Category: Multifamily
Air Date: 06.29.2020

Our guest on the show today, Dave Childers, has a refreshing perspective on investing in small multifamily rather than going after the larger syndication deals, highlighting specifically the cash-flow benefits of smaller properties. With more than 15 years of experience in real estate investing and multifamily housing, Dave has worn all the hats, from property and asset manager to broker, coach, and speaker. Dave is the managing member of Cedar Rock Capital and, after identifying the need for a brokerage firm that focused on small multifamily properties, he established Residential Investment Advisors through which he has brokered over 400+ small multifamily properties in Middle Tennessee, Northern Alabama, and Southern Kentucky. In this episode, Dave starts at the grassroots of passive investing, advising listeners on evaluating deals and vetting sponsors to ensure that their investment goals line up with the other parties’. He discusses the three paths of investing, outlining the advantages and disadvantages of each and explaining why it all depends on what the investor hopes to get out of the deal. Of course, that is not to say that investors should stick to one route. On the contrary, Dave talks about the benefits of investing in various asset classes and locations and having different goals, thereby ensuring that your portfolio is well-diversified. It’s all about knowing what kind of investor you are and being upfront about your expectations. Be sure to tune in to learn a great deal more from Dave Childers!

Key Points From This Episode:

  • An introduction to our guest, his brokerage firm, and his involvement in Cedar Rock Capital.
  • Advice for getting started and evaluating deals as a passive investor in multifamily real estate.
  • How investors should go about vetting sponsors and how sponsors can build up credibility.
  • The deals that produce the best returns and why it all depends on the investor’s goals. 
  • The pros and cons of each of the three paths of investing from the perspective of the investor.
  • How the risk profile changes for the investor depending on the size of the deal.
  • Hear how Dave thinks about educating passive investors who want to learn the business.
  • Get a sense of what Dave focuses on when starting to educate investors.
  • Dave talks about the cash-flow benefits with smaller properties versus the larger deals.
  • The importance of finding like-minded sponsors who aim for the same type of returns as you.
  • Understanding that you do not need to follow the same path with every investment you make.   
  • The value of acquiring different asset classes and diversifying your investment portfolio.
  • Getting to know yourself as an investor and finding deals that align with your philosophy.
  • Dave’s hands-on approach to learning: lunches and constantly engaging with people.

Tweetables:

“I think there’s kind of three different categories. We can talk about syndication, joint venturing, or just buying small deals on your own. I think that’s where you as a passive investor have to decide. What do you feel comfortable with?” — @DibbsNashville [0:07:07]

“I think when you’re passively investing, you need to be in the same space and same headspace as the sponsor. So when I’m raising capital, I’m looking for like-minded people.” —@DibbsNashville [0:19:21]

“It really starts with knowing yourself as an investor and being very clear on your goals. Is it cash flow to live the day-to-day? Is it appreciation because you’re focused on building long-term wealth? What are your goals and what’s your risk tolerance?” — @KentRitter [0:24:06]

“I’ve learned from being hands-on. Managing properties and cleaning, following people around, and talking, and having lunches with people. That’s my thing—I never eat alone. I’m always trying to eat with either my staff, a client, somebody, and just having those conversations. That’s how I learn.” — @DibbsNashville [0:31:00]

Links Mentioned in Today’s Episode:

Dave Childers on LinkedIn

Dave Childers on Twitter

Dave Childers Number

Cedar Rock Capital

Dave Ramsey

Rich Dad Poor Dad

The Millionaire Next Door

Audible

Joe Fairless

Jake & Gino

Gino Barbaro on LinkedIn

Dan Handford

Hunter Thompson on LinkedIn

John Casmon

Kim Lisa Taylor

Vinney Chopra

Ritter on Real Estate

Kent Ritter

Kent Ritter on Twitter

Kent Ritter Email

If you enjoy the guests and content please subscribe and leave a review.  Your reviews matter and each one has a major impact on the success of the show!

Interested in Investing Alongside me in our next multifamily deal?

Contact me at kritter@birgeandheld.com.

My operating partner, Birge and Held Asset Management has a twelve-year track record creating sustainable wealth for over 2000 investors through high-quality multifamily investments.

https://birgeandheld.com

Thanks for listening!

