GI264: HUD Multifamily Loans with Darin Davis

GI264: HUD Multifamily Loans with Darin Davis

Darin Davis has over 25 years of real estate experience and has been involved in over $1 billion of debt and equity as a Sponsor or LP.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Darin Davis. He has over 25 years of real estate experience and has been involved in over $1 billion of debt and equity as a Sponsor or LP. So thank you so much for coming on the show today, Darin

Darin:
Charles. Thanks for having me. I’m excited to, to talk to you guys today.

Charles:
Yeah, no, it’s great. You have a very interesting story, which I’d like you to get into, but it’s it’s just awesome to have different people on. You have a number of different strategies that your firm employs that I don’t think our listeners have really heard too much about, and so it’d be a great learning experience for them and also myself.

Darin:
Yeah, no, I’m looking forward to it. You know, I, I guess being older and having gray hair like I have, I’ve had, I’ve got a lot of stories, so we don’t want to go down the whole path, but I do have a couple that I, I really wanna share with people, like how I kind of really got started in this, and then what, what the power of, you know, passive income did for me. Pretty, pretty I mean, pretty good story. Wanna share that, but, you know, let’s, where would you like to start and we’ll, we’ll get going.

Charles:
Yeah. So just to give us a little background on yourself, both personally and professionally Yeah. Prior to getting involved in real estate. And then we can go into you, or you can go into your story about how passive income has become instrumental part of your life. Yeah.

Darin:
And, and, and kind of what we’re doing today as a company too. Well, I mean, I’m probably not a lot different with my kind of age group. When I got outta college, you know, the first thing I did, I had a business degree, and I, I went into sales and marketing, you know, so I did, I did a lot of I was in sales and I got into financial services at American Express, and then I noticed all my friends were getting into high tech, and I go, I, I gotta learn about this high tech stuff. So I flipped over and started selling software and had a really good career, I guess, selling software. You didn’t really have to be a techie, you just had to solve business problems. So, and that was what I did. But after 15 years of literally working Monday through Friday on an airplane, not a lot of social life, I kind of stepped back and I said, man, I’m not in control.

Darin:
You know, I am working for somebody 24 7. And it felt like that. And then my father unexpectedly passed, and I think that’s when I said, I don’t know what I’m gonna do, but I’m gonna do something different. So the mindset had started, right? And I literally am driving down the road. I was in San Francisco at the time working for Yahoo driving down San Jose, and I’m an AM radio guy listening to, that’s the only thing we had for education back then in the car. You know, there was no, there was nothing else out there really. But I, I heard this guy talking on this radio, and it was an hour long interview, and I was just fascinated by what he was saying on the radio. And I’m going like, I gotta figure out who this guy is. So I pulled into the parking lot, and there were still 10 or 15 minutes left on the radio show, and I sat in my car and listened to the very end.

Darin:
And sure enough, it was Robert Kiyosaki in 1999 or 98, talking about Rich Dead Poor Dad. You know, that, that whole concept. And I go, what is this? So I literally, that weekend went and I tracked down a book. ’cause There was no, there was no internet, there was no, nothing really, you know, find it. And I read it, and I don’t even really remember what it did to me, but it flipped a switch, and I went, I did a 180. So my mindset did a 180. And then at that time, I said, okay, maybe it’s real estate, maybe. But it didn’t really matter what it was. It was the mindset that I switched. And that started the whole thing in 2001. I think I left San, yeah, I left San Francisco. We moved back to Texas and started, started real estate. And that’s, that’s what got me going. I felt like I was in control, I’ll tell you that.

Charles:
So you kind of escaped the whole.com explosion for the most part, right?

