Do you want to know the secrets of a young millionaire? Cody Davis started buying real estate at 19 years old and he's been successful with seller financing. He focuses on cash flow and keeps it simple with two buying criteria. You can learn from him and apply his methods to your own life.

Wouldn't it be great if you could buy property using seller financing? You can, and Cody Davis is here to teach you how. He doesn't ask property owners to sell – he instead focuses on learning from other successful property owners and deals flow his way. It's an easy process once you know how, so listen and learn!

Table of Contents:

• Where To Listen To The Podcast
• Discovering Seller Financing
• Everybody’s Phone Number Is on Google
• Seller Financing Has More Cushion of Cash Flow
• How to Buy It, How to Never Lose It
• A Different Strategy: Seller Financing
• The Important Question in Seller Financing
• Helping Other People Learn Seller Financing Through Video Content
• How to Reach Cody Davis

Discovering Seller Financing

Darin: A little background on Cody Davis before we start the show. Cody is 22 years old and started investing at the young age of 19. He went to college but found it didn't suit him. And he was on a mission to learn real estate investing and focused on learning from other successful property owners. He asked each of them, How would you recommend I get started? This approach brought him deal flow. He learned how seller financing and focusing on cash flow would get him in the game and help build his wealth quickly.

So just a little bit on how we know each other. This is the first time that Cody and I are actually speaking. But he's all over social media and he's a young guy. So we're going to find out how he got involved. And with that, how many properties and how many units are you currently invested in?

Cody: Today, I own 11 properties, 105 rental units and I'm under contract on a couple of more deals right now.

Darin: Hundred and how many units?

Cody: I've got 105.

Darin: 105 units. So a lot of people are listening and cannot see you. Some people are watching on YouTube, but this is a young guy. If you don't know Cody Davis, how old are you?

Cody: 22.

Darin: 22 years old. So did you go to college or no?

Cody: I went to college for a semester and then left shortly thereafter to get my real estate license.

Darin: So talk about that. What led you to leave school? That's a scary proposition for a lot of people to take that chance. And so how did you know that real estate was it and that you'd be successful?

Dropping From College to Real Estate Investing

Cody: So my parents urged me to go into college and then they're not in the real estate space at all. So I had been going to college and it wasn't my thing. I wasn't a huge fan of some of the teachers. I wasn't a fan of some of the pointless projects that were just for the curriculum. But had no actual applicable use.

I had put a little post on a Facebook group, said I was looking for a mentor to learn about real estate because I had done a little bit of landscaping. I was pressure washing for a buddy of my dad's houses and they said I should join the group. And I put a little post to say I was looking for a mentor and someone told me I should get my real estate license and join their firm. So that's what I did.

Darin: That's a big decision. So what went through that decision process for you? I mean once you got the offer to join that firm, you just jumped? Inside you, you knew it was the right thing to do?

Cody: Well, I didn't know anything because I was not doing super well in college. I was a good student, but I just didn't care about it. I'd never done this before and my parents told me to keep pursuing college and that I shouldn't do the real estate thing in the beginning. That was just from lack of exposure to what it really was. So I didn't have any confidence going into it at all, but it was something new and that's what prompted me to make the jump.

Darin: Your parents probably say something different now, right?

The Components That Lead to Successful Seller Financing

Cody: Yes, they're very interested.

Darin: Now they're proud of their boy, right?

Cody: Yes.

Darin: Look, a lot of people want to do something else in their life. Whether it's real estate investing, start a business, change careers, change companies even in the same industry, but people are so afraid to make that jump. I mean, whether you realize it or not, that was a big decision. And from your success, it seems like it was hugely profitable and a good decision at that.

Cody: It worked out, but it wasn't just the fact that I got my license. That was not the reason that all this stuff worked out. I mean it got me in the right location to start learning. But it wasn't the reason that I was able to buy all the apartments because most real estate agents don't own a bunch of apartments. That's not the main component.

Darin: So talk about what were the components that led to your success?

Cody: It came down to meeting with people who had done things that I wanted to accomplish. So for example, my very first deal was a 12-plex, it was on the market. That was my very first deal and that was a relatable point that segued into meeting with an owner who owned another 12-plex.

But he didn't just own one 12-plex, he owned a ton of apartment buildings and this was one of his first properties. And so I was able to relate based on what I'd done in the past, which was my first 12. That segued into building relationships with people who had done bigger things.

Finding Relatable Pieces

Cody: I had never bought a duplex before. So I ended up reaching out to an owner that had a duplex and turned out he owned the whole town essentially. And I ended up buying three duplexes off the fact that I had never done it before. I had done bigger stuff but I'd never bought duplexes. So I bought a street of duplexes and they own a 15-plex next to my 12. So I'm going to do that here in the coming month or two and that creates a little land assemblage.

But it was just finding pieces that were relatable and then finding a reason. They've done something I've never done, I should go learn how they did that. And that's what really created the opportunity for growth.

Darin: Well, you said a number of different things there. One, you went searching for people that have already done it. And I think that no matter what you do in life, if you can find other people that have done something that you want to do and you can learn from that person, that's fantastic. Second, you actually took action. You must have called. Did you have a cold calling campaign to go towards? How did you get a hold of these people that owned these properties?