—Full Transcript Below—

[0:00:40.7] KR: Hello, fellow investors. Welcome to Ritter on Real Estate, the show where we teach you how to passively invest like a pro. Today, we’ve got a special guest, a man named Dave Childers. Dave is the managing member of Cedar Rock Capital based in Nashville, Tennessee. Mr. Childers has over 15 years of experience in real estate investing and multifamily housing. Dave has had transactions that are in the hundreds of millions. Dave has worked as a property manager, asset manager, and multifamily broker, coach, and speaker.

In 2011, Dave saw a need for a brokerage firm that focused on small multifamily properties and investors. In the years since, Dave has built Residential Investment Advisors into a successful brokerage firm. Dave has brokered over 400+ small multifamily properties in Middle Tennessee, Northern Alabama, and Southern Kentucky. In 2017, Matt Moore took over the day-to-day selling, while Dave began to focus solely on large investments.

Dave, thank you so much for being here today. I’m very excited to have you with your wide breadth of experience. I think it’ll be really educational for our listeners today, so thanks for being here.

[0:01:47.0] DC: Yeah. Man, thanks for having me, Kent. This is exciting. I like your subject matter and being a passive investor on these podcasts. They start to kind of run together unless you have a subject like this, so I really appreciate you putting this podcast together and focusing on this part of the business.

[0:02:04.5] KR: Dave, with all your experience as an investor, as a coach, as a broker as a property manager, and all these different ways, as folks are looking to make an investment in real estate or let’s say specifically to make an investment multifamily as a passive investor, what are the things that they should start the process and working out? Where should they begin?

[0:02:28.5] DC: That’s why I love this business because I really think you can make it as passive as you want it, right? We have all types of people that have approached us about putting money in deals or buying deals. Like you referred to before, I own a brokerage firm, so I have clients that want to come buy their own properties, someone to be super involved, someone to put money in Cedar Rock Capital and buy something with me and just be completely hands-off. That’s I think the beautiful thing about how we do multifamily and how we can structure every deal different, and really your involvement is up to you and how involved you want to be.

I hope – I just want to start there by saying that. But really, I mean, you can be active. I’ve got people that put money in deals, and they actually want to be more active than just a passive investment. But I think you have to vet your syndicator, your sponsor, your operating partner, whatever kind of makes you feel comfortable. I’ve got guys that don’t want to put money in big syndications, but they want to partner with me one-on-one and do more joint venturing. That’s one way to do it. Does that answer what you’re asking?

[0:03:33.7] KR: Yeah, it starts to – My question really was what – As people start to evaluate a deal, right? There are so many deals out there. So they start to evaluate and they start to evaluate investing with someone else specifically. What should they start with looking at?

[0:03:48.5] DC: I mean, I think forget about the deal. Figure out who you’re working with, right? I mean, not to be rude but somebody that’s putting $50,000 on one of my deals, I honestly don’t care how he underwrites it to be matter-of-fact, right? I know more about that than he does, so he needs to worry about more of who I am and my experience and my character I think than actually the investment, right?

[0:04:10.9] KR: Yes. So it starts with the sponsor, right?

[0:04:12.5] DC: Correct.

[0:04:13.5] KR: It really starts with the sponsor. You’ve got to understand the integrity of the sponsor, the track record of the sponsor. As you’re bringing folks in your deals, you said you partnered with folks in a lot of ways. I mean, how have you seen folks effectively understand that about a sponsor? How do investors figure that out?

[0:04:32.6] DC: You know how many times I’ve been around the block? I mean, a lot of the investors find us through either the brokerage firm or through our meetups, and it doesn’t happen overnight, right? I mean, you have to build your credibility with these people, and so I think starting to go to meetups. Find out who the players are. Find out who those guys are who have been successful and been doing it a lot.

I always see a huge strength in sponsors that actually have experience on-site. What I mean by that is, for me, I started off when I bought my 100-unit complex. I was the manager. I was the maintenance guy. I was everything. Not saying that you have to have that experience to be successful but that gives me a lot of confidence in knowing how to run these deals, and I think it gives the people that are putting money in my deals.

Knowing that I have that kind of first-hand experience on the operational side, it gives them a lot of comfort to know that I actually know where the rubber meets the road in the business and mostly going through times like we’re going through. I mean, we’re going through this coronavirus thing right now. How are you going to react? What are some of the steps you’re going to put in place to protect the asset and move forward past this? When those things kind of don’t happen and it’s the glory time, everybody can be successful at these hard times and then experience of these syndicators and sponsors of how they’ve gotten through these hard times.