Darin:
No, no. I was right in the middle of it. <Laugh>. No, I was, I was there. I’m not gonna go through the numbers, but I, I tell you, my, my valuation of my Yahoo stock was up here, and quickly it went down here. And I think that was a huge bubble burst for me. And that’s, you know, it was, it was just a lot of things were happening. And I just said, you know what? I gotta do something different. And I, I literally, I switched. I mean, I jumped in with both feet. I didn’t, I didn’t pause. I, I said, go,

Charles:
Yeah. The only person I think that Navigate Anywhere was mark Cuban, who sold out to Yahoo. And he is like right at the right time. And yeah, <laugh>,

Darin:
I’ve got a story about that too. I was sitting, and I’ll be really quick. I was sitting in the broadcast.com offices interviewing for the position that I took at Yahoo. And Mark walks in and I’m interviewing with their VP of sales, and he just looks at me and he looks at the guy I’m interviewing with, who’s a friend now and he says, Hey, you gotta get him outta here. Him being me. And he and my, my friend’s going, why? And he goes, just get him outta here. We got something. And so, sure enough, as I’m walking out the door in my final interview to take the position and comes Jerry Yang, the chief yahoo, to announce that Yahoo had just bought broadcast.com. Yeah. So I would’ve, could’ve, shoulda I was that close to me, you know? So, but anyway, quick, quick story. Yeah. Yeah. So, yeah. Mark, mark, mark did good.

Charles:
Yeah. Yeah. See, so tell us about how you got involved with real estate, because obviously people they start one place in real estate, and it’s usually not where they end up. After so many years of kind of learning, if any type of business, where did you start in real estate? How did you get involved? And how does that kind of pave the wave to where you are now?

Darin:
Yeah, and, and I kind of want the listeners to really think about what I’m about to say because I, I see so many people, you know, know, they read a book, they study, they talk about it, they, but they don’t execute. And I gotta tell you, you know, reading books are good, and you’re gonna learn something on that, but until you actually go out and do it, you’re, you’re not gonna, you know, feel the pains and learn, learn from the experiences. So I, especially young people, I tell them, I say, guys, you, you’ve got to take some, you know, and, and I call it chances because it kind of is in the beginning, but you, you know, you’re not gonna win every single thing, but you’re gonna learn everything. You’re gonna learn a lot. But what I did, I mean, not really different.

Darin:
I started off with, you know, three, I think three, maybe four, I’m gonna say three single family homes, because I didn’t know anything. I didn’t know how to get a loan. I didn’t know what a syndication was. I didn’t know anything. All I had was, you know, kind of an idea of what I’ve read in a couple books. But I said, I gotta go try this. So did a few single family homes realized that that’s not the path I wanted to continue going down. And I just started really working the, the network here in Austin. And I was introduced, I give this guy a ton of credit, but I was introduced to a gentleman that was doing exactly what I wanted to do, and that was syndicating and raising capital, but he was doing it for retail strip centers, kind of class B retail strip centers.

Darin:
And I pretty much just, I didn’t be him, but I pleaded with him. I said, I can raise some money. Let me in. Show me how you’re doing. I wanna learn, I wanna learn. And he did. And we ended up doing 13 retail strip centers over the course of the next four years. And I didn’t even know what a syndication was, but I learned, you know, and I learned, I mean, I started off my first deal. I think I raised, I mean, 120 grand. I thought I’d hit the, the lottery, and then it was two 50, then it was three 50, you know, so, and it was really friends and family. And so I, I was in that group, but I learned the structure of syndication. And what happened on that is that all I did to find him is I just kept, I kept networking.

Darin:
I kept asking questions. I kept just pushing, pushing, pushing. Because remember I told you, I, I jumped in with both feet. So I had, I had a, a wife, and I had one little kid there and one on the way. But I started off doing syndications, and I just learned, I did a lot of learning. And then from there, I thought, all right, I can do this on my own. Well, in 2007 ish, okay, I said, you know what, I want to go bigger, right? And I want to do multifamily, because I figured out the math and the metrics and everything that was working. And sure enough, I did my first multifamily and maybe not a lot of listeners can remember this, but 2007, eight and oh nine were probably the worst time ever to do development, especially your first one. But we, and there’s a story behind that. We did it, it was a huge success, but the hardest thing I’d ever done to date, and ended up being one of our best assets we ever had. Cash flowed, cash flowed, and cash flowed. Investors loved it. And that really launched the company because we did so well on that one. And then we just carried that forward for the next decade. And here we’re today.