Cody: So I didn't do any campaigns, I didn't do any mailers, didn't do any day-long cold calling lists. I'm not a fan of those. I would just call people up.

Darin: So how'd you get in touch with them?

Everybody’s Phone Number Is on Google

Cody: So everybody's phone number's on Google, everybody, whether they're an A-list celebrity. And I've proven this on a little YouTube video. You can do it with anybody, but it takes five, 10 minutes. If they're super famous it may take 10 to 15. But everybody's phone number's online and when you go through the process a couple of times it gets quicker and quicker. And so it's really easy to find phone numbers for mom and pop property owners. It doesn't cost anything other than a couple of minutes.

I would just figure out who owns it. You can do that with a tax assessor. I had my real estate license so I got the Realist report. I've kept my license inactive for a little bit. I just reactivated it just because I started my own brokerage with a buddy. But when I had it inactive I could do the same exact process with the tax assessor. So I'd figure out who owns the property, I'd go snag their phone number from Google, give them a call.

Darin: All right, so I'm going to hit you up on how you do this because I have gone to whatever the property tax appraisal for each county. And you can see who owns it, right?

Cody: Yep.

Darin: You get the name of the owner and it could be an entity or it could be a person.

Cody: Right.

Darin: At that point, how do you get their phone number?

Cody: So there's a couple of different ways to do it. If someone's really famous, let's start with that. Because there's a lot of really famous people that own bigger buildings that syndicators could want to buy.

Figuring Out the Digits

Cody: Granted, I don't do the syndication thing. But if people are listening to this and they want to do that, Google is really willy-nilly with six numbers in people's phone number. You just have to get the last couple of digits.

So most people will get the first six and they're like, "Okay, well I have to pay for it because it'll have the six digits and then the XXX at the end that blanks out the last few." Well, if you take that person's name, their city and then you put in the first six numbers, Google will auto scrub through and it'll provide the last few digits. So I've done that for folks like the Wolf on Wall Street.

Darin: You get the name, the city, and how do you get the first six? That's pretty much identified and they just X out the other four?

Cody: Yes. So if they're super famous, if you put in their name, the city they live in and then the phone number, it'll usually give you the first six digits. Then you just have to copy the six digits. And then take out phone number and put in the six and then it'll give you the last three.

It's an error in Google's code. And so I've done that to find really famous people. I found Elon Musk's number doing that. Well, probably one of them, I imagine he has a lot of phones. Because a lot of people have iPhones, you can just start texting the number and it'll pop up blue and you know you got a valid number.

An Alternative to Finding Phone Numbers

Cody: Just to prove the concept to folks, I've done that on live calls with super famous people that you and I would both know. But for mom-and-pop owners, usually if you just put in the city and then their phone number, it'll pop up. And if they're small, maybe they own 50 to 80 units or less, then sometimes it won't give you their phone number right away.

But if you could figure out what they do to work, because a lot of those types of owners are still working. Then you can find the phone number because it's going to be typically tagged to their social media presence. People usually do two-step authentication and that's how you can cross it. We can go offline. It's like a little 10 minutes.

Darin: Look, you said about syndication you're not doing it, but there are a lot of syndicators that are looking to scale. They may have a property and there's two or three properties right near them. And look, they're probably right now just calling their broker and saying, "Hey, I'd be interested in getting into one of these properties." But here's a way for them to potentially go direct. I mean, that's interesting.

Cody: It's a little different, but it works. And if you can start doing these little land assemblages, like I bought my 12-plex and then I remodeled it. Now I'm working on buying the 15 and there's a 5-plex next to that and it's all waterfront. And so I became the only logical buyer to buy the five after I buy the 15.

Darin: So you call the person up and what do you say?

How to Avoid Seller Financing Objections

Cody: Well, it starts out as just an intro like, "Hey, my name's Cody. Saw you owned a 12-plex. I've never done this before, I'm curious how you did it." That's the script. I don't ask people to buy and I don't ask them to sell to me. And because of that, a lot of people ask, okay, what objections are you getting? I'm not getting objections because I'm not asking for things.

There's people that get super nervous when they're making cold calls or when they're meeting with someone who's done something they haven't. The only reason they're nervous is because they're trying to get something. I'm trying to give them a coffee meeting. I'm trying to buy them coffee and learn how they did it and that's it.

Darin: And then you build the relationship. And once you build the relationship then all of a sudden they're like, "Hey, if I was going to sell, I would like to sell to Cody."

Cody: Right. And I actually don't ask them to sell either. After we build that relationship it's like, "Hey, you know my pieces. I appreciate you sharing your story. I'm working on building something similar and now that you know my piece, how would you recommend I go about getting started?" That's the big piece, it's like, hey, I don't want you to sell to me. It's just how would you recommend I go get started and start building up my portfolio? And from that I bought my second 12-plex, I bought my first 6-plex, we got a 7-plex out of that, we got the duplexes out of that.

Cody’s First Seller Financing Deal

Cody: We being my buddy Christian and I. It was just me originally and then after 30 units, Christian and I started partnering and we took down a 38-plex, but that was our first deal together. But it's all been seller financed and it's all been through that motion.

