How Cody Built a 20-Deal Portfolio with Seller Financing

Hello and welcome to another episode of the Owner Meeting Podcast, hosted by Multifamily Strategy. I'm Christian, your channel host, today joined by Multifamily Strategy co-founder, Cody Davis. He actually started the company with me. He's been on several times doing some brand new adventures. Today we're going to talk about creative finance, development, and much more. Cody, welcome back to the channel. Good to see you, Ben, a little bit. It has been a little bit. It has been. Also, your background looks cooler than it did in the past. It looks like you are in your coffee bar. I am. and I have a mixer. I like it. Where are you living now? Since we started the channel, you've gone from Tacoma to living at our resort to Tennessee to back to central Washington. Where are you at now? Still in Moses Lake for probably another year. And then Gig Harbor, which will have an even cooler background. That's going to be super fun. Why Gig Harbor? It is beautiful and it is close to family. That is a good reason to be there. That's the one thing I miss most about Washington is I am far away from family. But you don't have crazy taxes. except for properties. Man, have you seen that millionaire's tax in Washington state? That is, I think goes into effect 2028 if they don't rule it unconstitutional, which who knows, Seattle's pretty crazy. But boy, there's a lot of people in real estate that make pretty good money. Another 10% tax on that. Do you have any friends who are leaving the state since that's been announced? No, not close friends that are leaving. There's people that have already left, but it's fine. And it looks like you can use depreciation to get your income back down below the million dollar mark. So that's what I'm seeing anyway. So it shouldn't affect too many real estate players. Well, that will be interesting. So what we're going to expect is probably a whole lot of acquisitions and cost segs from anyone making significant money. That's my understanding, but it's also above my pay grade. So we shall see. That is fair. I worry about long-term job providers there. When you see like, again, it's your top, top, top people. But when you lose your Bezos and your Schultz and all of these other people left because of taxes or business unfriendly, do you start to see that affect the tenant mix in buildings and availability as jobs go with them? It definitely will. However, there's not a whole lot of those companies where I invest. So hopefully it doesn't kill my market. If it does, then we'll have to adjust and pivot. But that would be a tragic day. It's something that I'm looking at very closely. It's like, wow, how heavily do you want to invest in core markets? Because you're in a, either it's a large tertiary market or a very small secondary market. Kind of hard to say with Grant County. There's a lot of job diversity, decent population. What have you seen over the past couple of years as far as leasing, rent? Because there was a ton of growth happening in central Washington. What are you seeing now, just in today's market with leasing, renting, the appreciation in buildings in these secondary markets in Washington State? I'm still getting really strong appraisals. I'm continuing to lease my stuff up. Me, like me doing it, not management. So I've had to take a good look at management options because it seems like I can fill a unit much more efficiently than the local companies because I actually respond to people. There's an actual demand. And for a while, I didn't think there was a demand for units based on what I was being told. So I think rentals are doing fine. Values, while they're down, are still strong. And we had that uplift from all the money printing that got rained down on Americans. So that was nice. It certainly did not hurt rent when everyone had magically more money in the economy. Yeah. And housing authority groups seem to have more money now to catch up back due. So I'm getting a check for six months of rent for someone who it's paying their back due and paying a few months forward. That's nice. Those programs went away for a while. I know we definitely utilized that on some of our first acquisitions. So it was very helpful that it went away and now it's back and things overall are going pretty well. This is something Cody and I call each other on this relatively often with managers. And I can confidently say every building that I have purchased had deep management issues. Even the ones that were managed by big companies with a lot of track record, Cody and I have used, through the years, we've used Boutique, we've started our own, we've done self-management. It sounds like you're falling back on self-management without overly throwing someone under the bus. What's your experience been between the different flavors of management? Self-managing, owning a PM company, third-party management and now it sounds like you're kind of shifting back into that self-management role. Talk to us a little bit about the journey and what the different flavors looked like in your experience if someone's starting doing the same thing. Yeah, I've been self-managing some of my portfolio for a while now and I'm going back and forth between that and or just creating a company, getting my DB designated broker license and then starting another PM. I've been there, done that, would have to systematize it but that would allow me to open up to third party. And I know there's a need for that. So it's a consideration. What's the difference between being a landlord who goes into property management or a property manager who wants to focus on building a property management company in your experience? Well, people that just build a company to have a company are quick to spend money that's not theirs. And going as an owner into property management, you think of it as every dollar to the bottom line is not a cash flow number, it's a value figure. So if I can save X amount