Charles:
How are you able to get financing during that time? That was the one thing I was involved. I bought my first multifamily in oh six, and it just, I mean, it, not that it was just a straight blood blah blood bath, but the thing is, the, there was no lending, like, literally no lending. Even private money lenders were like, whatever you paid for something, I’ll give you, like, I’ll lend you like 50% on it. You know what I mean? Like, like not, there’s no market value. There’s just like, or just like, it’s very, very low. I had one bank give me a 15%, they offered to gimme a 15% loan to value loan <laugh> that I’d worked with for 10 years. And you’re just like, it’s just like insan. Like, you’re just like, I, I don’t, I mean, it’s, there’s nothing like that. So just like, how did you get financing? Well,

Darin:
Okay, so, and, and here, here’s, here’s the story. And this is why I really stress people, man. Just, just, you’ve got to ask questions. So sure enough, I have a, a, a very large, well-known lender who is going to give me, I have a term sheet. Okay. And that’s pretty, when you get a term sheet, yeah, it’s pretty good. Well things are getting a little, a little salty there. And, and sure enough, I’m talking to ’em and they’re acting like, you know what, you know, we’ll, we’ll be fine. We’ll be fine. Well, sure enough, a couple weeks later, I get a, a letter, no phone call, no nothing. We’re going out of business, okay? And yeah, and I said, but no, no, no, I have a, I’ve got, I had like 700 grand into this deal already, personally, okay? It was a lot, it was a whole lot of money for me at the time.

Darin:
And they, and I said, but I have a term sheet. We’re going forward. He, they said, no, we’re not. We’re shutting the doors. I had no money. So I’m sitting here with a piece of raw land architect engineer due diligence all into it. And I go, nobody’s lending. So I kept literally asking, asking, asking people, what do I do? What do I do? And a guy that I met said, have you ever heard of hud? And I go, yeah, section eight, you know, that, that’s the first thing that came to my mind. And they said, no, no, no, this is where HUD will insure the loan from the lender. So I said, okay, tell me more. Well, after, you know, a year of construction virtually stopping or acquisition, stopping, and you, you, you saw it firsthand as well HUD became the preferred tool to use to get lending, because lenders said, wait, if HUD will ensure the loan, then I’ll make the loan to this guy.

Darin:
And I still had to go through underwriting and everything, but all of a sudden I learned about HUD financing or hud, you know, HUD loans. And for people that were back then, I mean, HUD was the Cinderella of the party because nobody else was lending. So if you could get a HUD insured loan, and the terms were really good, it wasn’t easy to get, you know, the loan, but the terms were really good. And we were one of the only projects in the whole city of Austin come out of the ground in 2009. And it, it was just because the lending was, was tough, but the, the hud, the HUD programs were, were working for people. And that’s how job, I mean, that’s how deals got done back there for a couple of years.

Charles:
Wow. Yeah. It was, we were doing some house flipping at that point too. And it had, everything had to be able to, when we looked at it, had to be able to be approved for FHA, you know what I mean? Like, if it, if it didn’t, if there was any question, I remember one time we were walking this place, and like the stairs were like a little bit off, and we’re like, I don’t think this is gonna get approved. We’re like, Nope. Out here, because it was, it was the only thing that was lending, you know what I mean? Like, you had to be very, very aware of that. And it was amazing that if you bought anything, five plus units, which you can’t get FHA for, I mean, it was just something that was like, you know, those things would be like half the price of like a, a three family or four, you know what I mean? It was just because there’s, the financing ran the whole thing. So it was just the government was the only backstop there to do any deals and keep something going, which most of it stopped, you know?

Darin:
Well, and, and a little, a little sidebar on this is that the, I, I wasn’t an experienced developer, and so HUD was a little kind of, wait a second, but what we ended up doing to strengthen our, our, our ask on this is that I partnered with the city of Austin, and we implemented some affordable housing. So when HUD saw, oh, they’ve got the city involved with them, they’ve got some affordability, which we really like now that raised the bar, okay? So they said, wait, we really, this guy may not be the most experienced apartment guy, like zero to date, you know, <laugh>. So, but he’s got a, he’s in a, he’s in a growth market. He’s got the city of Austin backing him. He’s got grant money from the city of Austin. He’s going with some deep affordability. We like that profile. And so we’re lending, we’re gonna back that loan.