Darin: That's amazing. It's such a different approach than most people would go at it. But you can see as the owner how it just takes the guard down, like here's just a young guy trying to learn. And look, successful people typically want to help other people become successful and that's what you're hitting on. You're not saying this, but look, I know you're successful, I'd like to learn from you, and people want to share that. That's huge. And then that's brought real business to you.

Cody: Yes. I turned $3,000 into, after this month it'll be about 18 million in real estate without syndicating. A little less than three years.

Darin: That's crazy. So with that comes mindset, right? 22-year-old kid. Well, you said two years, so when you started, you were 20.

Cody: Started at 19. I'm going on three years. My very first property I bought, I can never remember if it's September or October of 2019. And so I'm coming on three years here really quick. My Facebook memories will notify me when I hit it.

Darin: Look, I'm only in this for four years, and I had the capital, you started with 3,000. I had plenty of money in the bank, it was all in stocks and ETFs and whatnot. But I remember buying my first duplex and I was scared, man.

Seller Financing Has More Cushion of Cash Flow

Darin: I was scared to pull the trigger. I was scared about all the legal stuff. I was scared of the property management. It's just that unknown, but you dove in and sometimes when you don't know, you don't know that it could be better. So what do you think your mindset, how your mindset is different than other people that you're able to go make that happen?

Cody: Well, it's not like I'm not afraid. My first deal put me 1,100,000 in debt. It was a little over that, like 1,100,000 and a quarter. My hand was shaking when I signed the loan docs. I signed a promissory note. It was actually two promissory notes because the seller finance note was 1,125,000 and the other one was 125,000. Because I had to borrow the down payment and second lien hard money and they were both scary.

Whether you do a duplex or you do a 12-plex or if you go out and start syndicating day one, you buy a 100-plexes, it's all going to be scary. The difference is how much cash flow you have at the end of the day to back your fear. And a duplex can't cash flow, I don't care where it is, it can't cash flow as much in the traditional sense as a 12 unit or a 24 unit.

So if you can find the deal and you can get the debt, in this case a seller financed debt, it's hard to do it without that. But if you can actually get it, then you're going to be scared either way, you might as well do the one that has more cushion of cash flow. And that's how I operated my first deal.

Introducing Seller Financing to Family Members

Darin: I'm shocked. I've interviewed a lot of people and I've never had anybody that has figured out a way to get in at such a low level of their own cash. Typically, I've had younger people they've said, "Look, I went out and I found a partner that had the money and I was the hustle factor." But you, you're getting seller financing on all your deals or most of your deals?

Cody: Every deal, except for I flipped a house once and that was hard money and I bought a 6-plex also zero down. But it wasn't seller financed. I think that owner's going to seller finance a duplex to me and that'd be closer to where I grew up. I'd probably do it with my dad because I want to get my family into it now that they're starting to understand. I know it works, but I want them to see it on a small scale.

Darin: Are they interested now?

Cody: They're definitely interested. Granted they're not going to get to do all the big deals I'm doing because they're not as involved. But if I can get the seller financed duplex, then that'd be great. But that deal I bought, it was six units. We had hard money in first position. I actually bought that again with Christian.

I'm not a proponent, I don't love bringing in a lot of partners. I'll just put that out there. I don't partner with people for the long term unless it's Christian. But we brought in my buddy Brian because he had just brought a 10-plex near one of my buildings, also seller financed. And I was like, "You know what? You want to do this 6-plex together?"

Be Careful of People You Let On Your Ship

Cody: Because it was cashflow negative, it was losing a couple thousand a month. I was going to do the project either way. But he had a friend who wanted to loan money. And so we borrowed hard money for a first position and took it private for second position and bought it with a signature. That was just a little fun deal.

Darin: Awesome.

Cody: Everything else is seller financed though.

Darin: So why are you against partners?

Cody: I'm all for strategic partners.

However, I think you should be careful who you actually let on the ship and you should let a lot more people sail on a separate ship in the same direction.

Darin: Speak to that a little bit.

Cody: So I've got my boat and I'm going in my little direction. And originally I wanted to get enough cashflow to take care of my mom and now in stabilizing everything, I'm going to be able to do that this year. I hit all my goals and I did not necessarily need a whole bunch of people to help me get there.

Most people set their goals and then when they hear they can get a partner involved, they completely forget about their original goals. They're like, "Oh, I can go do much bigger things." I think you should build something that is self-sustainable that can hit your goals and then if you want to partner to get to the next level, do it, but have a planned exit. Because people that are on your ship can take boards off your ship and cause you to sink.

Good Partners Versus Bad Partners

Cody: If they're on their own ship they can crash into you, but you can also pivot. It's easier to move when you have less people on the boat. If someone starts to crash into you, you can just move out of the way. And like, "Oh, I'm glad I didn't get tied to you with these golden handcuffs if you brought in money and now I have an obligation to you and we got to either go legal or write a big check."

I think a lot of people can hit what they actually want in life without a bunch of partners. And so I'm willing to take on short-term partners, but I'm going to have a buyout agreement. An assignment of ownership to where I can buy them out and I can do that out of the portfolio I built on my own.

