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Show Summary
In this conversation, Brian Davis shares his journey from being a hands-on landlord to a passive real estate investor. He discusses the challenges he faced during the housing crash, the importance of networking and flexibility in real estate, and the innovative approach of co-investing. Brian also provides insights into the current real estate market, particularly in Baltimore, and emphasizes the significance of geographic diversification in investment strategies. He concludes with information about his current projects and how to connect with his team.
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Investor Fuel Show Transcript:
G. Brian Davis (00:00)
a decamillionaire to be able to dollar cost average and invest 50 grand a month, you know, if you’re just doing it by yourself, right? ⁓ Whereas if you’re putting 2,500 a month, 5,000 a month, you can practice dollar cost averaging, you know, investing in a new real estate investment every month without having to make these one-off large investments in a singleDylan Silver (00:05)
and good for it.Hey folks, welcome back to the show. Today’s guest, Brian Davis is a former hands-on landlord turned passive real estate investor. He helps investors build scalable, time-efficient income through diversified real estate investments. You can find him across social media and online, sparkrental.com. Brian, thanks for taking the time today.
G. Brian Davis (02:11)
Dylan, great to be here. Thanks for having me on.Dylan Silver (02:13)
Now, I’ve cut my teeth in wholesale and I’m a realtor, but I think the ultimate goal for whenever you buddy talks about real estate ⁓ is to get to that point where you are a more passive real estate investor. Before we get there though, walk me through how you got started in real estate investing.G. Brian Davis (02:35)
Yeah. So the short version is I graduated college in 2003, had no idea what I wanted to do with my life, fell into a job working for a hard money lender. I didn’t, I couldn’t have told you before starting there, what a hard money lender was or what they did. But, um, so I started working for this hard money lender just by accident. And, you I’m working obviously with guys who are flipping houses or doing burr deals, you know, buying houses, fixing them up, uh, you know, selling them, refinancing and keep his rentals. And, know, at that,moment in history, everybody was making a ton of money in real estate. This is like the mid-aughts. It’s a big party in real estate. And I’m sitting there thinking, well, I’m smarter than these guys. I can go out and I can do this too. And if I have enough rental properties, then I wouldn’t have to work. This is before the fire movement. So I thought I was very clever coming up with this idea of building passive income and then not having to work. So I went out and I just
put every penny I had into rental properties, didn’t know what I was doing, didn’t learn how to forecast cashflow accurately. In my idiotic youth, I thought that it was just the rent minus the mortgage. Every mistake you could possibly make, I was buying properties in very low end neighborhoods in Baltimore city, which was a mistake on so many, many levels. It just, every mistake you could possibly make, I made it. And then to the…
Dylan Silver (03:50)
What yearis this? Is this early 2000s or is this right before the housing crash?
G. Brian Davis (03:57)
So I went on my buying spree between 2005 and 2008. So like the worst possible timing in history. mean, was just everything about it was so dumb. Like, I mean, every mistake you could possibly make, I made it. And then 2008 hit and it hit me from two directions. So not only did all of my investments totally collapse, I mean, underwater, negative cashflow, but I also lost my day job effectively because no one’s borrowing hard money loans anymore in 2008.Dylan Silver (04:06)
Yeah, very tough.G. Brian Davis (04:26)
⁓ No one’s flipping houses anymore. So that was a problem. So I went off, I took a job working for an e-commerce company that specialized in selling landlord forums and other services for non-op-op landlords. And that was great. That was sort of a happy accident. And the only reason I got that job is because I was a landlord myself. So it’s one of those door closes, window opens kind of scenarios.Dylan Silver (04:31)
Yeah.I want
to ask you specifically about that because I don’t think, you know, folks who are going through that type of thing, it can feel like, well, what do I do? This is outside of my hands. I can’t control markets here. Do I, you know, go get a job? I continue trying to make this work? Do I pivot to a different, you know, segment of the real estate space? Walk me through like what the arithmetic in your head was at the time. Like, hey, what do I do?