Darin:
And that’s how we did it. So it, I mean, I, I, I’ll tell your audience this my back was up against the wall, so we had to ask questions. We had to be resourceful. I had a guy ask me one time, he goes, well, tell me about your underwriting on the deal. I said, have you ever had a gun pointed at your head? That was my underwriting <laugh>. Okay. I go, there was no underwriting. You know, you, you, you figured out how to survive. You know, because if I had to underwrite that, nobody would, I mean, people were going like, well, this doesn’t make sense. But we did it, it worked successful, but I, we were just super resourceful. We got the city involved, we put the affordability component, we got HUD involved, and you know, to this day, it’s still one of the, the best, best investments we’ve ever done.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
So this is the HUD affordability P three strategy. Is that, what, is that what you, it is where you’re partnering with a public?

Darin:
Yeah. So, and this is interesting. I and, and I think this is, this has, and I for your audience, I think this has a lot of runway for a long period of time. I mean, there’s a, there’s a housing shortage period. You know, there’s gonna be, I don’t think we can catch up unless, you know, Elon Musk figures out some way to put a million homes on the planet tomorrow. You know, it’s just gonna take a while. But what’s happening, like here in the state of Texas, in Florida, where we do some business also, is the, the working with the local governments where you, you’re providing some affordability and, and, and in return, they will give you some concessions. And what’s happening here in the state of Texas is that you’re getting property tax concessions or reductions or elimination for, depending on how deep and affordable.

Darin:
Now, from an investor standpoint, here’s something to really think about. And if you are talking with a sponsor that does these programs if you think about your expenses, and today, insurance and property taxes are just off the chart, especially here in Texas. We have between tornadoes in the north and, you know, the Gulf of Mexico and hurricanes in the south, you know, Texas is in an interesting spot. But, so we’re, we’re managing through the insurance, but we can eliminate the property taxes, and that’s one of our biggest expenses. So if we can, if we can cap that at zero, which we do, and we have you know, 50% of the units are affordable to some degree, well, think about this. If your, if your medium family income rises three, 4% a year, year over year, well think about that spread between flat taxes at zero, and your revenue is just ticking up. Now, it’s not great in the first three years. It’s kind of a, you know, yeah, it’s good, but boy, you hear you’re five, six, and seven, and that spread gets bigger, bigger, bigger. And you know that that’s how you’re rewarded as the investor group or the sponsor group, is that affordability really starts kicking in from a return to the investors, you know, several years later. But it’s, it’s really strong.

Charles:
So other than the ability of, I mean, there’s some great terms that come with HUD debt, can you just give us like a little overview of some of the pros and cons of obtaining hub financing, whether this is for ground up development and or for financing acquisitions?

Darin:
Yeah yeah. Well, first thing I’ll tell you it’s not easy to qualify on your first deal. Okay? So finding out there are groups out there that are HUD centric or HUD focused, so understanding sponsors that are looking for equity in the HUD world it’s a great way to learn about how HUD is structured. So if you’re ever, you know, wanting to get into it as a sponsor, it’s a little hard. But once you’re in, you’re in. Alright. The other thing is from, from the, from the LP investor, here’s some of the key metrics on this one. It’s typically an 80 20 leverage. So, you know, most banks are in the, you know, 70 ish range, 75. So the deals, when you’re getting HUD financing and you’re getting 80, 81, 80 2% leverage in a more normal market, that’s pretty strong. And, you know, you’re getting that at four and a half, 5%.