Darin: Gotcha. So I think that I've talked to a lot of people and people have talked to me about partners and good and bad partners. One thing I've heard about having bad partners is that it's not just about the transaction. It's also about how you look at the world and your moral compass and all of that. But I've also been around people that have found great partners and they're able to do a lot more together than they would be able to do without being together.

Cody: Oh, a hundred percent agree and that's why I'm partnered with Christian. Christian, he lifted me up out of a very hard time because I had gone through a bad partnership, very, very bad. It set me back, it was closer to seven figures than it was to five, and that was January of this year.

People Lie

Cody: So that was really a painful six months. And a lot of my close friends and family know about that story. But that hurt and that was coming out of a really bad partnership.

Darin: Looking back on it, could you have done anything different to know or is it, it was just bad luck?

Cody: I wouldn't have actually done anything different if I could. Because out of the windfall of that I strengthened a lot of other relationships with the people around me. Because I stepped up where the other guy backed down and saved a lot of people, a lot of money that the other person was stealing.

So really painful for me because I had to sell a huge amount of my real estate. It was a multi, multi-million dollar position. I sold out of it to take care of other people that got screwed over by my old partner. But out of that I built a lot of trust with different lenders in the area. And so now they've got my back because they know I'll take care of people even when it's not my obligation.

So the main thing I wanted to share here is you just be careful who you let on the boat because yes, it could go well. It's good to see how people react when it's going well, it's also good to see how people react when it's going poorly. But people lie, they'll lie to you, they'll lie for you and I just don't want a whole bunch of people on the boat anymore.

Seller Financing Is Super Simple

Darin: No, look, it's understandable. People's circumstances play into how they're going to make decisions going forward and that explains it. You just came out of a really bad partnership and somebody was stealing, taking investors' money. It's going to put a sour thing in your mind for sure.

So you already talked about it a little bit, I was going to ask you about creativity. I don't know if you've read Sam Zell's book, but he talks about creativity in real estate. And I was like, "Real estate creativity? I think of that as more of artists and stuff." But it really is about solving problems and figuring out solutions. And you've done it in a very different way by going in and just being the young guy that says, "Hey, I want to learn from you." So any other ways that you have become creative in how you go about your business?

Cody: So I've simplified a lot of it.

I think most people overcomplicate the game and so I just try to keep it super simple. And in order to do that I had to take the best pieces from everybody's story and use it to build my own. Then I had to analyze the worst pieces and figure out what got them there.

So I looked at all the little intricacies of all their deals and I tried to boil it down and I only have two buying criteria today. It's so simple that anybody can repeat it. How do you buy it? And how do you never lose it? Now at just first glance that's super stupid simple, how do you buy it? How do you never lose it?

How to Buy It, How to Never Lose It

Cody: But if you could honestly assess that situation, you could buy a whole bunch of real estate and if you know you're never going to lose it. Then one day you're going to be super rich. And that was the thought process.

So how do you buy it? You find your deal, then you find the debt and if you can't get a hundred percent debt that cash flows, that last part's important. Then you have to bring in an equity partner, whether it's short term, whether it's syndication, a lot of different strategies there. So that's step one, deal, debt, equity for the how do you buy it.

Then the how do you never lose it comes down to long-term fixed rate debt and cash flow. Specifically, you have debt service coverage and a lot of my debt coverage is over two. Because I wrote seller finance notes where I could a hundred percent leverage and still have a debt service coverage of over two.

Darin: Wow. Going in, you had over two with a hundred percent financing?

Cody: Yes, some of the deals. We being Christian and I, we bought a 7-plex in Tukwila and the total payment on it, day one, it was 3,625 bucks a month and we were bringing in. I think it was just north of 8,000 a month in income and the rents were about 50% below market, five zero.

Darin: So why are the sellers doing this? What's in it for them to be selling at that point? Are they just not educated? I mean, they know that they have $8,000 a month coming in.

Nobody Is Doing Seller Financing

Darin: They can see that they're offering you a hundred percent financing at 3,600. Why?

Cody: So most folks are under the impression that there's a problem, that there's some sort of pain. That's not the case with most of these people. Because I'm not reaching out to people that typically they're just getting started. I want to learn from the A team because they can teach me bits and pieces of this. They're the specialists in this space. And I don't know that day one, but I can get a grasp of it from a coffee meeting.

They're not doing it because there's some pain, they're doing it to elevate the next generation. Because nobody is trying to play this game. People can try and do the syndication game, they can try and save up money, some people inherit it, huge JVs where you bring in a whole bunch of rich doctors and lawyers and you throw your money at a deal. But nobody's actually trying to do what I'm doing right now.

So it's a breath of fresh air when I come in and say, "Look, these are my actual pieces. This is what I want to do and this is why I want to do it." That is what really builds it. And I broke it down a long time ago into a little circle drill. You've got relatable points that'll get you to the table and you relate based on your past. Then you've got goals which get people to work with you because that's where you're going. So you get to the table based on your past and then when you're at the table you share your goals. Because that's future pacing them to where you want to go.

Spark Seller Financing Opportunity Through Your Story

Cody: And then you've got significance which creates buy-in into your story. Whenever I shared my three pieces, I shared where I was coming from, where I was going and what would actually change for me when I got there, what would be different. That just sparked a lot of opportunity where it wasn't about the money.