[0:05:57.3] KR: I’m curious because you’ve done large deals. You’ve done small deals, right? You’ve kind of done everything in between it seems. From a return standpoint, I guess how have returns differed as you’ve looked at smaller multifamily, larger multifamily? I mean, where have you seen people have had the most success?

[0:06:16.1] DC: Man, that’s the crazy thing about this business is, I mean, everybody wants to probably put these syndications together. I just had a guy on my Zoom call last week. He’s got 3,500 doors he’s syndicated. He’s working on another portfolio and he started with me as a brokerage client buying duplexes. We constantly talk about this. He made a ton of money on these duplexes, and this is glory days. This is – Everybody wishes those days would come back where here in Nashville, we got East Nashville, a hip place to be, and I was selling him 60, 70,000-dollar duplexes where he was making 30, 40% return on his cash, and we laugh about it now, right?

But then we talked about him these syndications together where he’s buying these 1,000, 1,200-unit portfolios together and putting them together and refinance and then all of it. It’s a lot of work. So we kind of talked about some of those pros and cons. It just depends on what kind of business you want to build. If you’re like, “Hey, I just want to put my own equity in deals and own them outright and not answer to equity investors and stuff like that, then you can build that business and you can be super successful.

I think there’s kind of three different categories. We can talk about syndication, joint venturing, or just buying small deals on your own. I think that’s where you as a passive investor have to kind of decide. What do you feel comfortable with? Maybe it’s just partnering up with a local guy and putting money in 20 duplexes and doing it that way and keeping it mom-and-pop. You’ll make money. Or joint venturing with somebody to buy a 50-unit or a 60-unit or an 80-unit, doing something similar. Or do you want to put your money in some kind of large syndication?

As a passive investor, I think you need to kind of vet those different options and kind of see where you’re comfortable with. That’s what we kind of do with clients through the funnel I have here in Middle Tennessee is having do you want to buy something? We’d happily sell you a 20, 30-unit apartment complex for a brokerage firm. Or do I need to refer you to a larger brokerage firm? Or do you just want to put money in Cedar Rock and we can go buy a 40-unit together?

That’s kind of I think as a passive investor where I would start and then, again, just going to meetups, going to different clubs, figuring out who owns what, who the players are, who the guys are actively buying deals, and then back to then vetting them by their track records past experience.

I know I’ve had – I met with billionaire families, and the first thing they want to see is they want to come out to one of my assets, walk the asset, know about me, take me out to lunch, and get to know me, and kind of, again, the past experience. From a billionaire family that has a private office money here in Nashville, that was kind of the experience I came up with, so we’re trying to implement that for people who want put money in Cedar Rock, right? Open our doors and say, “Hey, if you’re thinking about doing this, come visit us.” We’re putting on different events to try to encourage that on the front end.

[0:09:10.8] KR: Sure. You mentioned something. You mentioned these three paths to investing, right? You do it on your own. You could joint venture. You could go in a large syndication, right? I think it’d be interesting to pull that thread a little further. Can you talk about the pros and cons of each one from an investor standpoint?

[0:09:30.1] DC: Yeah. I mean, I think on the smaller properties. We can get into a thousand different subjects, smaller properties, different type of financing, different type of management and structure. You’re probably going to be more hands-on if you want that completely passive investment, the smaller stuff. But let me take you –

My story begins with me buying six duplexes back in 2005, ’06 with two other guys from California, and so the same thing. They just want to put their money to work. They were willing to give me equity to do the asset management, everything. They were in California. I’m here Nashville. Everything was my responsibility. So a lot of the properties, they have never set foot on all the accounting. Everything was done. That would be one road and then a joint venturing.

Again, I’ve got partners. I bought 50, 60-unit complexes with – They’ve never been on site. It’s completely passive for them. But again in the pros of the financing, now we’re getting into Freddie and Fannie nonrecourse financing. In large syndications, obviously you got great financing options. You can put $50,000 in, $100,000 in a deal, and be involved in that larger transaction. That’s probably the most passive investment you can make if you’re just putting. Then let’s talk about – You can talk about REITs, buying stock in a REIT, and it’s even past the syndication model most people use.

[0:10:53.8] KR: Got you. That’s a good point too, thinking about the remodeling and something that’s truly passive and a little more liquid as well. What about from a risk standpoint? I mean, how does the risk change? Maybe going in, you’re investing in a couple duplexes versus joint venture with maybe it’s a smaller multifamily syndication, a larger multifamily? How does the risk profile change for the investor?