Darin:
That helps to deal metrics quite a bit. The other thing is that the, on a construction new development, you can get a 40 year m all right, so going from a 30 year to 40 or 20 to 40, that really improves your cash flow. It really helps, you know, from an investor return on an acquisition of a hud, you can get 35 year ram. So it’s pretty strong. Now these things are the, there’s, the downside to ’em is once you’re in ’em, you, you don’t really put HUD debt on it unless you’re planning on holding it for five plus years because there is a yield maintenance expense or a prepayment penalty, and that burns off after years. But, you know, in the first year, it can be as high as 10% the first year you know, 10 98, something like that. So there’s some, there’s some pros and cons on it, but it’s you know, when you look at your leverage and you look at your amortization schedule, and you typically have a little bit lower rate it really can get really attractive, especially when the leverage piece comes in in today’s market. You know, HUD is back to the 2000 8, 9 10, where HUD’s kind of the darling of the party right now. A lot of people are looking for that hud, HUD financing.

Charles:
Yeah. The couple things I’ve heard too about it, and you can correct me if I’m wrong, is that number one, it takes a while to prepare for, to get the deal done. And then number two is, I hear that you can only make distributions to your investors twice a year. Is that correct?

Darin:
Good, very good questions. Yeah. And let’s go to the first one. The approval process can be lengthy. Okay. So you’re, you don’t really see acquisitions using HUD financing because if there’s a deal out there for sale, it’s really rare when the seller’s gonna go, oh, it takes you six months to get approved with a hud, you know, well, I’m not waiting six months. Okay. Now, there are some scenarios that you can do that getting approved on the construction can take six to nine months. So depending on, you know, your carry cost and what you’re doing now, but again, the terms are really good, but if you have the ability to carry through that, you know, best case scenario, five months, probably nine months it can be a very attractive deal. Now, the distributions they used to be twice a year, every six months. That has changed. It is more frequent now, and I wish I knew the frequency because we have sold all of our HUD product in the past. We think I, we have, well, I take that back. We have one, we have one product that just finished construction under hud, but the distributions I, I know at least are quarterly now. And they may have gone to every two months. Don’t hold me to that, but it is far more frequent than, you know, twice a year. Okay,

Charles:
Great. As we’re kind of one more question about, from moving on from development was that you know, development is, I mean, there’s a lot of moving parts and, you know, what are some of the main factors developers must be aware of or pay strict attention to when they’re developing a project? Maybe specifically a multifamily project?

Darin:
Yeah, so just for, for clarity, we are not a development shop. We’ll, we’ll co-develop and we’ll GP sometimes, but we’re primarily LP equity. So we provide the equity usually 50% to 90% of the equity depending on the project. So but from a development perspective I, you know, the last 10, 11 years prior to the last year and a half, you know, there’s been such a growth mode. You know, here in the state of Texas, just our, our supply was incredibly low. The net migration was incredibly high. The jobs are coming in. We just had, you know, massive amounts of people relocating here last 10 to 12 years, we’re still leading the country in job creation and net migration, but not at the pace we were for, you know, the past decade on that. But for developers, the, the things that are super important, if you’re an LP investor looking to invest you, you really wanna make sure that all of their entitlements are complete.

Darin:
Okay? Because going through an entitlement process, and that’s your, your water, your wastewater, your utilities, your zoning, you know, all of that. If you’re talking to a developer and you’re looking to fund into a deal, making sure that all of the entitlements are done is super important. Because if it’s not one, one small thing and a government, you know, scenario, hold the project back months, if not, you know, a year or more. And then you’ve got, you know, you’ve got, you just got, you’re in the dead zone, and then there’s nothing you can do, and you just, the entitlement process is a, is a big deal. That would be the number one thing. Make sure that your, your sponsor has all of the entitlements. And the other thing is development is not easy. So really, when you’re talking to a sponsor who does development really check their track record, make sure they’ve had successful projects in the past,

Charles:
That’s a lot of great information there. Before we get into your passive investing story, there’s one other strategy that your firm employees that really haven’t spoken too much about on our podcast here, and that is with preferred equity. And can you give us like an overview of what preferred equity is and how your firm is able to offer that and work with that, with your investors and with some of the deals you do?