I had a guy who sold me a deal for 380,000 when he had offers in the fours, it was close to five, cash out. But he financed it for me because I actually knew his story. He started out, that was his very first property he ever bought in the US and he bought it seller finance, 10% down.

So I just had to ask. I had to learn, I had to connect because he got started a very similar way. His growing up was harder than mine was, came from out of country. Basically went around different states and ended up in construction and started learning from the ground up and built a huge, massive portfolio.

I have more apartments than he does, but he has a lot more equity. Because he has virtually no debt because he can seller finance all this to me. And just learned from people like that and they do it because they remember them being in that position and not doing what I'm doing. So that was a long way to say that nobody's doing this.

Darin: No, it's very interesting. You're starting to go up in the unit count, would you advise people to get into the duplex, 4-plex, 8-plex, or go larger and do the syndications? Where are you at now?

Why Seller Financing Is Better Than Syndication

Cody: I wouldn't start with syndication. So if you can buy a 12-plex, I think it's a great tool. I think if you want to get super liquid, you build a huge seller financed portfolio and then you self-syndicate to your new entity. Then you get a hundred percent cash out of all the hard work that you've done.

So I build a portfolio that is sub 60% loan to value. If I were to syndicate that to my own entity at a discount to give investors a great return, then I could pull out multiple millions of dollars in cash and I could go buy a huge complex on my own.

So I think that is a good entry point to the syndication play for folks. But a lot of people would disagree on that. However, if you spend a little bit of time and figure out how to play this game, you can go buy a 10-plex, a 12-plex as a starter property, even if you don't have a lot of cash.

You're going to learn on your own before you start bringing other people's money in, and when you do that, you build a stronger track record. Because it shows you don't need money to make money and when you add money it's like adding fuel to the fire, and now you can multiply your investor's returns.

I don't see anybody syndicating seller finance deals. It's a lot easier to get that IRR up if you're putting 10% down and getting non-recourse debt at 4% than it is putting 30% down. So you can multiply your investor's money, but you have to show a track record.

You Can Play the Seller Financing Game

Cody: And if you don't see those deals, the 10-plex, the 12-plex, then maybe you buy a duplex or a 4-plex, you house hack it, you do the FHA. That wasn't an option for me. Today, I talked with a lender and they say it's going to be a whole month of underwriting, the whole portfolio, seeing all the statements and everything for on-time payment. It's a mess so I'm just not going to do it.

But if you can, you should. And I wouldn't just limit yourself to, okay this is the only box, the only criteria that I'm going to buy off of. Because my criteria, how do I buy it, which is deal, then debt, then equity. Then how do I never lose it, which is cash flow and long-term fixed rate debt.

If you can answer that on a 4-plex, you should buy it. Because if you own a 4-plex, you're going to make more money when it's paid off than if you don't own said 4-plex. And if you ever want to trade up, you can trade up and go buy bigger deals. If you have an option to syndicate and it's a killer deal.

I mean, I turned down a deal because I thought it was going to crush me a while ago. It probably wouldn't have, but it was over a 400 units, seller financed, $7 million down, it was like 15% down. And that might have crushed me, I don't know. I try not to dwell on the past, but you can play the seller finance game on the multi-hundred unit complexes.

Darin: I know some syndicators, they've syndicated a deal and then they maybe sell out of that deal and then create a TIC.

A Different Strategy: Seller Financing

Darin: There's like three or four people that go in and buy the syndication out. Look, the syndication people, investors all made good money, but there's a question mark in terms of valuation there. Are the new TIC buyers really valuing it at market, where what you said was different.

It was like, you've got all your own seller finance deals. Now you create this syndication deal where you're saying, "Look, I could value all this at X. But I'm going to actually value it at X minus 15, because I want all my investors to be guaranteed." You can never guarantee anything, but be as guaranteed as possible that they're getting a good deal.

It's a win for me because I get to pull out a bunch of cash and then I can go and buy another property with that. That's a pretty cool strategy I think. And I got to imagine that that would build trust with the investors as well.

Cody: Yes, it's a different strategy and I'm not saying that I'm going to do that. Christian and I have talked about it because we're buying a seller financed resort right now. This is the coolest asset we've ever seen. It's cooler than some of the class A apartments that I've seen. I like it better.

I'm up in the attic right now. Downstairs, before we recorded, we were in the bar, but that actually used to be an actual restaurant. Bill Gates owns an estate across the street. So he'd come over and drink his Macallan 18. But back on track and on task, I'm looking at self syndicating the apartments to do a cash out. I could sell it at a 20% discount. Does it hurt the net worth?

The Leverage Point

Cody: Yes, sure. But I'll take a seven-figure loss here to pay off the resort. Because I could own the resort in cash and this thing will bang out a million bucks a year. So it's like well, sure, it kind of hurts over there but we're getting a really high-income asset here. We could own it in cash, we could throw a line of credit on it. So people look at it, it doesn't look like it's just owned outright and I could pull against it to be liquid again.