[0:11:19.3] DC: Well, again, back to financing. We can talk about the nonrecourse, recourse loans. Are you going to have to put – If you’re joint venturing with somebody, depending on their amount of equity, your equity split, they might have to go on that bank loan with you because they own a certain majority of it versus if you put 50 or 100,000 dollars into a syndication. That’s really what you’re risking, right? You’re not risking any credit or any other. Your 50 or 100,000 dollars is what you have at risk, where I buy a 50-unit with somebody and I need their name, which we don’t now. But in the past, we had to have their name on the loan. Now, they’re at risk for the loan and their equity, right?

But at the same point, if something went wrong with me or for some reason I screwed up, I think it’d be easier for them to step in, right? That would be the pro and con to that where on the syndication my $50,000 is at risk and the sponsor messes up. That’s a hard way for me to step in and take over and in the duplex or smaller stuff. Again, I think it’s kind of similar to that joint venturing on is your name going to have to be on the bank loan. Are you guaranteeing debt with your personal? What assets are you putting at risk by buying those small ones and not only in your capital but now signing on a loan?

Again, I think you really just have to judge what you’re comfortable with and what you’re wanting to get out of it. I found that a lot of people now that passively invest with me want to learn the business, so they don’t want to put their money in a syndication and never see it again or never see the asset. They actually want to use putting their money in to get the education. That’s something we’re trying to kind of bring together is coming on this deal, put money in it, and you can follow me around to a certain extent and be involved in and gain that experience or gain that knowledge and not – They don’t really want that passive income or passive investment as much.

[0:13:16.5] KR: Yeah. I mean, I think that’s interesting. I mean, that was really my path to become an active investor was to begin passively investing. Use that opportunity to learn the business and to see how operators work and kind of get behind the curtain if you will and understand how the deals are put together. I mean, I think it’s a very smart way to begin your investing career. I guess it worked out for me.

But to that aspect, how are you – As you’re bringing those folks in and educating those folks, I mean, what are the things that you’re doing for the passive investors? What kind of things are you talking about with them? What type of things are you focusing education on? Give me a little sense of what it looks and feels like?

[0:13:56.3] DC: Well, let me talk about it. When I started brokerage firm, we always tell people we are kind of between a residential agent and a commercial agent. There as kind of this void area where there really wasn’t anybody focusing on that 2 to 50-unit thing. What I figured out was that back in 2011, I had a couple hundred units. I needed a day job, so I started the brokerage firm. I kind of went backwards into the business. What I figured out is if those investors are successful, if I sell them a duplex or a 20-unit complex, they were going to come back and buy more and more from me.

I had a vested interest in them being successful, so I started figuring out like if I can get them a great property management or a great insurance agent or just be there to answer questions. Kind of if I was in your shoes, if Dave Ramsey always answers questions, like if I was in your boat, this is what I would do. I just always kind of have an open-door policy, open-cell-phone policy to clients. Hey, let me help you be successful because if you’re successful – These are passive people. These are –

My clientele were six and seven-figure incomers. They are looking for something other than the stock market or 401(k)s. They wanted some of it in real estate, and so I kind of become a trust advisor for them. I mean, there’s people that are attorneys and CPAs. I’m a high school or a college dropout. I’m not formally educated on the stuff. I’ve learned it from doing it, and they’re trusting me to help them make wise, real estate investments. So I just kind of always have this like I’ve got to be – They’ve got to be successful because if they’re successful, they’re going to keep buying me.

Now, we fast forward 10 years and 500 multifamily property sales. Those people, seven to eight years, are still my clients, still my friends. I’m helping them build large portfolios now, like I referred to Nick. He’s moved up in the world from buying duplexes, still buying 1,200-unit portfolios around the southeast, and has a very well-known name. Again, if you build those relationships with people. But on the education side, some of it, you got to go listen to podcasts like this, is that what you were talking about education? I kind of got on a rant there.

[0:15:57.7] KR: Really what I wanted to focus on was for the investors that are investing with you. How are you – You mentioned you were educating them. I wanted to understand what you are focusing on and how you’re doing that and what the program looks like.

[0:16:11.3] DC: Yeah. I mean, I don’t have any set in stone program. Again, I think that’s kind of back to my open-door policy. If you invest in me, I’m more than willing to show you and welcome you to come see what we’re doing. Like I said before we started this podcast, I don’t have a huge portfolio. I have a couple hundred units. I’m very comfortable with that. I’ve got a handful of clients. I mean, my largest asset, I own 50% with one other guy. He hasn’t been on site for 10 years on that property.