Darin:
Yeah. and, and I love it. It, it is such a great tool, especially for LP investors today. But in the past, you know, 10, 15 years we’ve all lived in a, a world where you have, you know, you have your senior debt, your bank loan, okay? Then you had common equity. So you had your capital stack was two components, you know, common equity and debt. Well, what’s happened is, in the development world especially that I’m, I’m very familiar with, you know, a lot of development loans were taken out three or four years ago, and that three point a half, 4% floating rate, you know, well, those rates have now climbed up to eight, eight and a half, even 9%. And what’s happened is a lot of the interest reserves have been utilized. A lot of the contingency money’s been utilized because you’ve had this perfect storm where interest rates are high, leverage is low, valuations are lower, rents are flat supply’s a little high right now.

Darin:
And, and the, the developers have great projects. They’re in great locations, in great areas. They need what they call rescue capital or, you know, they need some high octane oxygen, you know capital. But what pref equity is, is it’s a, it’s a, it fills a gap and you, where it comes in is it’s usually, you know, 10% of the capital stack, maybe 15. It’s never more than the common equity, because the common equity sits behind the pref equity. Now, the pref equity is pretty straightforward. It comes in, it, it, it fills that gap of that capital that’s needed for the project to get complete leased up and stabilized. And, you know, these projects are anywhere from, you know, three to 8 million. They come in and the pref equity gets a return that pays out quarterly. So if I’m putting pref equity in the deal, I’m not getting the upside that the common equity might get, but I’m getting a finite return and a finite date.

Darin:
So it’s, it feels like kind of a, a second loan on a home or mortgage. You know, you get a higher rate. Our investors are getting, you know, anywhere between 11 and 13, 14% on this. But it is secured by the asset, and it sits in front of the common equity. So it gets fully paid before the common equity does. And it’s co-terminus with the senior debt. So when the loan matures and the sponsor developer needs to get permanent financing or sells it, our, our capital and any amounts that have not been returned to us get fully paid before any of the common equity gets paid. So we have that safety net behind us. So, and it’s really good because it’s, it’s short term money. You’re kind of sitting on the sidelines waiting for that next bigger opportunity, but you’re not sitting there holding cash doing nothing. And prep equity deals are 18 months to 30 months. They’re not long term, you know, because when the loan matures, you’re out. And, and that’s what’s been really our, our investors have been very intrigued by, Hey, it’s short term, it’s secure, it cash flows, it’s in a great asset, we like it. Let’s put the money to work.

Charles:
Yeah. So that’s great. So you, so for example, for listeners, if you had senior debt, first mortgage being, say, 65% loan to value, then you had Darren come in at 15%. So he’s making up between 65 and 80%. So that’s coming on outta the pref equity. And then you have your common equity, which is your investor. So pretty much they’re, they’re secure unless more than 20% is cut off the top and it goes foreclosed something like this, but they’re getting a return higher than the senior debt, and they’re getting a, a fixed return, which may be higher than common equity today. You know what I mean? Because stuff’s getting haircuts. You’re,

Darin:
You’re, you bring up a good point. We’re, you know, we are, we’re still underwriting, you know, development deals, and we’re not seeing anything that pencils into the teens at all. I mean, we’re seeing 10, 11, 12 for the common equity, and we’re just going, why would, why would we go do common equity at 12 when I can get 12 on a preferred from a project that’s already in the works that maybe is 90% complete or is stable or is leasing up right now? So that’s a good point. I mean, there’s not a lot of common equity that actually makes sense. Now, there’s gonna be a unicorn out there, I’m telling people to, you know, say no, but it’s gonna be, you know, one in 10 or one in 20.

Charles:
So Darin, I want to you, you have a story about passive income that is very personal, and if you don’t mind sharing it, it’s it tells about, you know, go into exactly how it affected you and your family.

Darin:
Yeah. you know, I, I couldn’t tell this story a few years ago. But I can today and it’s, it is, it is pretty powerful. And, and, and I’ll tell you, I’m going to backtrack a little bit talk, talk bit. When I heard that radio program in California and it was, you know, rich Dad, poor dad, it just shifted the mind. And of course my my girlfriend at the time to be my wife, I just was excited. I said, you gotta, you gotta read this book, you gotta read it. She read it and she goes, I get it, I get it. So I had a, I had a, I had a business partner also, so that was good. But we had both grown up in a paycheck to paycheck kind of households, and we both were like, ah, we don’t want to be that.