of money per year on maintenance, rather than blowing this money, this building is worth more, my client can go get a bigger loan, buy more deals, which then would funnel back into the PM company. But it's people that are just building a company to have a company can become very short-sighted with the way that they're operating the buildings and people that own buildings and look at it from that approach, really have an understanding of how to maximize value, how to maximize money in. Because your big liquidity events from real estate are pushing the value up and then borrowing against it and doing it again. That's how you get your big paydays. So I haven't found a PM company that thinks like that in Grant County. And I can say doing this all over the country, both myself and then just people within Multifamily Strategy watching all the management models, that is consistent in every market in the United States is you just have a bunch of PMs. We just entered a run PM number three in Houston, Texas, little 10 unit down there. So like, I don't have enough footprint there to justify opening a management company, right? 10 units. It doesn't make financial sense to have employees in Houston. It's too far for me to drive. We've gone through PM after PM after PM. The last PM that we had, they're the biggest one we've worked with. They're like, Hey, we are so sure that we need to drop your rents from $11.50 to $7.85 because that's what the market dictates for this area. And I was like, well, first of all, no, you can $9.85 at the absolute lowest. They got no leads. They did nothing. And they're like, hey, I'm telling you, it's the pricing. Caleb spent one afternoon, not even a full day, one afternoon being like, hey, let me try to work on the leasing. He got three applications between $11.00 and $1,350. And this is just so consistent in markets all over the country. It is so rare. It is so rare to get a great third-party PM. Yeah, and at that point, where your portfolio is, it almost just makes sense to sell that building on a wrap and move on. That's typically what you start looking at doing. It's like, hey, I have a smaller building. It doesn't make sense to PM it. I can't do it myself. PMs in the area can't. I think it's actually a huge advantage that smaller investors have. This is why I really actually like, like you started with a 12-unit building. you and I started together on a 38 unit. But when you're a smaller investor, I think self-managing is one of the best things you can do. If 10 units made a huge difference in your portfolio and you can take over these systems, you started at 19. You're doing a lot of self-management. What did it look like realistically for you as a 19 and 20 year old to manage on the other side of the Cascade Mountains, you got to about 30 units while you were 100% self-managed? Yeah, it wasn't that hard. I drove over a lot to do fixes because I didn't have the right people to hire to do the fixes that I could trust. And I didn't have a whole bunch of extra money to waste. So I ended up driving more so for that than actual management. I'd go over to collect rent if they didn't pay online. And that was it. But most people pay it online. It wasn't that hard. I bought buildings where people stayed for a few years. So there wasn't a whole lot to do. And when there was a lease up, I'd go clean it and put it on the market, find a tenant from Facebook or Zillow and move them in. It wasn't a big deal, especially 30 units. Anybody can manage 30 units. Yeah. Well, and you would think that. However, how many times have you as a 19-year-old before you knew what you knew today still done a better job leasing your units than a lot of the other property managers that are in these markets? Yeah, it's shocking. It is. Speaking of, you did start at 19. You started with a lot of creative finance. And I was trying to think through the deals here before we hopped on today. You did a 12-plex, a second 12-plex, a six-plex all-seller finance. You and I partnered at around that time. We did a 38, a seven, side-by-side duplexes, two triplexes, a 10-plex. How many deals did you do seller finance before you acquired a deal with a bank? The first building I ever bought, like day one with a bank loan, was my Afreda building. That was like eight months ago. So you've done what? A dozen or more seller finance transactions to build your portfolio? Yeah, because you got the two 12s, the six, the 38, the seven, the three duplexes, then there was a triplex, another triplex, the Afreda two buildings, the Gibby duplex. Oh yeah, Gibby, not Pansela, Aquila, that's 12 deals right there. Add division. Robinhood, White House. You've probably closer to 20 deals seller financed before doing a bank loan for acquisition. and the bank loan had a seller second behind it but that was seller financed as well so with someone starting is creative finance usually the option in your experience if you were to if you were to start over again would you go after the deal saying hey i need to focus on finding seller finance transactions specifically i think regardless of whether you do seller financing or you do a bank loan you have to if you don have money you have to get creative on how you qualify It the bottom line So if you go get a DSCR loan if you don have the money down you have to get a little bit of creativity involved to figure out okay, well, what would I need to qualify? I need someone with a credit score. I need someone with the money down. How do I structure it to where I have control, even though I don't have any other pieces? I'm just playing matchmaker. If you do seller financing, how do I make the seller feel warm and fuzzy about me, regardless of my background? It's going to take creativity, regardless of whether it's actually seller finance or bank loan or commercial. And it's not going to be just, if I do X, Y, and Z, every deal is going to work. It's going to be, what do I have to do to make this deal work? Or