G. Brian Davis (06:04)
Yeah, well, I had to make a change because I wasn’t making, I was working 100 % commission working for the sorry money lender. So I was, I mean, I didn’t get fired, but I also wasn’t making any money. Right. So I had to leave. there was staying was not really an option. And at the time I had a, I was dating a woman who was a travel nurse and she would, she invited me to go travel the country with her. Free stay. Right. ⁓I was like, well, and I just taken this part-time job working for this e-commerce company, you know, selling landlord services for mom and pop landlords. And that was remote. So I was like, well, why not? You know, why not go do this? So we went and it was great. I spent a couple of years traveling around the country with her. had a lot of fun. That job quickly morphed into a full-time job. And that was, it was a startup when I joined it. I was very early on and I ended up becoming the vice president of that company and, you know, kind of working my way up.
And it was, I learned a lot. learned online marketing and sort of the digital space. And then in 2016, I left with another woman who I worked with there at that company and we started our own company, Spark Rental. And at the time we thought that that was going to be a software service for mom and pop landlords. Of course, neither one of us are software people. we really, that was also a big mistake. But.
That too, kind of meandered its way into something that was great. Again, taking the wandering route to get there.
Dylan Silver (07:37)
Hey,you know, one of the things that I’ve noticed from talking with folks like yourself and then, you know, from real estate investors in every segment of real estate is that you have to have the ability to pivot. Like of all things that I can say, what’s the most important skills in real estate? It’s networking and meeting people and being able to pivot. Because if you don’t have those skill sets, you won’t have staying power.
G. Brian Davis (08:04)
Absolutely, yeah, 100%. The business that you think you’re in is often not the business that the market wants you to be in or needs you to be in really. So that’s something that we have just constantly tried new things and evolved over the years. We found that the more we listen to our audience and to our customers, the better we do. so case in point.We were selling courses on real estate investing at a certain time and our students kept saying to us like, Hey, I’m not ready to go out and buy my first rental property, but I do, I want to, you know, kind of cut my teeth or get started. Like, can I just partner with you on whatever real estate project you’re doing? And at the time I wasn’t buying any properties myself. I was living overseas and you know, so we kept saying no to, to our course students. And finally,
my partner and I looked at each other and we were like, well, what would it take to say yes to this? you know, how could we actually, you know, service the, you know, our students and give them what they’re asking for? And it was around that time that I had started investing passively in real estate, you know, again, being, you know, living overseas, being an expat, you know, I didn’t want to go buy rental properties halfway around the world, but I still wanted to invest in real estate. So I started investing passively. And so we did, we tried a couple of different things. We experimented, we tried, you know, with single family homes at first, like partnering with someone on the ground. And then we,
that was too much work. So then we tried passive investments and that actually hit and people liked it and it wasn’t too much work for us to, you know, manage. So we started doing these just for our core students and then we opened it up to the public as an investment club. And that today is our main business. You know, meeting every month, vetting passive investments together as a club, you know, going into them together with smaller amounts than you would otherwise need. But it’s, it’s been a very
Yeah, again, a wandering road from what we originally thought that our business was going to be. And to your point, you you just, have to stay flexible. You have to be willing to pivot. have to listen to the market, listen to your customers and just keep sort of adapting with the changing times and with the changing market.
Dylan Silver (10:49)
You mentioned investing with the people in your community. ⁓ I like to get into the weeds a little bit here if we can and unpack some of this, because I think there’s a lot of people who are looking at raising capital or investing with other people and they’re not exactly sure how to go about it. Should they do a syndication? Should they take on a couple partners? Do they find the deal first? Do they find the partners first? There’s a lot to unpack there.What would be your feedback for folks who are trying to juggle what the right way to get started investing with others is?