Darin:
As we get older, what can we do different? And so we, we said, we’re gonna do this, and we, she, I left my job, she left her job. And we started this, but we started building this real estate passive income strictly to not have to work. And we both wanted to spend time with our kids because both of us were latchkey kids growing up, you know, and for people don’t know what that means. That’s, you know, we came home to an empty house as a, you know, I got off the school bus and came home and there was no parents there, and she had the same thing. We just wanted to change all that. So we said, we’re gonna build this passive income. Well, we spent 10 years you know, kind of testing what model worked the best for us. And, and sure enough, you know, the multifamily that we, we started in 2009 was really where it really started.

Darin:
But we started building this passive cash flow from multiple real estate projects and things started going pretty well, and we’re going like, wow, we do this for 10 more years. We could probably be set, you know? And so, but you know, God has a strange way of, or the world has a strange way of throwing you some curve balls. And and my wife got diagnosed with, with cancer and by the time we really discovered what was ailing her, she was already at stage four. And we had we, we had two young children, and we just, they gave her two months to six months to live. And, and it was like, God dang it, you know, what do we do? Not even thinking about finances at the time, it was all about how do we prolong her life, you know, what do we do?

Darin:
So we literally, and this is where, you know, this, this nonprofit that we just established a couple years ago called Never Quit. She has kind of looked at me and said, you know what? We’re gonna figure this out and we’re just, we’re gonna figure it out. Fast forward. She lived for another four years, four and a half years. So she beat all the odds, alright? But what happened in that four or five years is I spent a ton of time with her for treatments, and we were going from Austin to Houston at MD Anderson, which I give them a ton of credit. But we were not constrained to the insurance program or the finances because we had spent 10 years building passive cashflow. So I was able to step back outta work and not work full-time, take care of her help raise our two small children.

Darin:
And I, I literally could not have done that if we didn’t have passage of cash flow. And I think most people know, you know, medical expenses are the number one reason people go bankrupt. Okay? I mean, number one and I, we saw firsthand be, we were just so fortunate that we had, you know, done what we had did, not knowing how we were gonna need that or use that, but I, we were, there was a couple that were pretty much on the same treatment schedule time that we were, and both of them were employees. And I saw them getting treatment based off what the insurance company said, and not what the doctors wanted to do, that they didn’t have the resources to go pay for the, the program that the doctors wanted to do. And I saw, I saw just gradually over the course of a year, just things started imploding on them.

Darin:
And I think they looked at us and going like, wow, these people seem not to have the same issues that we have. And, and we didn’t. And that passive cash flow literally saved my family’s lives. I mean, it, it hands down. Now, fast forward to today, you know, here we are five years later and it continues to grow and it just keeps continuing to grow. But, you know, everybody is going to face a life crisis at some point. I mean, 10% of the people on this, on this that are listening to this podcast have gone through the same thing I’ve gone through in some form or fashion. And by the time they’re six years old, it’s gonna be 50%. So the probability that it’s going to happen to you is, is fairly high. And, and the best thing you can do is, you know, it may not be the perfect plan, but plan, you know, and, and, and find ways to get cash flow, find ways to get multiple streams of income that don’t require your time. Because I can tell you firsthand, if we had not done that, it, my life would be drastically different today, drastically different. My kids’ lives would be drastically different.

Charles:
Yeah, that’s a, that’s a very powerful story happened to my uncle 2008, and I remember he had a business insurance business that was, he had like set like a business. He didn’t really have to do anything with it. And when it happened to him his family could be with him. It wasn’t, it wasn’t something, just like you were saying, it was one last thing they had to worry about, and he was able to spend more time with his family and travel and do the things he wanted to do in his last months and days. So it’s a, it’s powerful. I mean, it’s a powerful thing. And like you said, most people don’t, most people will be affected by it for years to come, but or know someone that has, but it’s also one of the things is that you’re gonna go through one way or another, something and something, having that consistent income, something that’s something you’re generating something outside of your retirement account and your job, you know what I mean? Another income stream that’s coming. It’s a very, it’s very powerful, you know what I mean? No matter how small it is, it can help you.

