not getting any pushback from them because they’ve seen their own deals get slaughtered by the adjustable rate mortgage. So

I think that it’s very dangerous Just stay away from those adjustable rate mortgages if you can.

Dylan Silver (19:41)

Yeah, there’s honestly been, if I can say this without sounding maybe too cavalier here, there’s been maybe some controversies surrounding, who would have known that rates would have gone up this much type of thing. but now, on the other side of this, it’s all too easy to Monday morning quarterback at looking back. As an outsider looking in, though, I think, well, if I’m a syndicator, especially someone who may be newer to this.

I’m not gonna make those same mistakes. I’m gonna go and get a fixed rate.

Stephen Davis (20:10)

Yeah. I’ve got to admit that I didn’t recognize that the rates were going to go up that high either. I figured they’d cap out about seven and a half or something like that and just wait. But man, they just pushed it up and up and up. I think that’s a good point. it is the wisdom of hindsight that we’re looking through

people’s memories are short. And what’s going to happen is we’re going to go through a down market. Everybody’s going to get rich. And then we’re going to go into the upmarket. People are going to all forget about what those adjustable rate mortgages did and they’re going to start doing them again. So we’ve got to keep it in the back of our mind that that’s a high risk position to be in.

Dylan Silver (20:49)

Were you investing in single family before the global housing crash in eight?

Stephen Davis (20:54)

yeah. I started in ninety and when I had the hundred houses, that was probably ninety-five to two thousand. you’re gonna love this, I was all multifamily, four thousand units. I’m multifamily guy, passive multifamily guy. I’ll never do another single family again. I bought twenty or thirty houses in two thousand.

10, 11, and 12, because you couldn’t resist them. They were a hundred thousand dollars equity, every one of them, and not an imaginary hundred thousand. They had a hundred thousand dollars equity the day you bought them. Then two years later, they had two hundred thousand. Well, five years later, they had two hundred thousand dollars equity. people are gonna send me some nasty emails. I’m praying for another real stock market crash.

And I think it’s coming too, by the way.

Dylan Silver (21:43)

We look at that time period. I wasn’t in real estate. I was still in high school when that was going on. people may not understand, especially if they got into real estate in the last 10 years, so from 2016 onward, how much that changed lending restrictions in the single family space. You’ve been active since the 90s, so you’ve seen it firsthand, and then you were buying.

these heavily discounted properties, was that because there were no loans happening? So the only, people that could purchase those homes were cash buyers.

Stephen Davis (22:17)

I wasn’t paying cash. I was using Fannie Mae loans. Remember that stall on the Fannie Mae loans was very short. 2008 and 2009 yeah, hard to get financing. But Fannie Mae’s got to make money. So they started back up pretty quick. And I was doing hard money loans to purchase them, refinance them as soon as the rehab was complete into Fannie Mae loans.

When I got to a past ten, I started doing portfolio loans from these little banks around the city where I was getting twenty-five year financing instead of thirty and a little bit higher interest rate.

Dylan Silver (22:55)

Okay. pivoting back to syndication, I know I’m familiar with two types. You’ve got 506(b) which I believe is colloquially known as family and friends, and then 506(c) to the public. Do your students do both? Are they more focused on one than the other?

Stephen Davis (23:10)

They do both. some will even start off for just accredited investors, but if they can’t pull all the money together, they’ll pull their advertising and focus on just the other members of Life Wealth Balance Academy. so we do both. I’m seeing a lot of the syndicators go to just accredited investors.

They don’t want the sophisticated investor. That way they can advertise, obviously. But the thing about my investors is they’re all sophisticated, even the accredited, because they’ve taken that 16 hours of training.

Dylan Silver (23:44)

One of the things that I think people sometimes underestimate in all of this is how much compliance goes into this. Of course SEC regulated. you don’t want to screw this up type of thing, to say the least. I’ve had multiple syndication attorneys. I’ve had a gentleman who wrote a syndication textbook on the show.

When folks are looking at starting their syndication, there’s so much that they have to get right. but what’s the most important things to get right from the gate if you’re starting a syndication?

Stephen Davis (24:11)

Tell you what it is. It’s having the right attorney. Because that solves every other thing you mentioned. I use a guy, a gentleman named Glenn Nance. I literally call him up and go, Hey Glenn, I want to start an LLC. What are you gonna do with it? Buy an apartment complex. Okay, talk to you later. Then a week or two later, here comes all the documents, all the compliance, everything’s there.

And that really does fall on the shoulders of the syndicate or the sponsor themselves. So number one thing, get a good attorney.

Dylan Silver (24:43)

that is so pivotal. And I think what I’ve heard from the attorneys and then from other syndicators where folks run into problems, which you don’t want to do if you’re in a syndication, is it can be simple things with regards to accounting that get muddled. And then now if you start losing money, that’s where things get off the rails here. So would you also pair that with you really have to have great

Accounting, great bookkeeping, and you have to have those professionals in place who understand how to do this in syndication.