listen, of your background, how do you overcome that when you're 19, 20? Maybe you've done a few deals, but you haven't gone full cycle, right? So how are you landing these deals and how does that conversation play out where someone would have confidence in you? And you're like, hey, I've done this once, right? I bought a 12 flex. You're still really young. You still don't really have any experience. You haven't taken it full cycle. As a seller, how do you overcome that? When you are pitching to a seller, like how do you go, yes, this is the guy I want to sell the building? The way I've done it is selfie videos. And so there's a building in Quincy that I own. And then there's another one that's basically adjacent to it. There's 12 units. And I'm working on going mutual on that right now as well. And I've been sending him selfies at my property. selfie videos around his property, telling him about who I am. The Ellensburg deal that I'm working on right now, the way I got the seller on board, because I don't think I was the highest offer. I was just the most certain to close. I drove over, took a selfie in front of the campus and sent it. And then the day following, Ashley and I, my wife, we drove over, took a selfie together at a different angle at the campus and said, hey, it was so exciting. I had to bring my wife and she loves it more than I do. Building confidence like that, regardless of track record, I've never bought a 41 unit. I've owned stuff similar size, but also the income on that's over half a million a year. So even though it's only two more units, it brings in a lot more money, over a hundred grand more than my 39 unit, which is only two units less. So it's just a different class of asset. Showing up, showing them that I'm there and highly interested builds a level credibility because most people take too long to make a decision. That is very true. And I've seen that be the difference maker in more deals than I think anything else. And this is like any other sales job. It's speed to lead. What is the difference between, really, what is the right timeline, I should ask? You are interested in a deal. You've decided, hey, I think I want to buy this. There's probably still a little bit more due diligence to go. You never go into a deal knowing everything about everything. How do you get an offer that you are confident in, in a timeline that builds confidence that you are going to close? Well, I'm going to give the broker notice same day. So if he sends me the material, if I got to spend 20 minutes or if it takes an hour because I don't know the market, I'm like, okay, let me Google Maps, Street View, drive through this. Is this ghetto? Is it not? Oh, it's by the school. I'm going to start digging into that stuff. I'll spend as much time as I need. And then as soon as I have an answer, I'm just going to call them back. So as much time as you need, though, that is, you're talking like 15 minutes to maybe a matter of one or two hours. Yeah, so they sent me that deal. And the interesting thing is it was listed for 5.2 million. And I called him back on a different deal. There was a property in Walla Walla of 64. I won't go too deep into that. I called him. I was like, hey, you know, I'd have to chat with the manager. I'm not so sure. The Ellensburg deal is nice. It's just too much. He's like, yeah, well, they'd probably accept a discount. They really want to sell. And we listed this pie in the sky price because they wanted it. many went into some reasons that they were willing to go for a little less. And so I submitted an LOI same day. I was like, well, if that's true, let's submit LOI today at that price you mentioned. And then we met in the middle, which was, I believe, a reasonable price for the seller. And I'm going to make a good win out of it. And I think all negotiations should be about that simple. If you think of any sales process, the time kills the deal. It's not even just some other competition getting in there. I lose confidence if you and I talk about a deal and four days later, we're still talking about a deal and next week you have more questions about the deal. In that timeline, I don't believe you're going to just come in and aggressively close the contract anymore. Regardless of how old you are, how much experience you have. That same day, realistically, if you were newer, so let's go back to earlier days. So let's call it year one or two of being a landlord. How long did it realistically take from when someone's like, hey, this price, this building? How long would it realistically take to get back to them with an offer that you felt strong about? I found the 12plex that was listed on the market in Quincy for 551 days. It was probably on the market for 550 days. And I submitted my offer and got it accepted on the phone. So that was back then. I found underwriting that made sense. I said, let's do it. I sent the offer and it was under contract. And then it closed like 60 days later. And earnest money was due like one day before closing. It was beautiful. That's the way to do it. And I think a lot of people, especially when you have low to no money transactions, how did you get that accepted? Earnest money not due till the last second? Well, I had a super long feasibility for that deal. I think it was 30 or 40 days. And then I had earnest money due 15 days after that. And then we were right at closing. So it just happened to work out that that was the timeline. And do you often get pushback on that? Or is that something where you just put it in your offer and sometimes it gets accepted, sometimes it doesn't? They give pushback, but I just use my personal experience. I tell them about Walla Walla. Do the same thing. I said, I put up $100,000 with my buddy. We had $65,000. We were right. They didn't sign. And then we lost like $60,000 between giving up earnest money, which we didn't have to do just to settle a lawsuit and legal fees. So I don't want to have earnest money due before