For instance, if he ever wanted to be more involved or know the business, obviously we have that open-door policy. But we’re starting to do more capital raise and saying, “Hey, if you want to learn it as we go, I’m completely open to that. I’ve had a few properties we’ve had to kind of back out because of this whole coronavirus, but we’re starting to roll that out a little bit more. Come walk units with us during the inspection. See how we’re going to hire this management company and how we’re going to asset manage it and kind of all the plans going forward.

[0:17:11.7] KR: Got you. Okay. I think you have a unique perspective, as you said, kind of in the smaller units where your brokerage focuses. I mean, how have you seen returns differ from the 2 to 50 as you said versus those larger deals that a lot of folks are looking out from a syndication standpoint?

[0:17:31.3] DC: I’d say the biggest thing that I noticed as the difference is the cash flow that these individuals make from these smaller properties, and they’re not kind of focused on that sell in five years and make a return that way. They’re living on cash flow. We’ve always been cash flow buyers and sellers and brokers and not – The markets just kind of keep going up, and cap rates are going to come down and interest rates. In five years, we’re going to sell up for three times what we paid for. We’ve always kind of focused on cash flow.

I think that’s the biggest thing is I think more cash-flow-driven properties on the smaller and not thinking about that sell in five years or REIT, whatever to make our return. That’s I’d say more of the difference between the larger syndications I’ve seen and the smaller properties on the return basis.

[0:18:21.7] KR: You’re seeing better cash-on-cash returns on the smaller properties than on the larger? You’re seeing more focus on appreciation?

[0:18:30.1] DC: Yeah, yeah. I mean, because that’s what – As syndicators, I mean, that’s – There’s always that like, “Do we not do improvements and we have more cash flow that we can spread out to our investors? Or are we putting, reinvesting that capital back in the property to drive the value, right?” Every year during budgeting talks, that’s what we’re discussing. How much cash flow do we want to pull out and then how much do we want to put back in the property to drive the value, right?

An example I always give people is we made that change so that my property management said, “Hey, I think if we put black appliances in, we’re going to drive the rent $50 a unit.” It’s going to cost you $1100 a unit, so I had to decide how much in one year I want to dedicate to take out of my cash flow to make that improvement but then knowing that doing that was going drive my value on that one asset by a million dollars, right? Yeah, I love to have that paper equity and that property worth $1 million more but I don’t know if I want to give up $110,000 in cash flow this year to make that happen. Those are kind of the conversations.

That’s why I think when you’re passively investing, you need to be in the same space and same headspace as the sponsor. So when I’m raising capital, I’m looking for like-minded people, right? Obviously, they have to vet me, but I’m vetting them just as much as they’re vetting me, so it goes back and forth. I’ve turned people down that – In Nashville, we’ve got a lot of music business people, and I’ve had to say to some of them, “I don’t really want to take your money because I’m not going to get it back in six months, right?”

I think that vetting process goes both ways, and I think talking about the returns and plans and what are you going to do in the future. Are you long-term buy-and-hold guys? Do you want to own this asset in 10 years or are we selling it in three? Again, that vetting goes back and forth between both parties.

[0:20:21.1] KR: Yeah, and I think that’s a really good point to bring up and discuss with the sponsor that you’re looking at is what type of return is their focus. Is it cash flow? Is it long-term appreciation, right? Because those are very different strategies and then understand that you know you as a passive investor need to be educated enough to understand what does that mean for the deal and how they’re going to operate the deal.

Then make sure that as they’re operating that they’re following that plan, right? If you say upfront that we’re going to be largely focused on cash flow and we’re going to provide some cash flow returns, well, then you see – If you see massive CapEx expenses going in, then that’s going to counter to what they’ve said at the beginning.

So I think understanding how the deal should look and feel as well and the things that they’re doing and how that ties with the discussions you’ve had about the type of returns that they’re focused on, but I think that’s a really good point on the difference between the cash flow investing versus focusing on appreciation.

[0:21:20.2] DC: Well, and the beautiful thing about this business is you can have all of that. You can do one deal where your – I’ve got a little 14-unit downtown Nashville I bought years ago, and I haven’t cash flowed that property in five or six years but I’ve driven the value by like, I don’t know, a thousand percent, right? I mean, it’s worth $2 million more than what I’ve got in it five years later on a little half-million dollar investment, right? I can have that. Then I can have my cash flow property over here, and in this one I can – You can have all these things. They don’t have to always fit the same model, and so you can partner.