But that is an instance where I think you do that strategy. You build up a huge leverage portfolio, you raise the rents, you get the equity position to be higher, you sell out the equity if you want to syndicate. You sell it and then syndicate out your cash and then you pay off the stuff you really want to own.

Darin: Yes, that's cool. You're 22, man, when you think of yourself at 30 and 40 and 50, I'm 52, man, where do you see yourself?

Cody: I don't know about that far. I've only been playing the game for just shy of three years. However, we've done the math and it gets pretty big, pretty quick, if Christian and I just keep going. As long as we don't have absolute loss, something gets nuked or something, we should both pass a billion dollars in my mid 30s, of equity.

Darin: It's crazy, man.

Cody: Well, it's just about the leverage point, the loan to value. And this is something I learned from the resort owner here.

What Is Important in Seller Financing

Cody: While I'm buying this, I moved in a month before we were closing because we're closing end of month. And he's run multi-billion dollar orgs and he's like, "Stop focusing on loan to value upfront and start focusing on debt coverage."

Now this isn't his exact example, but this is mine. If you were 150% loan to value, because you way overpaid on a seller note. But you bought it zero money down, the debt payment was 4,000 a month and the net income was 8,000 a month, would you sign the deal? Well it depends. If the note's one year then no, but if the note was 50, then yeah I would sign for it. So that's back to my principles, how do you buy it, how do you never lose it, you quantify it like that.

The loan to value is less important than the debt service and ultimately that's what's allowed me to go so quick.

Darin: Absolutely. So now you talk about long-term fixed debt. In the last say three years, and I have a lot of syndicators that come on the show, a lot of the syndication deals have been more bridge financing three, one, one, so fixed for three years and then two one year extensions.

I have another business that trades loans between banks and in the 2008, 2010 timeframe. That's where I saw some deals get hurt is when the loan comes due in a terrible economy. Cash flow's down, cap rates are up, interest rates are up and lenders aren't really wanting to lend. The sales people are gone and now they've hired a bunch of workout people.

Fix Your Cost

Darin: And so for me, because of my background, I'm nervous of those short-term loans. You talk a lot about fixed-rate loans, but you're a young guy. So why do you talk about fixed rate so much?

Cody: Well, I like to project the how do I never lose it part. I think it's cool to build a portfolio. But if you're going to lose it, now you just become another one of those stories, another one of those statistics. There's already enough of the loss stories online. The story's worth more than the real estate to me. It allows you to start over if you need to.

But part of the how do you never lose it is I fix my cost and if I can't fix my cost, then I'm less likely to do a deal. Because today, I don't sign on loans I can't pay off before they're due.

Darin: So what's the minimum term on a loan that you look at?

Cody: The minimum I've ever done for bridge money was a year, but I paid it off.

Darin: Well, that's short.

Cody: I paid it off. I don't sign for loans that I can't pay off out of cash flow or earned income. And I had no earned income in the beginning so it had to be out of cash flow. Today I've got a note on my 38-plex, we just got it appraised at 3.41 and we owe 1,670,000 somewhere in there. I could pay that off in the next four years before it's due. So today, I'm not signing for any loans that I can't pay off before they're due.

The Important Question in Seller Financing

Cody: So that is how I quantify it, it doesn't matter if it's interest only. The resort deal that I'm buying, it's a three-and-a-half million dollar note seller financed. It's a eight-year note, I could pay that off in probably five or six years today. So I could pay it off before it's due.

That's how I look at it, it's not just about, okay, the time of the loan matters. The time gives you flexibility. But if you're really hyper-focused and you have best business practices in mind when you're doing this, you pay off your obligations, if you borrow money, pay it off, I could pay off all my loans before they're due.

That is just something that I keep in the back of my head whenever I'm borrowing something. If I can take it to 80%, which I don't do, or 90%, if I could, could I pay it off if it got called? And that is the big question.

Darin: Yes, that is the big question. And I'm thinking to myself, well, you're doing all these things, but you're not saying, all right, I'm going to go buy the big house and the car. You must be pushing some of that out because you're looking at these deals like hey, how can I pay off the debt? I'm pushing out what I'm going to receive later in life.

Cody: And it also has to cashflow both, some of the debt payoff. I focus on paying down debt because it's important to me not to be super over leveraged. I don't want to be that guy that think, oh yes, you got a lot, but you're going to lose it when something goes wrong.

Be a Good Human

Cody: So the 38-plex for example, if you just had a normal interest payment on it, it'd be 5,600. If you amortized it, it would be like 8,300 for the original loan balance. I'm paying 10,000 a month flat rate because that's what they really needed to retire.

So I'm paying off the loan by over 4,000 bucks a month and the deal still cash flows over 10 grand a month. So I'm still hyper-focused on paying down the debt. But I also make sure that I write my deals where they cash flow above and beyond that.

Darin: Sure, that's fantastic. So mom and dad wanted you to go to college. What was your childhood like? Look, you said you've only been playing the game for two or three years. But you seem like you've got a great head on your shoulders. You're thinking about the long term and being smart about how you approach things, not trying to over leverage. So did you know that you were going to have this type of success when you were younger?

Cody: Nope. But I did get some good stuff from my mom when I was growing up. I grew up in a split household after eight years old because my parents split when I was eight. And my mom's always just told me, be a good human.