feasibility. Because if I want to walk, I don't want to fight. We were right and still lost money. that was a that was a scarring moment for me as well and that was uh pretty much every offer i did after that i'm like yeah we'll put i usually do 500 to a thousand dollars hard up front in texas you actually have to have non-refundable consideration to have an open contract so you have to have something but we'll put a little bit up and then the rest of it's due after feasibility it's like look at you can't take the money to after feasibility anyway i get you want to see where invested but like look at i've been burned on it so refundable if i have to fight you on it. It's not free to be refunded. I found the same thing that one time we did that. Tell us a little bit about that deal. That was a dramatic, that was a huge learning experience. We've had you on the podcast multiple times, right? So we talked about multiple stupid taxes. This one sucked. Tell us about the deal and then how did it go wrong? So for examples, right, I'll use objects. So this was portfolio A and portfolio B. Yes. And we were going to buy portfolio A, which was the big portion, conventional, and put a down payment. and they were going to sell their finance portfolio B with zero money down because all the money was coming from portfolio A. And if we put 20% down on portfolio A, the bank puts up the other 80%, they're getting 100% of the money on that. So they're getting a massive down payment and giving us good terms on the other. Well, we did not have a clause because we didn't know this. We did not have a clause that allows us to back out in the event that rates go up. And rates went up, which killed portfolio A's conventional purchase. and seller doesn't want to move forward so they don't sign. They also thought that the offers were contingent on each other, which they were not. So there was a misunderstanding the way that the broker involved presented it. Brokers partially at fault were at fault because we don't know that we need to have a clause in case rates go up. Yeah, this was when rates were at about 3%. And through the course of this transaction, these were the months rates were skyrocketing. So we started at around three by the time we got to close, we were already looking like closer to 5%, weren't we at that time? It was in the sixes, but either way, it killed the deal. So we couldn't move forward and we didn't have a clause to prevent against that rate hike. So that was a learning lesson. And hence Walla Walla fell apart. Which for me, it was a huge learning lesson too, because this was a great example of the deal didn't work because we got too creative. The concept was a great concept, right? You have some conventionally financeable stuff. You have some stuff that's not. we really want the whole portfolio. So let's sell our finance some and let's bank finance the other. Like on face value, it wasn't that crazy. They introduced some other pieces though, like, well, my son has this one house. If you guys can overpay for this one house and underpay for some other ones. By the time the contract from where we started, right, we want to buy a bunch of duplexes and a 30 unit, I believe it was apartment building. And there was a seven there. It was just this convoluted portfolio that we were going to clean up, but they added in a piece where we had to overpay with hard money on one deal and personally back it. And we're moving equity. They got complicated. And like almost every deal where you involve creative finance or creative real estate structures and it gets complicated, pieces were missed and it fell apart. To be fair, if this was done correctly, they should have made the contracts contingent on each other. Like that was just something that they should have done, but they didn't. So we were right. We didn't have to close on both, but they should have done that. That would have been a prudent thing to do for the design of the deal. And we should have had a clause that said, hey, if there's a problem with the bank piece, the entire deal is canceled. We didn't do that. Both parties had missing pieces. And I think it just came down to the deal was too creative. It was not a repeatable deal structure. Yeah, and the 30 grand you lost and the 30 grand I lost has made up for itself many times over because now we know more pieces that can put us at fault. We just didn't know everything that we needed to know to do that type of deal. Well, that's how real estate is too, right? It's hard to lose if you don't stop learning and playing, right? You only lose if we just did that deal and said, wow, real estate sucks, we're out. We would have just lost a bunch of money and hated real estate. But if you go in and actually apply the lessons like you're doing here, you're like, hey, your last deal. Earnest money wasn't due till the day before close. You're structuring deals in a way where you're completely avoiding the problem. And it's a problem that a lot of people get hung up on. You said this earlier, and I wanted to highlight this. Mapping out the pieces. So I asked you about seller financing. And one, does seller financing today, does it still look like it did in 2020, 2021, when we were building the bulk of the portfolio? Yep. I'm still doing it the same way we were doing it back then. Love that. I get a lot of people are like, well, it doesn't work now because people are, we're only seller financing because of the terms or the price or the market. Why do people at their core why would someone accept seller finance terms That how a lot of people built their business And so it just repeating history right And they want to be able to pass the torch We talked about that before People are still seller financing to me because they want to see me win. And I built that relationship with them. And so I can go farther with their help than I could on my own. I think that's consistent with everybody. It's very helpful to get a helping hand