If you’ve got that person that’s like, “Hey, I’m cash flow.” Okay. Well, when I get cash flow property, you’re going to be the next on my mind, and we’re going to buy this. But then I got somebody that says, “Hey, I want to be passive. I want to drive value. I don’t care about seeing any return for five years.” You can do all these things. You can do a syndication. You can do – I was talking to a very, very well-known syndicator the other day. I’m like, “A deal is a deal.” If it’s across the street and it’s a duplex and it’s easy, I would buy that. At the same time, I’m putting a syndication together. Again, you don’t have to follow the same path every investment.

[0:22:30.2] KR: Right. That’s a really good point, right? I think that’s one of the benefits of being a passive investor is the ability to create a portfolio of these different types of deals, different sponsors, different focuses, large multi-families, smaller down the duplexes. You can really create, again, a diversified portfolio to give you the return profile that you’re looking for, right? But you can have a mixture of cash, a mixture of appreciation. Ultimately, that can be safer on a risk-adjusted basis than just going all in in in one type of asset, for example.

[0:23:05.7] DC: Yeah. I mean, you talk about diversification right there. I mean, it’s – You can put money in my deal. You can put your money in your deal. You can put – Some of these other guys were talking about before the call, I mean, in different markets, right? Not all in Nashville. Not all in Indy. You can do some in Atlanta and talk about diversifying your portfolio. Then, again, if you’re smart enough, you can get in the minds of people like me and other syndicators and learn in the same process and educate yourself. Then sit back in a couple years and go, “Man, I really like doing more of that,” or this or whatever. Yeah, there’s a thousand different ways to do this. Again, I think it’s really getting comfortable.

When I started this brokerage firm and I was a finance major when I dropped out of college, so I do have a little bit of education on this, but like I want all people to always be able to lay their head down at night and not worry about their investment, right? If I was going to sell them a duplex and they were going to worry about it, it didn’t make sense. So I had to kind of find and get in their head of what they felt comfortable with doing. I think you’ve got to kind of look at different options and then be comfortable with whatever you’re getting yourself into that you’re not going to lose sleep over it, right?

[0:24:16.7] KR: Yeah, and I think that’s a great point. It’s something we’ve talked about  previously on the show is it really starts with knowing yourself as an investor and be very clear on your goals, what you’re trying to achieve. Is it cash flow to live the day-to-day? Is it appreciation because you’re focused on building long-term wealth? What are your goals and what’s your risk tolerance? Based on that, what type of investment should you be making and what are you comfortable making? I think it’s really important. You just have to start by knowing yourself as the investor.

Then coming back to the beginning the show as Dave was talking about. Then you start to say, “Okay, which sponsors align with me and my goals?” Then you get into the markets and then you get into the deals. But it really starts with knowing yourself, what are your goals, and then I think understanding your sponsors. Yeah, I think that’s right.

[0:25:07.1] DC: It all works. I mean, I’ve seen – I have a family locally here in town. I know they got a thousand units. They’ve owned them for 20 or 30 years. They don’t take cash flow from those properties. Every year, they’re just dumping the money back in the property. Then every couple years, every five years, they’re refinancing, pulling large amounts of equity out, paying everybody. Again, like you said, you just got to find that sponsor that aligns with what you want to do and what your goals are and what you’re comfortable with.

[0:25:34.8] KR: Yeah. There’s a lot of ways to skin the cat, right? So it’s important –

[0:25:37.7] DC: I don’t believe that term because now supposedly it’s not politically correct. But, yes, that’s great. You’re fine. I laugh at stuff like that. But, yeah, you’re exactly right. There’s a thousand different ways to do this.

Hopefully, as you meet with brokers or sponsors, they’re going to ask you these questions, and these are the kind of conversations that you and I are having that you should be having with sponsors or brokers or anybody in the space, property managers. Find a deal that you might like or that looks like a good deal. Find out who owns it. Maybe talk to the management company and say, “Hey, I want to sponsor. I’ve seen what you’ve done with that property. That’s the kind of asset I want to get into or do what you’re doing because I like to see what you’ve done on that property.”

Again, there’s a thousand different ways. Find out who the players are in your market and just take them to lunch. Go to their meetups like we have. Get on Zoom calls. I tell people, when I started this business, we had – There was one guy kind of teaching this. I won’t mention his name but we spent thousands of dollars going to conferences. I had to buy books and CDs and listen to them and pay thousands of dollars. Now, we’re lucky to have Zoom calls and meetup groups and guys like you putting great podcasts together that are readily available just driving on the road, listening to them. I always think guys that put podcasts together because I know how much time and effort you guys put in these things, so I appreciate you doing it.