Stephen Davis (25:14)

Yeah, you hit the nail on the head. I should have said that. I should have said the right attorney and the right CPA. And they need to know each other. They need to work together. that’s how you stay out of trouble. That’s how you stay in compliance.

Dylan Silver (25:27)

real estate CPAs, real estate attorneys, I’ll also throw in tax strategists. I think that they’re somewhat challenging to find. And I’ve seen many folks on this show who are building large portfolios and even they have admitted, either on or off air, that they could use better tax strategy. They could use better accounting. They’re doing their books themselves, even if they’ve got dozens of doors. how can folks

go about finding the right person for what they’re doing, maybe even in their market. Is this all based on their sphere and knowing somebody who knows somebody? Is there a more strategic way to find a good real estate CPA, a good real estate attorney?

Stephen Davis (26:07)

Yeah, I think joining a club like mine, but there’s others, you don’t have to just join mine. Find a club, a real estate investor club that has syndicators there. They’re gonna have a thing called a vendor program. And in their vendor program will be a list of attorneys, a list of CPAs, a list of tax strategists. Interview three, maybe even five of each of them. Find the one you like the best and pull your team together that way. But don’t be afraid.

To fire somebody. If you start to realize this guy doesn’t have the talent he said he did, I need somebody better, you better make that decision. You got that responsibility to your investors.

Dylan Silver (26:47)

Yeah, there’s no question about it. The stakes are absolutely higher. pivoting here, I’ve heard a lot about cost segregation analysis and how this with the current tax laws is more and more prevalent, and especially if you’re doing larger deals, so much of this is tax strategy. How does that come into play when you’re looking at these larger deals, when you’re looking at apartment complexes and so forth?

Stephen Davis (27:10)

I think it has a big impact on the limited partners because they can get a massive amount of depreciation the very first year because of cost segregation. I’ve seen deals where if you put up a hundred thousand dollars, you get a hundred thousand dollar write-off the first year. so I think it’s gonna become more and more prevalent. It is a great strategy, and you can still do your ten thirty-one.

And avoid the taxes at the end too.

Dylan Silver (27:38)

There’s a couple segments I wanted to get your feedback on. self-storage, mobile home parks, to name a few. might also throw in R V parks in there as well, tiny home communities. do you have any experience with any of these deal structures or asset classes?

Stephen Davis (27:52)

Yes, I have a little experience with RV parks, little experience with mobile homes, a lot of experience with self-storage, no experience with tiny homes, but I just think that they’re just tiny homes. It’s just like buying twenty regular homes. You just have to find the right niche of people that want that product. so I love tiny homes.

Dylan Silver (28:13)

with self storage in particular, I forget who was telling me this, but as soon as people start talking about X real estate strategy, whether it’s self storage or mobile homes, it almost feels like you’re too late to the party. Is it too late to the party right now to be buying self storage or are there still great deals to be had?

Stephen Davis (28:30)

think in any arena there are still great deals to be had you’ve just got to be patient and believe it and wait I saw one guy get into trouble he did a couple of deals self-storage made millions of dollars and then went out and bought some top of the line a class properties and they just didn’t cash flow he didn’t wait

for the same type deal that made him rich in the first place. So I think that’s an important thing to remember. If you made millions of dollars by buying C class property, don’t suddenly go out there and start buying A class property thinking you’re going to do the same thing.

Dylan Silver (29:09)

Are you seeing with self-storage in particular, there being more movement to completely automate the humans out of the loop? Previously somewhat intense, you at least needed a staff member there on site in some of these cases to give people their keys or locks, etc. are we at a point right now with AI where maybe you can have

a spot without having any humans in the loop.

Stephen Davis (29:31)

I do believe in that and I believe it’s coming. When I don’t know, but I know some of them that they’ve got humans there maybe two hours a day. That’s about it. So it’s already pretty close.

Dylan Silver (29:45)

Not so time intensive. we are coming up on time here, Steve. Any new projects or activities that you’re working on? Also, anything you’d like to mention directly to our audience?

Stephen Davis (29:55)

Well, I think I just want to be encouraging. I’m assuming a lot of your audiences want to be real estate investors along with real estate investors. To all that wanna be real estate investors, I want to encourage you to do it because it changed my life. I’ve got thousands of students, they’re changing their life with real estate. And if you watch this stuff and you listen, that’s good, but you’ve got to execute

what you learn. So get out there, hustle, do your thing. focus on getting that second stream of income because that’s what’s missing in everybody’s lives. all they’ve got is a job. They have no second stream of income. And real estate allows you to build that.

Dylan Silver (30:38)

Steve Davis, thank you so much for joining us today. Thanks for your time.

Stephen Davis (30:42)

Thank you. I sure appreciate it.