up. You can get seller financing terms if you are very knowledgeable about how to put pieces together. So that deal I bought in Afreda that I showed you, I think that was done pretty masterfully because I bought it with no money down. I got paid a commission to buy it and the property value doubled within a year. I bought it eight months ago and the property value is legitimately doubled what we paid. And it was on the market for 223 days. It was there forever. But I showed the seller who was saying there's no seller financing available, a path to finance some of their equity and significantly increase their return to my capital partner. Because 10% down to get the same upside is much better than 25 to 30% down. You mentioned mapping the pieces. And so you alluded briefly to down payment, money, qualifications, the whole thing. How do you actually gather the pieces? I find a lot of owners, and I hear this a lot within the mentorship groups, that's something that we coach through a lot. But from your perspective, you're reaching out to a seller, how do you truly identify what it is that they're after? Because a lot of people have a barrier between the broker and the owner. And so when you're mapping the pieces and putting together your masterful plan, how do you identify accurately what pieces you need to address? Sharing your goal and then labeling the situation goes a long ways. And so when I talk to owners and I share what I'm trying to do, I'm trying to build X and this is Y, and I label the situation. So like I'm working on some new construction and the guy building it, I labeled the situation as it seems like you're trying to phase out of ownership and more just into building for people you like, know, and trust. And he said, yeah, but I still like owning these bigger assets. And so now I know he's willing to hold his big stuff and sell his small stuff. So labeling that situation after sharing some of what I'm trying to do, it opens up some of their ideas that they're not telling me otherwise, because they'll correct you if you're wrong, typically. So another person is looking at building out some of their lots. And I said, you know, you'll make a little bit more money, but it seems like rather than making more money, because you already make a lot, you'd rather not be living in Moses Lake. And he and his wife started nodding because they know that's true. And so you can start to see people's motives if you label the situation remotely close to accurately. I really like that. And that, so essentially what you're doing is one of my favorite quotes from you that I still use this all the time on the Bradley podcast. He gave you a whole bunch of what ifs. What if this happens or this happens or this happens or else we play the game where the goalposts are and if the field moves, we'll play our game over there. This sounds like a version of that. You're essentially, you're just reiterating where you believe the goals are. You're mapping out, here's the field, here's the target. This is what I'm looking to do and then you try to name as accurately as you can. This is what you're trying to do and either they'll say yes or they'll help you get closer to what is a goal for them and then you just have to match the pieces. Correct. Yeah, and for a lot of these people that own these properties, more money is not the answer. It's more time. A lot of them have built this business where you've seen it, you make a lot more money than you used to, but you have a lot less time than you did as well. We're not playing Enter the Gungeon in Renton anymore. No, we are not. But that was a great season of life. It was. Working out every day and then playing Enter the Gungeon, you don't have time for that anymore. It doesn't work. So there's going to be a stepping off point for you as well when someone correctly labels it, gives you a solution to step out or you create the solution, you and your wife. Like that labeling that situation for the right people at the right time enables you to move forward. Yeah, one, to date, I've seller financed a couple of properties to other people for the same reason. So in a lot of time, I'm like, hey, liquidity actually solves a lot of my problems. So you would think that's not the right solution, but I've had multiple properties where I'm like, this property takes time. And as long as the balloon, I basically, if I'm seller financing, I'm just lining up the balloon with, well, where are my other obligations? And so if I can come up with a path to have more cash flow, get time back, but this money comes in prior to me owing money elsewhere, I've solved for a whole bunch of my problems. And so as a seller, every single transaction is unique. I'm not someone who would want to create a finance for 90. There's not a whole lot of benefit for me right now. If you identify the problem that I have and you line up a solution, I've said yes to that multiple times as an owner. Yeah, someone offered to buy my whole portfolio on a rack. Ooh, interesting. Which was all the old stuff anyway. Very enticing. And they basically write me a check for my equity. Again, like we were talking about earlier, deal fatigue. They're three months into consideration. And I'm like, guys, you got to make a decision. And that's the most frustrating thing. People say they want to do something and then they take three months. As an owner, I'm like, you're not real. You're not. So I don't believe it's actually going to happen because they can't make a decision. And I told the broker involved, I was like, if you can't get your client to make a decision, then don't. Bring it to me. Yeah, because it's so frustrating, too. If you're trying to build relationships, and you early in your career establish yourself as a tire kicker, every time you reach out to any of the owners, everyone knows that you're someone who doesn't transact. I'm such a huge fan of, if you underwrite a deal, throw out the price. Just temporarily. Just