Darin: Be a good human.

Cody: Be a good human.

That's my go-to nowadays, but a lot of people seem to forget that piece when they're doing business. And it hurts themselves in the long run and it hurts people in the short term and it's like, be a good human. It's so simple yet, it's right.

A Bad Experience

Darin: Absolutely. And this is a relationship business. So you're building relationships with sellers, they're giving you seller financing. You're also building relationships with banks and sellers. It doesn't sound like you have a lot of investors, but investors, they want to work with good people. They want to work with people that they know, like, and trust. And so you have that at your core also, which is fantastic.

Cody: And I still don't have any bank loans.

Darin: No bank loans at all? What about agency loans? No agency loans either? No?

Cody: No.

Darin: It's all seller financing?

Cody: Yes. I was going to get a loan because I was doing a cash out refi. I was taking my 38-plex to 55% loan to value and I was working with a company that I won't name. Because I've named them on other social platforms and I don't need to get in trouble with them.

However, it was the day of closing, we had passed underwriting. On as-is appraisal, we hit all the cash flow requirements for their debt obligation. We had the net worth backing by more than two X, we had the liquidity requirements. They did not like how fast that my buddy Christian and I were scaling and they didn't understand seller finance notes and they tanked the loan day of closing.

So blew months going through the hoops on that. That was terrible because we had exhausted money elsewhere. We still had plenty of reserves, but we had spent money on projects that we originally were going to wait until after the loan.

Golden Mile Resort

Cody: We were like, "It closes today, let's just spend it." And then they tanked it and that put us in a pinch for a couple of weeks and I had to figure that out. But yes, still no bank loans, no agency, no bridge. We've got the seller notes and we have a two-year hard money loan on the 6-plex that we just bought. That was the deal I mentioned earlier.

Darin: So what about geography? Where do you focus? So you're living in Seattle now.

Cody: No, I actually live full-time in the resort. So I'm staying in the weirder of all the units. It's a 20-cabin resort, waterfront, Robin Hood Village Resort in Union, Washington. And it's called the Golden Mile. And it was actually deemed by, I think it was Forbes, to be one of the 20 prettiest cities in all of America. It's beautiful here. Small town America, but property neighbors with Bill Gates, the Nordstroms, Jeff Rakes. There's some affluence here. I'm the broke neighbor.

Darin: That's funny.

Cody: But I'm living here in, it's the weird unit because it was just built. It used to be storage I believe above the old restaurant and then they converted it into a legal living space.

Darin: Is that where you're from, Washington?

Cody: From Washington. I was born in Tacoma, moved a year ago to Renton to be closer to my business partner, Christian. And then moved down here because we're closing out the resort in the next 20 days or so, a little less than that.

Multifamily Versus Resort

Darin: So talk about multifamily versus a resort, I mean it's rental, but it's different. I mean you have to market it very differently, you have to look at the cash flows differently. And so how did you take your experience on the multifamily side and bring that to this resort?

Cody: So they've actually never marketed this resort. They stay full on word of mouth. And I've reviewed 10 years of financials and they stay full, which is phenomenal. I think it's because of the physical location. It is so pretty. The water here is such a nice blue, you don't see this anywhere else in Washington.

But as far as it being different, our goal is to get to a 100 rental units and then do something really fun that could produce a lot of cash. And this place will bang out over a million bucks a year in income and we're buying it for four and a half million. And so the price versus the cash flow, that ratio is a lot higher on this type of asset than it is on the apartments. That's why we're doing it.

Because we did the apartments, we've got the stable cash flow. We could write all the checks for this asset, including the mortgage if it didn't make a dime. And granted it's making very good money today, but we could fund it out of the stable stuff. So we got the stability.

Darin: So it's smaller, but it's still a different business model. Well, you said it's full word of mouth. Does it have a restaurant or any other business component to it? Is it just rentals of cabins?

A Zero Money Down Seller Financing Deal

Cody: It's a cabin rental and a wedding venue. So the wedding venue in itself, right now they just do summers and that makes a few hundred thousand a year. And then the rentals make a few hundred thousand a year. Their pricing is about a quarter of what it is across the street.

We're not going to take it all the way up to market because we don't have to, it cash flows. We're going to cash flow really well day one. I mean it'll be five figures a month day one, just because the income versus the debt stack that we have on it. We have a four and a half percent interest only loan for eight years. It's wonderful and that's today's numbers.

Darin: Man, I talk to people like, duplexes and 4-plexes, I can see seller financing. But you're taking it to a completely different level. Your strategy is so different in terms of building the relationship and not asking for them to sell. You never said this, but I'm assuming in your conversations at some point they say, "Hey, do you want to buy this?"

Cody: So this one we roll up and we were told that this was off market. I got this from a buddy of mine, his name's Dion. He's got a YouTube channel, and so he's a YouTube buddy. And he reaches out to us, he's like, "Hey, I was looking at an off-market deal, it's a little resort, middle of nowhere, and it's four and a half million, zero money down, seller finance." I was like, "Oh, that sounds great."