[0:26:58.6] KR: I appreciate that. But I think the point is that there are so many sources of education. There’s no excuse not to get educated. Before you make your first investment, spend the time getting educated and doing all the things that we just talked about.

David, it’s been amazing having you on today. You’d had so much knowledge and such a unique perspective in all that you’ve done. The last thing I’d like to do with you before I let you go is I got a segment of the show called our Keys to Success. I like to ask you a few questions.

[0:27:27.2] DC: All right. Let me see if I can answer these. 

[0:27:29.2] KR: What’s the most important question a passive investor should ask the sponsor if you only had one question?

[0:27:35.8] DC: Tell me about yourself. Again, I think it comes down to working with good people. I want to know about you. I want to know what your – If I just sit down and let you tell me your story in an hour, I’m going to know a lot about you and just let you talk. So just let the sponsor talk. Ask them about themselves. I would say that’s probably the biggest thing.

[0:27:58.2] KR: Yeah, that’s a great answer. What’s been your best investment?

[0:28:01.5] DC: Oh, man. Again, back to that conversation, it depends, right? I mean, are we talking cash flow or are we talking about – I’ve got a 115-unit complex in Murfreesboro, Tennessee. I’ve owned it for years now, 13 years. It’s – If you talk about passive, it’s as passive as they come. It’s paid me very, very well, cash flow, refinancing. It’s probably by far. But then I – This is a great – I don’t want to take too much more time but [inaudible 0:28:16].

[0:28:30.7] KR: No, go ahead.

[0:28:31.0] DC: Something on your own, right? I mean, I have smaller stuff that I own 100% of that I’ve made almost as much money a 14-unit versus my 114 that I’ve had to split with somebody. There’s a lot of pros to doing bigger with partners. But then, man, you can hit some home runs with these smaller properties that can set you up for life that are 100% I don’t have to answer to anybody. I control the deal. There’s pros and cons, so I can say both of those deals, just depending on what day you catch me on.

[0:29:00.5] KR: That’s fair. That’s fair. What are you most proud of?

[0:29:04.1] DC: I mean, I love helping people in this business. In the brokerage firm, people are always like, “Man, why do you keep that brokerage?” There’s been times I’ve thought about shutting it down and putting my time and effort into just Cedar Rock and just raising capital and doing bigger deals. Why do you screw around with selling people duplexes and helping people? I love this business and I love what it’s done for me, man.

I moved to Nashville with like $8,000 in my pocket. I was a road manager making $1,300 a month that have become a multi-multimillionaire from doing real estate. So many people invested and gave me their knowledge and took time to teach me this business. I feel an obligation to teach people the business. That’s why I really don’t want to do coaching but I want to teach people how to become financially independent through this. I just turned 40 this year. Honestly, I can retire and be done but I love this business.

I don’t ever see myself retiring because I want to teach the next generation. I want to teach that 25-year-old kid that I was with not a dime in my pocket to learn this business and not to be greedy and not to own jets but to have that financial independence where you can have freedoms to do things that you want to do.

[0:30:13.1] KR: Very cool. What books should everyone read?

[0:30:16.1] DC: Okay, so Jake and Gino. I don’t think the podcast has come up but I don’t read books. I’m kind of like that ADHD. I’d read like three pages and then have to go back two pages to start. Rich Dad Poor Dad, I buy that for everybody. I make them read it. I’ve paid my nieces to read it. I love that book. I mean, that was – I was a finance major like I said, and my father-in-law gave me that book, and it was a life changer, so Rich Dad Poor Dad.

Millionaire Next Door, understanding that. Not all of us millionaires drive crazy cars and don’t own jets. So just understanding the millionaire mindset, anything that you can just – For me, that was a game changer, understanding how wealthy people actually live. Those are my plugs.

Seriously, I have not read a book in years. I listen to a lot of Audible, but it’s more in chunks here and there. Again, my mind is kind of always thinking and distracted, so it’s really hard for me to focus. So I don’t really do a lot of reading. I’ve learned from being hands-on, like we’ve talked about. Managing properties and cleaning, following people around, and talking, and having lunches with people. I mean, that’s my thing is I never eat alone. I’m always trying to eat with either my staff, a client, somebody and just having those conversations. That’s how I learned.