say, like, okay, asking price, great benchmark. I know what they said they wanted. It's like value is like a 0.5 out of 10. It's a thing that has very, very, very little consideration. Underwrite the deal where it works for you and where you would want to buy it. And then come to the table with, hey, this is where I'm at. If you only did that and I just said, no, that doesn't work for me, you're still in the category. Like you moved from I don't know you to, hey, I talked to him and he wrote me a legitimate offer that had some amount of thought behind it. Totally different camp than the person who's like, I might buy all your stuff and make you a ton of money. And three months later, you still have all of your stuff. and ostensibly not the ton of money. That's as much as, which is the part that you would have wanted. It does. Your personal brand in a market, I think what you've done, especially in Grant County, everyone in that county, everyone in that city knows who you are and how you transact within reason. When I talk to other PMs, I talk to other owners, oftentimes they still reference, oh yeah, there's a property like Cody Davis's. I'm like, yeah, actually Cody and I used to own that building together. Like I have that conversation all the time. Everyone knows who you are in your market. And in my experience, is not because you're just aggressively calling everyone, hammer the phones, you just offer on deals, you get coffee occasionally. Has anything changed at all in your general approach to real estate over the last five years? No, on long-term fixed rate debt, cash flow and margin, I mean, everything we shared was and is accurate. I put out offers. There's a deal that's on the market right now. It's pending. I do not believe it's gonna close. And if it does close, I'm calling the buyer to sell everything because it's a sub 5% cap rate on 50s product. In a rent controlled market, that needs unit turns. So it's like, that's, I kind of hope it transacts. But I put out like five or six offers on that building, different structures that worked for me. I just kept following up and they didn't want to hear from me, but I kept following up and it was with a broker. I was like, just share it with your client. Let me know. And it didn't come together. So they're under contract with someone who offered probably too much with a long feasibility. and I have a 12% chance of actually closing then. Whenever I see long feasibility and too much price, it usually means, oh, they'll come back to me when this doesn't go through. Well, that's the thought. So half of me hopes that it falls apart so I can buy and half of me hopes it closes so that I have an identified buyer who will overpay for stuff. That is a win-win. Well, if that is the case, I have some, I also have some older stuff that I would be open to, open to negotiate. I have a listed property in Moses Lake. Yeah, or you sell it to a partner. Yeah, which is also completely possible. That's one of the great things I found with having partners, partners are, as we've talked, and this is, I'd love to go into this deeper now that you've done more of this. Partners are your biggest variable outside, because if you fix your debt like we do, like our costs are relatively fixed. People are always going to be your biggest variable. But, variables can be good or bad. You have a bunch of great people in your network, you have more pieces to work with. People have different capital, different needs, and I've traded around equity on a lot of properties. Putting together people from where you started, because you and I have had some, I mean, almost comic book level, crazy, bad partners or people who've entered our universe. Like we have some stories. It's like, how does that happen to anyone? And then we've had some amazing partnerships. What does a good partnership look like to you today after five years of being in and out of excellent, mediocre and tragic partnerships? Good partner for me lets me do what I know how to do and can bring up valid points and questions, but doesn't make me doubt my skillset. Like one of our biggest partners, well, it could have been, was on a portfolio that I sold out of at a loss because they were mean to me on a Zoom call and I don't like that. So I fired myself and sold out. And you know exactly who I'm talking about. But they did not let us be in our lane. That fizzled out. 38 unit that we bought. one of the partners wanted to run the show. They didn't know how to run the show. And so they fired themselves. And so we bought them out months after we bought it. And that enabled us to figure out how to own it 50-50 back then, which was pretty cool for no money. But that was a bad partner for that deal because they wanted to run the show. They didn't know how to run. It doesn't mean they're bad people. Great, great guy. I love that individual that we're talking about. Fantastic human being. Yeah, I still hang out with them. Years later, even though that could have really hurt us, what he was trying to do. But a good partner lets the person driving the boat, drive the boat, and they put themselves in a position where if they say, hey, my money's tied up for five years, they don't try and get it in six months. Yes. Deal ride. That in the operating agreement, how do you legally establish yourself now that we've done this multiple, multiple times? How do you put in there? Basically, when I explain to people, I always tell people, the only thing that's important to me is that there's no point where you or anyone else gets in the way of me making us money. I always want the most experienced person to have the final say, and I'm always transparent. How do you communicate that in paperwork when you bring on new partnerships? What I've been doing lately, like when I have to get something put together by an attorney, is I will throw out all of our past situations where we've lost into chat GPT, and then I'll say, put together potential clauses I could