G. Brian Davis (11:27)
Yeah. And that’s really, that’s why we launched our co-investing club. ⁓ So it’s, there’s, three things that there’s three needs in the market that we’re really filling here. One is deal flow. So every month, sometimes twice a month, we’re meeting and vetting a new passive investment. Could be a syndication, could be a private note, could be a private partnership with an active investor, could be a fund. You know, we’re agnostic on that point. And that is part of the point is to diversify. So deal flow is part of that. Just.every month, sometimes twice a month, just looking at new deals, just to keep having new things on your plate, keep analyzing new opportunities, whether you participate or not. The second is vetting these alongside dozens of other people, because the more eyeballs you have on an investment, the better you’re going to be able to analyze it and get a sense for the risk of it and the potential returns and…
You know, is the operator actually being conservative in their forecasts? Like they say they are, ⁓ you know, all of those sorts of things. So group vetting, ⁓ you’re much less likely to make mistakes or, or at least you’ll go into it with a much better sense for what the risk is for any given investment. ⁓ and then the third component is just investing a much smaller amount than you would otherwise need to do because investing in real estate requires a lot of money. If you’re, if you’re a direct investor, an active investor, going out and buying rental properties, for example,
you’re probably going to need 50 to a hundred grand between the down payment and the closing costs and initial repairs and cash reserves and so forth. If you’re investing in syndications by yourself, same thing, 50 to a hundred grand is the typical minimum investment. And that’s a lot of money for the average person to plop down in a single investment. And for someone with a median net worth or even double or triple the median net worth.
that can end up taking up a disproportionate amount of your asset allocation. And it’s an uncomfortable amount of money to have in a single investment compared to the rest of your investments. So in our club, the minimum is either 2,500 or 5,000, depending on what your membership level is in our club. But it’s a way to put relatively small amounts of money in new real estate investments, potentially even every month, as a form of dollar cost averaging, which you’d have to be
Dylan Silver (13:45)
Right.G. Brian Davis (13:47)
a decamillionaire to be able to dollar cost average and invest 50 grand a month, you know, if you’re just doing it by yourself, right? ⁓ Whereas if you’re putting 2,500 a month, 5,000 a month, you can practice dollar cost averaging, you know, investing in a new real estate investment every month without having to make these one-off large investments in a single investment.Dylan Silver (13:52)
and good for it.G. Brian Davis (14:07)
I’ll pause there ⁓ because I know you have questions.Dylan Silver (14:09)
I would like topivot actually to something that you mentioned earlier, which was when you got started, you were in the Baltimore area and you were investing in an area where it was a distressed market at that point. Was that accurate?
G. Brian Davis (15:07)
Yeah, so I was buying ⁓ low end properties in Baltimore city, ⁓ which was problematic on a lot of different levels. So the simplest one to communicate is just that Baltimore city is a very tenant friendly market. ⁓ The regulations here are not investor friendly or owner friendly at all. It once took me 11 months to get a non-paying tenant out of theproperty because he knew every single ⁓ loophole in the book. ⁓ So, you know, that’s, that’s one thing low end neighborhoods come with a lot of challenges and a lot of ⁓ ways that make the cashflow look a lot better on paper than it is in real life. So, you know, there’s, all these sort of hidden costs and hidden expenses that just don’t show up easily when you’re running cashflow numbers. Even if you know how to run those cashflow numbers.