Jake and Gino and I were talking about this like figure out how you learn, right? I was a D student in high school. I’m not smart when it comes to that. My wife got As and Bs in college, and I barely got through the classes I did enroll in.

[0:31:46.2] KR: That’s fair enough. Those are two good recommendations still. Then the last question, so what’ your number one key to success?

[0:31:53.7] DC: For me, I’ve been self-employed my entire life, so I’ve never had a real day job. I’ve had to like – I get up. I go. I have an office here in Nashville. I live about 30 minutes away. I go to my office. I do work. I think that’s one of the things that has made me successful is that everybody’s kind of experienced this with coronavirus. They don’t have anywhere to be. You always like get up, take your shower. So having a routine for myself to work but also not being so stuck in that routine. It’s not an – I’ve never worked a nine to five. I still work at nine o’clock some nights and I still work. I was just at the beach last week and I’m on my computer on the phone.

I think being flexible but then also having that schedule has been my key to success and just plugging away. I see so many people who just give up so soon and that they kind of want what I have now. But it’s been – I mean, man, this is 15 years of blood, sweat, and tears, and you’re not going to achieve that same thing in one night. One of my investors, partners, he built a multimillion dollar business and I remember when we first started. I was super stressed out. I called him and I said, “Man, I don’t know if I can take this.” He was like, “Man, let me give you a reality check. Do you think I built this multimillion-dollar business without some stress or a lot of stress?” That was just a wakeup call. It comes with the territory. That’s my biggest thing is you got to put the work in.

[0:33:17.3] KR: Right. I think that’s one of the biggest takeaways or people think about when they want to decide if you want to be a passive investor or an active investor is the stress and the work that comes with doing it yourself, right? Can you limit that by investing passively and relying on other people and relying on their stress and their worry to be able to do that? I think it’s a big consideration.

[0:33:38.5] DC: For me, my brokerage firm has been my day job, right? That’s what I tell people. I’m a passive investor essentially, right? My brokerage firm has been what pays my – I mean, that’s my day job. I’ve had this multifamily, $30 million portfolio cooking on the side as a passive investment for years. I dedicate a few hours or my money and capital and knowledge into it. But my day job, I’ve kept my day job, and that’s been the brokerage firm. Now, this year, I’m kind of getting out of brokerage firm and just I’m able to live off my passive investment.

You got to kind of figure out what that is. What is that side hustle that you can be putting your money? What do you have that you can leverage, right? If you’ve got a great paying job, what you’re leveraging is live on less than you make and be putting cash into deals like this, so it can be cooked, generating revenue as you sleep and all those kinds of things.

[0:34:30.2] KR: Yeah. That’s great advice. Dave, how can folks get a hold of you if they want to learn more about Cedar Rock or your story?

[0:34:36.6] DC: You can go to cedarrockcap, just one word, cedarrockcap.com. Find me there. Find me on LinkedIn. I’ve got a Facebook page. I put a lot of content and I always give my cell phone number away. I’m surprised that people – I have a few people every time call me. But it’s funny how many people locally that we get that contact me. So my cell number is 615, area code 479-8737. Call me. Leave me a voicemail. Text me. I’d love to get it. Mostly if you’re Middle Tennessee, I’d love to get in contact with you and let you know kind of the events that we hold, the meetup, the coaching, the brokerage firm, Cedar Rock, what deals we’re working on, and just network with you guys.

[0:35:14.9] KR: Awesome. Well, thanks, Dave. It’s been such a pleasure having you.

[0:35:19.2] DC: Thanks again.

[0:35:19.7] KR: Brought some great knowledge today to fellow investors out there. Before I let you go, I want to make you aware of a special offer that we’re doing to celebrate the launch of the podcast. I’ve partnered with seven of the industry’s top thought leaders, including Joe Fairless, Gino Barbaro, Dan Handford, Hunter Thompson, John Casmon, Kim Lisa Taylor, and Vinney Smile Chopra to offer an exclusive content package for those that subscribe in the month of May.

All you have to do is go and subscribe to the podcast and send me a screenshot to the email address info@ritteronrealestate.com, and I’ll send you that content package that includes all this great content from seven thought leaders. Go out and do that today. Don’t miss your opportunity to get that before the end of the month of May.

With that, Dave, again, thank you, and we’ll talk to you soon I hope.

[0:36:07.3] DC: Thank you.

[END OF INTERVIEW]

[0:36:08.1] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro.

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