share with my attorney so that they can put it on paper and it going to summarize based off of all of our losing experiences like Walla Walla Bufreda the 38 oh what are the other ones I not going to name the LLC. Division, that type of stuff. So I can bring up the pitfalls of the partnerships and then have it draft clause ideas so that it's cheaper to have it go through the attorney. I'm sincerely worried about law school with the entry of AI. You need a lawyer to represent you in court, right? If you're arbitration, mediation. But even in Texas, we don't need it for even evictions. I just run our thing. We zoom in in court. ChatGPT knows 100% of the law and all of the case law, or choose your AI. Cloud AI is more popular right now. You get actual, better, quicker, inexpensive legal advice for stuff that we used to pay thousands and thousands of dollars. I remember a time when our attorney was like, we sure see you guys a lot. It's no longer the case since the last year. It's just AI does all of it amazingly well. And I get better advice more consistently. Yeah, I ask it how to respond to a tenant and just screenshot the text. And I'm like, how would you best respond in this situation given these variables in Washington State? Makes my text so much better. It's like, you're too soft or you're too firm. You can't say that. I'm like, okay, I'm glad I asked. And just getting the verbiage and the legal down. I mean, how many times have we got paid for, often thousands of thousands of dollars, legal advice that was suboptimal? I'm trying to think of examples, but I'm getting too many to think of from every lawyer that we've worked with. Yeah, and it'd be too direct. It'd be tied to a deal. I know. I think is there a way to bring this up? We'll keep that high level. ChatGPT is a smarter lawyer than your lawyer, 99% of the time. And they just don't have the human aspect. That's the only thing. Yeah, it's just, it's not human, but it does know case swap very well. Yeah, that's going to be really interesting watching that move forward. How are you, because you're, of the two of us, you have actually even more analog than my very analog business model. How has AI affected the way that you attack the real estate industry? Because you're a relationship model at like 99% of your activities is relationship-based. How do you use AI outside of, you know, drafting a legal dog? How are you using AI in your business? Well, I mean, I don't use it for a lot of legal docs. I mean, maybe to give me pointers on my loan docs or things. I don't read every single word of my loan doc, which I know I should. But I ask it to tell me what I'm probably not going to read. And I use it to pick apart my strategy, my approach, the way that I structure certain deals. I ask it to put holes in my strategy. And I can ask it for market data, but more so just for my strategy. Like, how do I make it better? How could I sue my way through my strategy if I was the partner? That type of stuff is valuable information. Yeah, because that's where you really get hurt is like, hey, what happens when there's conflict here? If you can avoid conflict, that is a fantastic way. Like, hey, run the scenario. Stress test this with me. I guarantee you if we plugged our series of contracts for that Walla Walla deal into an AI, we uploaded it. Of course, it didn't exist then. but you upload it into the software and you describe, hey, this is our objective. Like let's, exactly like we talked about on this podcast episode. We laid out what is a goal for us, what is a goal for them and we put the two contracts in. It would have immediately told us both. You need a financing contingency of some type for either rates or just financing in general and these two contracts for the seller side, they should be contingent on each other. They weren't, but they totally should have been. That would have made sense for the way that a deal was structured. And we would have gone into it operating differently if we knew that they were contingent because we knew they weren't. And the broker, who probably shouldn't have put the offer together, I remember he said, I'm surprised they signed that. I'm like, that's never a good thing to hear. Which is, if your broker says that, that is your first red flag, by the way. We probably have a structural issue as we're going through this. Great broker too. Extremely successful broker. One of my really, really, really close friends today. That was a red flag right there. That was a red flag. And as Cody and I know, close friends never make mistakes in real estate. Cody and I have had a very successful partnership. I think we have gotten ourselves or each other into trouble nearly as often as we've had a victory. However, fortunately, the value of the victory is massively outshined to the exorbitant cost of mistakes. If you had to put a dollar figure on it, roughly, we'll say a number of figures of five, five, six, seven, or eight figures. How much do you think that we have cost each other by making mistakes along the way to the, for context, we've made millions of dollars together. How much do you think the two of us have cost each other? Well, the opportunity cost of just Robin Hood alone was north of $2 million for me. From the actual loss of capital, had that money been placed into multifamily that we could have pursued otherwise that we didn't. Yeah, I mean, just that deal was a couple million dollars. So there we go. That puts us into the sevens already. And then we've had five-figure lawsuits that we didn't need to be in that we were able to settle, but still cost low five figures of legal fees, low five figures of settlement fees. we've had six figure earnest money tied up for years. Yeah, that would have been so helpful. I remember I was sitting down, it's like, if we just had that money, we would not have any problems right now. And that was funny enough, the one time that we actually went into a mediation, which Cody and I signed that