At 19 years old, Cody Davis purchased his first rental property. Before turning 22, his portfolio included 81 units.
In an interview with David Greene and Henry Washington on the BiggerPockets Podcast, Davis walked us through the steps he took as a bold 19-year-old real estate agent with little to no income and not a single W-2 form, to owning 81 units across eight deals within three years.
How He Purchased His First Apartment Complex
Davis started work as a real estate agent in the Seattle, Washington region after he turned 18 years old. As an agent, he wasn’t successful and rarely made sales.
However, he was good at staying connected with the other agents at his brokerage. A deal for a seller-financed 22-unit apartment complex came across his desk one morning after it fell through with another buyer. The head of his brokerage pushed him to pursue it, despite lacking the financials, experience, and know-how. They assured Davis that other agents at the office would help fund the deal if he could get the seller to leave the table happy.
When Davis approached the seller, he was flat-out rejected. The seller felt they were being dragged along for far too long and pulled the listing altogether.
Davis was crushed and frustrated. But he had caught a virus: the investing virus.
As a real estate agent, Davis had access to the multiple listing service (MLS). After getting shoved away from the last deal, he filtered listings with “seller financing” and found several properties. One, in particular, was a ~$1.2 million 12-unit apartment complex that had been on the market for 560 days.
Davis contacted the listing agent, cunningly explained that he just had another deal fall through and was looking to make a purchase, asked how they wanted to write up the contract, and began the purchase. The original asking was 20% down with 80% seller financing. Davis came in at 15%, went back and forth, and finally went under contract.
While under contract, Davis negotiated his way to a 10% downpayment. The downpayment now totaled roughly $125,000.
Cody put on an impressive feat up to this point, but the biggest challenge had not started yet. How does a 19-year-old with hardly any income, assets, or experience negotiate a 12-unit complex with seller financing and fund his end of the deal?
For Davis, it comes down to mindset.
“I was going around and asking everybody for help in the office,” Davis explained. “[I asked] ‘who has a client that is liquid $125,000?’ I don’t need to be the one-man show, so [I asked] for help. I got a lot of help, not just with connecting with people. A lot of people I connected with, I botched the meeting on.”
But botched meetings didn’t deter Davis. He needed to raise $125,000 before closing, and he was determined to do so. Finally, after raising a few bucks from other agents in his office, his mentor helped seal the deal.
By the end, Davis had a secured the property with a non-ballooning, 12% interest note from the seller that covered 90% of nearly $1.2 million, raised $125,000 in equity, and generated net cash flow that equated to over $1,000 by the end of the first month. All at 19-years-old.
A Seller Financed Investing Strategy
Due to his age and financial history, Davis lacked significant leverage in terms of the financial products he could qualify for. He didn’t qualify for FHA loans, and most traditional funding avenues would scoff at his scant financial standing.
He quickly realized that seller financing was his best bet at securing loans. Seller financing is a nifty trick that allows a purchaser to acquire a property without dealing with a bank. Instead, the seller finances the deal, and you pay them back over the course of the note. This allows greater flexibility in financing terms and can significantly lower the barrier of entry. Cody capitalized on seller financing to fund all eight of his real estate purchases.
But it still raises the question of how he was able to pull this off the first time with his lack of finances and general lack of real estate experience? After all, sellers want their money just as a bank would. Lending to an inexperienced, strapped investor seems like a huge risk.
“Instead of trying to sell an idea, I want people to buy into who I am. And so, what I’ve come to grips with and how I operate my business today is that everything that I do, I [have] to get to the table first. And I do that by being relatable. I have to have a relatable story [for] people. I got to be somewhat relatable to get in the room and get people talking to me. Then those same people, whether it’s a seller, whether it’s a buyer, if I’m the broker, whether it is just [another] investor, they will work with me if I have targets,” Davis says.
The entire strategy is built on relationships. He’s fully embraced the idea that real estate is a relationship business. The most successful investors are the ones who build their networks, come to the table with a win-win mindset, and sell people on stories and possibilities, not numbers and ego.
The True Cost of Debt
Davis took on another seller-financed property on his second deal that included a 12% interest rate. At this point, he was up to nearly half a million dollars in interest payments alone. For a young investor moving on to their second property, this seems like a lot, and it was, as Davis acknowledges.
However, he notes that it costs more not to get started than to get started with high interest.
“So basically, [at] 12% interest, I pay 1% on whatever I borrow [per] month. And so, on my first two deals, I borrowed a quarter million dollars, and I was paying $2,500 a month in interest. Most people would say that’s ridiculous, that it costs so much money. I’d argue that it costs a lot more money not to get started. And both assets cash flowed $1000 a month or more [from] day one, net of everything.”
Davis argues that the cash flow spoke for itself. He went from having no assets to an asset with high interest and an extra $1,000 in his pocket each month, and all paid for by his tenants. He also reminded us that at his age, there’s far more waiting for him in the years to come. Especially as his financial background matures, experience and reputation grow, and he’s able to qualify for low-interest financial products from traditional lenders and seek out attractive deals from within his network.
Real estate, after all, is a long-term game with tremendous potential down the line.
Notes to Take
Cody is a shining example that age isn’t a factor when you’re determined to make something happen. For so many, entering the real estate arena is guarded by a high barrier that seems impossible to climb over or breakthrough.
But, even in today’s market, there are creative methods that can be used to penetrate the walls and make progress toward a financially free future.
It takes hard work, bold action, and creativity, but anything is possible. If someone like Cody Davis, a struggling 19-year-old real estate agent, can make the impossible happen, you can too.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.