accurately, which I didn’t at the time. ⁓ So crime costs you money, even though that’s not something that easily fits into a ⁓ calculator, right? A cashflow calculator. I mean, I’ve had air conditioning units, you know, ripped out of, you know, behind the properties for the copper pipes and, ⁓ you know, and even in, so that was sort of an example of a direct cost of crime. Indirect cost of crime is a problem too, where I had good tenants who left
Dylan Silver (16:14)
Yeah.G. Brian Davis (16:32)
because of the crime in the neighborhood, right? ⁓ And then, you know, and then the people who moved in after them were not good tenants, because they were willing to put up with that crime. ⁓ So and so there’s this sort of downward spiral effect that you have there. You also have high turnover in these neighborhoods. You know, the the more stable, you know, sort of better quality tenants don’t want to live there any longer than they have to. So they leave. And turnovers are where you lose your money as a landlord.Dylan Silver (16:35)
over noise different lights,G. Brian Davis (17:01)
You don’t turnovers are expensive. have to repaint and maybe put in new carpet and you have to market the unit and you had a period of vacancy and you know, all kinds of bad stuff. If you’re paying a property manager, you have to pay them a fee for filling a vacant unit. So yeah, I mean, all of these things are a big problem for lower end units. And these were lessons I had to learn the hard way, unfortunately.Dylan Silver (17:23)
Now,if someone is looking at investing in Baltimore today, for instance, do you have any feedback for them? should they, if they’re just getting started and they’re saying, okay, I’m gonna buy and hold, or maybe I’m gonna do a short term, or I might do midterm corporate housing, that type of thing, and they’re not really sure where to start, and they’re looking at, maybe do I invest in the urban sprawl of Baltimore? It sounds like, based on your experience, you might.
say, hey, I’m not sure if investing in some distressed areas is the easiest thing to do for all the reasons that you said. But then also, too, are some of these other segments maybe super competitive where they might potentially not be able to acquire these properties as easily or add a deal where it makes sense on paper.
G. Brian Davis (18:13)
Well, I I personally will never own properties in Baltimore again. So I mean, I wouldn’t recommend that someone does invest in Baltimore for so many, many different reasons. know, even, the, I mean, I live here now and I rent the home that I live in, even though, I I have an ownership interest in over 5,000 units elsewhere in the, in the country. Yeah. But I still, I rent the home, the house that I actually live in myself. But yeah, we talked about how Baltimore is super tenant friendly. You know, that’s a problem. Baltimore.Dylan Silver (18:31)
outside of you.G. Brian Davis (18:43)
is a city that was built for a million people. At the peak of its population, had a million residents within city limits. by the way, Baltimore is unique in that there’s a different county surrounding Baltimore. And then the city itself is its own municipality and just jurisdiction, ⁓ which is unlike most cities in the country. So Baltimore city itself, which is a pretty narrow district, a million residents at its peak. Today it has 600,000 residents. So there’s a ton of vacant housing.Dylan Silver (19:02)
Yeah.G. Brian Davis (19:13)
And it has at best a stable population and at worst a gradually diminishing population, which is not a good recipe for real estate appreciation over time. ⁓ So yeah, no, I wouldn’t invest in Baltimore personally unless they had a really compelling reason to do so.Dylan Silver (19:23)
I’ll see.Do you have any, if you’re looking at, and when you are looking at markets outside of Baltimore, do you have any that you’re super bullish on? I a lot of people love the Carolinas, for instance. I’m a Texas licensed realtor, so I tend to be favorable towards Texas, but I also love Florida and Alabama, and I think Georgia’s looking great right now. I’ve heard great things about some other markets as well, Cleveland, Ohio. Do you have any markets that you are looking at a lot of deals at?
G. Brian Davis (20:00)
Let me give you two answers to that question. ⁓ One is that, no, we are agnostic on geographical market and part of the whole point of an investment club like ours is to diversify geographically and to diversify across other axes too, like asset type, like operator, like investment timeline. But yeah, geographical diversification is part of what we’re trying to do. We are not trying to pick the next hot market. ⁓ Every time I’ve tried to get cute or clever in my investments,you know, pick the next hot asset class or pick the next hot market. I’ve, I’ve, you the universe has shoved some humble pie down my throat. ⁓ that being said, I mean, to, to answer your question in the spirit that it was asked in, there are some trends you can kind of see over time. So, you know, in the pandemic, you had this, this big influx of population in the sunbelt, right? ⁓ and, this big boom in population and then real estate values in the sunbelt in a lot of sunbelt markets anyway.
you know, they exploded too far too fast. know, prices exceeded the local fundamentals of income and population. And then they had a big correction. And that’s what we’ve seen over the last two years or so is this kind of big downward correction in a lot of those Sunbelt markets. And investors have kind of fled those Sunbelt markets toward more population stable markets and price stable markets in the Midwest and in the Northeast, often looking for a yield and cashflow.