we can't say too much about, so I'll be careful the way that I word this. But we had a mediation that cost money that was really, really unfortunate and a super not fun little deal. That money, that was like the exact same time that our earnest money was tied up. We needed that to fight our basic little legal battle. And we just didn't have it. We were broke. We bought the Robin Hood. We were throwing money into our resort. We were trying to manage all of our obligations, renovate the portfolio, and just everything. We had no cash again. You and I finally had six figures in our joint account. We plugged it into one deal, and then every expense came up while the money was tied up. I can't think of a worse point in our career to not have that money in our bank account. Yeah, pretty terrible. But we learned a lesson and we didn't do it again. But he's actually one of our regional mentors at Multifamily Strategy. So he's back on staff, which is awesome. However, I bought Cody out of the company about two years ago, a little bit more than two years ago now. In those last two years, and we'll exclude anything related to the Robin Hood for this since we've talked about that on so many episodes. Highest stupid tax that you've paid in the last two years since we've been partnered on a majority of the real estate. Biggest lesson you can share, biggest mistake. On the 39 unit, the way that that buyout happened was very expensive for me. It was like 100% cost of capital in six months, which was exactly the same figure as when we bought out the first partners. Because I bought you out with external money and then I bought out that external money later on a note. So it's like, what I should have done was found a way to just borrow at your buyout cost and owned it by myself day one, rather than bring in a potential partner, it got too creative again. It would have saved me like 300 grand. And I just borrowed a lot. Even if I borrowed the money at 12%, because it got marked up, if it got marked up by double, right, which is what happened, the note value was like seven instead of 350, 12% would have been the same payment as a 6% payment on the market of balance. So yeah. And on top of the payments being different, you also owe twice as much money, which is also less than ideal. Yeah. So that was my most expensive, stupid text, but 300 change is better than the Robinhood. Of course. Learning lesson. How would you map that differently today so that you make a better decision? We know what the decision would be in retrospect, but what would you do on the front end to make a different decision or go into the deciding factor? What things would you do differently? Well, I would have just asked you, I mean, similar on like, for right now, I have a note that I owe you. And I have a proposal that moves you forward. And I have the paperwork for that, by the way. I have a proposal that moved you forward. My signing hand is ready, by the way. I warmed it up. It's ready. And my check writing hand will be ready too. Maybe we can do that next week. I just asked you the question. Because when we did some shifting around, you got control of an asset that I owned for a while and I got it back and I gave you some money up front. I don't remember if you need to finance too, because the proposal made perfect sense. Yeah. But I should have asked you back then, Hey, would you accept half down and half on a note? I don't know if that would have been enough, but that would have been more doable for me to figure out. And then I could have retained it for a lot less money overall. And that's what I asked you on the 12th and it landed because it worked for you. So I should have done that on that deal too, but I didn't think about it. I should have just asked. That is actually, I think that is my favorite takeaway from this episode. So that is the note that we will wrap this up on. To quote our love-hate relationship with Grant Cardone, but you don't ASK, you don't G-E-T. It's an absolute fact. That's where all of the deals come in. That's where you do not buy any real estate if you don't ask. If you don't ask them the question, is this the goal? Does this work for you? Here's where I'm, if you don't state it, it doesn't exist. You just throw it out there and sometimes, yes, I've turned down like a ton of proposals from Cody. Cody has a lot of ideas. Some of them are really good. A lot of them, like a lot of mine, are also not really good. But none of them have ever happened if we don't bring them up. It's a very simple, very, very simple policy that I think a lot of people do get stuck on. When we're coaching people, and I know Cody hears this all the time, people will propose something, hey, do you think they accept that? It's like, did you ask? It's a good starting point. I hope listening to this episode, think of one thing that you have in your business or in your personal life. have you asked yet? If you apply that, I think you've done a good job listening to the episode with Cody here. So ladies and gentlemen, this has been Cody Davis. Cody, you're doing a whole bunch of other stuff we didn't get to talk about today. And I'm looking forward to talking about this on a YouTube live on Wednesday with you on the Multifamily Strategy channel. But Cody's doing his first ground up developments. And that sounds like it's going phenomenally. So I'm super excited to hear more about that. But you're doing development, you're selling some stuff, you're buying some stuff, you're getting a newer portfolio, you're buying out partners. how do people follow the adventure of you as you go through all of your cody doing cody things cody davis business adventures on youtube post a couple times a week now we'll be going live so that's cool but i'm there well that's gonna be awesome guys there's a link below to cody's youtube channel and i'll probably collaborate this with that as well so you guys click the link and i will see you all on the next episode see ya