Don Beckman’s Design

Cody: Turns out it was zero money down. He just forgot all the extra zeros and the one in front of it because it's a million dollars down. So this is our biggest down payment that Christian and I are putting together and we're just backing it with equity in our apartments to be able to put the down on this. So it's really fun.

I mean we found it, we thought it was off market. Turns out it was on the market, but we had already built a pre-established relationship with the owner. It was genuine. And we stroll in, it was either the first time I met him or the second. I think it was the first time. And we were sitting.

I'll send you pictures, maybe you could edit it into here, I don't know. But it is one of the most beautiful resorts I've been at. It's just nice. It's cool. 1934 cabins. They were built by Don Beckman set designer for Disney. They partnered with Walt way back when and the owners partnered with Roy on other stuff.

The stories I've learned were cool, but we walk in, sit down and we're putting off the business, learning about each other and he's like, "So you guys just bring a suitcase full of cash?" It's like, "Yeah, let me go grab it." And that's when we started talking about terms and we learned that it wasn't going to be zero down and that it was going to be a million down.

Helping Other People Learn Seller Financing Through Video Content

Cody: But we just had to adjust our pieces and figure out how to write the note. And we should, day one, cashflow about a little over 20 grand a month on a million down, which is a phenomenal return. But we've got over 400 grand in net upside just from optimizing the systems, and so we can get it to cash flow like 650 a year.

Darin: That's unbelievable. So you're all over YouTube. So you do a lot of YouTube videos, but you're not syndicating. And so a lot of people do content to attract investors and attract partners. What's the goal of doing all the videos and what do you focus on?

Cody: Well, I post videos three times a week on YouTube, probably twice a week on Instagram. I post on Facebook. And I don't have a media marketing team, it's just Christian and I, but we're just posting every week because no one else is. Everybody has some hidden agenda for, oh, I want you to invest money with me in a deal.

And there's nothing wrong with that at all, nothing. Because if you're a good business operator and you can make everybody money, then there's no reason you shouldn't do that. But nobody's just putting out content to help other folks out. Nobody knows about this strategy.

Darin: Really that's your goal is to just help other people?

Cody: Well, I wouldn't be here if other people hadn't helped me. The difference is most people are unwilling to reach out to folks who have played this game at this level and ask because they are nervous. They feel like they're just trying to take without giving. And you shouldn't be thinking like that, but people do.

Give Without Taking

Cody: So I'm going to put it out there so they don't have to do that.

And we've got a couple 19-year-olds that are buying a seller financed 10-plex in Texas. They're under contract on another 8-plex and another 10-plex, all seller financed. So 28 units, seller financed. We just put a video about them on our YouTube, but we met them nine months ago. They applied the strategy and just like that they're going to own 28 units without syndicating and they literally have no money. I mean they had less than I did and I only had three grand.

Darin: Wow, that's amazing. I applaud you man, one, for figuring it out, and then two, for giving back. Look, like you said, not everybody is going to do that and you said nobody is doing it. I haven't talked to anybody that's talking about seller financing really at the higher level. That's fantastic. Hey, what do you like to do outside of work for fun?

Cody: Well, since I've moved to the resort, I've done a lot of kayaking.

Darin: So outdoorsy type stuff?

Cody: Yes, outdoorsy stuff. I've done gymnastics for a while now. Started doing parkour when I was nine and a half. And so I've been doing flips, jumping off buildings, vaulting, all that for a little over a decade.

Darin: So parkour, talk about that because that is just what you're saying, jumping, doing crazy stuff that you see on videos, right?

Cody: Yes. Climbing up buildings, walls, jumping over walls, vaulting. So you're getting from point A to point B as quick and creative as possible. And you got to be able to simplify it when you're going quick. Because if it gets too complicated, you miss your footing and you smack your head. And I have some scars where I did that, but if you can simplify it, then you can do it.

Doing Cody Things

Darin: Yes, normally guys are like, "Okay, I like to play golf and I like to travel," and you're like, "Parkour." And I've seen pictures of this guy, he likes to walk around on one hand. So being a gymnast, it makes sense. Hey, if people want to get to know you better, what's the best way for them to reach out?

Cody: So I actually posted a YouTube video, How to Find Any Property Owner Ever, where I simplified what we were talking about earlier. And one of the examples I used in that video was of me. So if you want to actually text me, my phone number's in that video, you just have to literally watch it.

Darin: Is there a name for the video?

Cody: Yes, it's How to Find Any Property Owner Ever. You just put that and then Cody Davis, it'll pop up. Or you can just look up Cody Davis Real Estate, I'll pop up on YouTube. Cody and Christian Multifamily Strategy, we'll pop up there. If you want to message on Instagram, my tagline is Doing Cody Things. Because I had a shirt that said I'm Cody doing Cody things and people liked that. So you message me there too.

Darin: Well, I appreciate you coming on the show. I think that a lot of people make up excuses on why they can't get involved. I don't have enough money, I'm too young, I'm too old, I'm busy, whatever the case may be. And Cody, you are a shining example of somebody that just says, you know what? Get out there and figure it out and be a good human. I love that. So thank you for coming on. Listeners, I hope that you enjoyed that one. Until next week, signing off.

How to Reach Cody Davis

• YouTube Channel