And now, you know, we’re starting to see supply and demand start to normalize and some of those Sunbelt markets. ⁓ And then, you know, I think we’re going to see more investors being willing to go back to those Sunbelt markets in, over the next 12 months or so, you know, as vacancy rates drop in some of those kind of pandemic boomtown markets, ⁓ you know, supply, new supply is definitely.
Dylan Silver (21:52)
Yeah.G. Brian Davis (21:57)
⁓ the rate of new supply is dropping down in those markets, that’s still sort of stabilizing and normalizing. ⁓Dylan Silver (22:04)
You mentionedsomething that I think doesn’t get spoken about enough, which is geographic diversification. And for someone who might be doing great in one market and might be thinking, I’d love to expand here. I’ve actually never thought about it before, but there is some level of risk there. So if you are all in in one market, what happens if things change in that one market?
I think there’s a lot of people, for instance, in Austin, Texas in particular, who maybe wish that they hadn’t bought so much in Austin, not to say that it’s not a great place to be, but just because there’s been so much multifamily development in Austin, Texas that if you’re a part of that surge, it’s been…
maybe a challenge in the last couple of years. So the idea of investing in a number of different markets, regions of the country, not just let’s say one state or the Sunbelt, but the Northeast and the Sunbelt in a couple different markets allows you to weather out a storm in one market because you’ve got performing assets in another.
G. Brian Davis (23:08)
Yeah, I mean, so we’ve invested in, I think it’s 16 states currently and dozens of different cities within those states. ⁓ And that’s part of the thesis, right, is not trying to predict what is the next hot market or where the population shift is going to be in the coming years, because it’s really hard to predict that, least to do it repeatedly, right? ⁓ So yeah, I mean, we’ve invested in every region in the country for that reason.And, you know, to your point about Texas actually specifically, a lot of, a lot of multifamily operators really like Texas because it’s a business friendly state and it’s easy to work in. And it’s also friendly to new development as well, which is the double edge of that sword. And that’s why you’ve seen so much new housing supply pop up in, Texas and cause, you know, some of these corrections in Texas. the same reason that attracted people there in the first place, you know, that sort of business friendly and developer friendly environment.
is what caused that oversupply of housing there. So, you know, yeah, there’s plenty of people who are doing deals in Texas, and it’s become a difficult place to do deals in because, yeah, exactly.
Dylan Silver (24:21)
As a result of that, it’s like, youyou have so much of a friendly climate that people come there and now you’ve got, you know, an oversupply and, you know, I’ve heard stories about, you know, folks, you know, getting it.
First rent free, two, month and a half of rent free. Here’s a $500 gift card to move in here. And so, I compare that to Boston, Massachusetts, where you’re paying like three or four months of rent plus a broker’s fee to move into a place. And I’m thinking, okay, this is a different type of climate for sure. We are coming up on time here though, Brian. Any new projects that you’re working on and then as well, what’s the best way for folks to get in contact with your team?
G. Brian Davis (25:06)
Yeah. So our focus right now is the co-investing club and expanding that as the club grows and we’re investing more money in each investment that we make, we can negotiate better preferred returns and better profit splits and better interest rates on private notes. yeah, growing that is our main focus at the moment. We do want to offer a more intimate, ⁓ higher ticket offer as well.whether that we haven’t decided, is that going to be a mastermind group? Is it going to be like a micro family office service? ⁓ But we, right now, we, we have not committed to any of that. We are, our main focus is our co-investing club. And people can reach us at sparkrental.com or co-investingclub.net. ⁓ Reach out, support at sparkrental.com. Reach out anytime. We are a small team. We are very available. We’d love to have you join as a free member and join our next deal discussion.
Dylan Silver (26:03)
Brian, thank you so much for coming on the show. Thanks for your time today.