Darin:
Yeah. And it doesn’t have to be real estate too. I mean, there’s so many, I mean, for me back, you know, 20, 25 years ago, there wasn’t a lot of ways to generate passive income. I mean, there was, but real estate was the go-to, I mean, today, if I was starting all over, I, I don’t know that I would 100% be all in on real estate, you know? I would probably be doing two or three different things just understanding market dynamics and diversification and, and, and, but you know, it, it, there’s opportunities out there. So I think for people today, it is far easier to do that. You just gotta do it. You just absolutely gotta do it.

Charles:
So, Darren, thank you so much for sharing about your business and also about your personal life. And how can our listeners learn more about you, your company, what you guys do, and possibly connect with you?

Darin:
Yeah. Do you, do you know who you know who Carl Rove is? Yeah. You know, that guy on

Charles:
The bushes, he

Darin:
Takes his little lightboard and he goes, puts it up here and writes up on it. So is Club Capital do co club capital.co. Okay. <laugh>. Yeah. and I’ll tell you there, there’s a, there’s a pref equity 1 0 1. It just gives you some foundational stuff about pref equity. There’s another document on there. I mean, there’s a lot of, there’s a lot of resources, but I think that one, since we talked about pref equity, and I think something else is super important. I, I’ve seen this here, there’s been a lot of syndicators in our, in our local market that started five years ago, six years ago, that are pretty much out of business today. They didn’t have the experience or plan correctly, whatever. We also have a document on there on, I think the top 10 questions you should ask every potential sponsor that you may invest, pick those up. And you know, those two things alone can really give you a lot of insight on, on equity and, and sponsor opportunities.

Charles:
Yeah. The one last thing on the prep equity is that I find out that most prep equity is coming a lot or partially from family offices. So it’s something that they’re doing it for a reason. This is smart money. So it’s something that start thinking more about your finances like that. I think pref equity is a great, another tool you can put in your toolbox for for building wealth.

Darin:
That is so true. I got an email this morning before we got on, on here a family office outta Chicago wanting to set up a call with us next week. Yeah. They, they wanna be in Texas and they want to get, they want to get in the door,

Charles:
Right? Yeah. They’re looking for exposure to it. They’re looking for a return that’s higher than what they would be getting elsewhere. However, they don’t want all the risk of coming on in the common equity side. So it’s a, it’s a very interesting, very important piece, especially now, and it’s not going away anytime soon. Thank you very much. I will put all those links into the show notes and I’m looking forward to connecting with you near here in the near future. Hopefully,

Darin:
Man, I, I’d love to reconnect in about six months and give you an update on what Pref Equity’s doing, and I appreciate it, Charles. Thank you so much.

Charles:
Thank you. Have a great rest of your day.

Darin:
Alright. All right, you too. Bye-Bye.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

About Darin Davis

Darin is an eminent industry leader and entrepreneur with over 25 years of real estate experience and more than $1B in debt and equity as a Sponsor or LP. Having experienced several market corrections, Darin led predecessor companies to pivot and deliver exceptional returns in residential, retail, NNN, and multifamily assets. He is an active managing partner at Presario Ventures and recently founded Club Capital to further address investor requirements for capital growth and cash flow.

Darin has a foundational commitment to learning and firmly believes you will grow and prevail with education and execution. Along with his two children, he launched The Never Quit Initiative, a 501(c)(3) non-profit organization, to address and provide solutions for the two top reasons that put families into bankruptcy: loss of income and medical expenses. The organization’s mission is to broadly educate young adults on the power of passive cash flow for income and prepare financially for a potential crisis in healthcare costs.

Darin is a proud and engaged father of two exceptional adult teens, an active Tiger 21 member, and an honored alumnus of The University of Oklahoma.

Are You a Fan? Subscribe, Rate, Review & Share – Click Here To Learn How

What question do you always wish I would ask but I never do?

Connect with the Global Investors Show, Charles Carillo and Harborside Partners:

Scroll to top