Investing During The Pandemic: Steve Davis of Total Wealth Academy On What We Should Do With Our Money Considering All of the Volatility and Uncertainty Today
An Interview With Jason Hartman
There’s always new stuff happening in our industry. We are in multiple spaces — about 70% apartments and 30% self-storage complexes — strip shopping centers, hotels, and senior living complexes. Those spaces are all proving effective at building cash flow. For about 30 years, all I did was apartments and single-family homes. These new spaces we are entering are very exciting. There is a lot of growth. I think senior living will be a major player over the next 20 to 30 years.
As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Steve Davis.
For the last 30 years, Steve has helped teach and coach tens of thousands of people on how to use real estate to build wealth and passive income while focusing on maintaining a balanced life. He did this through his daily radio show and one-on-one coaching, and now owns his own coaching and consulting business, Total Wealth Academy, where he consults full time. This program takes people by the hand and leads them step-by-step through the real estate investing process. His tips cover everything from single-family homes, apartments, self-storage, and more.
Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?
I was working in corporate America, and I won a national sales contest because I was so good at what I did. They sent me to Hawaii for a week, but when I returned, they cut my pay by $20,000. It woke me up to the ineffectiveness of relying on a single source of income. At that time, Warren Buffet talked about how stupid it was only to have one source of income. He said you should always invest and have a second stream of income.
It was tough to sleep after that pay cut. I had bad credit, was behind on my bills, and developed insomnia. I was up late one night, and these infomercials about real estate investing came on, so I decided to invest in those programs to the tune of $30,000 on my credit cards. I started buying real estate and it just snowballed from there. Eventually, I was able to quit my day job and spend more time with my family.
I watched my parents suffer financially their whole lives. It gave me a soft spot in my heart for people suffering financially because they don’t have to. If everybody would focus on building that second stream of income, we could solve a lot of the financial problems in the US. Instead, people are focusing on speculating in the stock market, in gold, or in bitcoin. They’re not focused on building cash flow. They’re getting slaughtered in the end. We focus on creating income streams that come in the rest of our lives — income streams that we can leave to our children.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or takeaway you took out of that story?
The funniest story, and the event I learned the most from, was when I bought my first apartment complex. It was a little ten-unit. Before that, I had invested in nothing but single-family homes. What I learned was a thing called “LAG:” laziness, arrogance, and greed. LAG slammed me because I bought this ten-unit apartment building, thinking, “Hey! I can run 100 houses, and I’ll have no problem running a ten-unit apartment.” Well, apartment complexes are entirely different from a single-family home. I got beat up the first year because I didn’t know what I was doing.
I recognized that I was too lazy to take a course on the difference between single-family and apartments. I was a little bit arrogant, maybe very arrogant, because I thought I knew it all, and I was greedy. I didn’t want to pay that 20 or 30 grand to take that apartment investing course.
Since I didn’t know what I was doing when it came time to sell the property, I sold it for $349,000 less than it was worth. If I had just bought that program and studied multifamily, I would have made an additional $349,000. It was a swift kick to the floor! So, I am very aware of LAG, and this experience woke me up to it. I try not to be lazy, not to be arrogant, and not to be greedy so that I’m operating at maximum effectiveness with everything I do.
Are you working on any exciting new projects now? How do you think that will help people?
There’s always new stuff happening in our industry. We are in multiple spaces — about 70% apartments and 30% self-storage complexes — strip shopping centers, hotels, and senior living complexes. Those spaces are all proving effective at building cash flow. For about 30 years, all I did was apartments and single-family homes. These new spaces we are entering are very exciting. There is a lot of growth. I think senior living will be a major player over the next 20 to 30 years.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
That’s a tough one. I won’t let anyone call me a self-made millionaire because it’s not true. There were over 100 people “on my team” from the first deal I did. I think about Carleton Sheets being “on my team”. I bought his books and CDs. I have Steven Covey “on my team.” The Seven Habits of Highly Effective People is probably the foundation of my success. I read Rich Dad, Poor Dad by Robert Kiyosaki, which just blew me away. Everything I had done up to that point had been slightly off. I read Rich Dad, Poor Dad, and that’s when the idea of a passive income stream began to appear. I realized how important it was.
I didn’t actually meet all of these people, I just read their books over and over again. I’ve read the Seven Habits at least 15 times. I’ve probably listened to it about 20 times on audio. I believe repetition is the mother of learning. Every time I heard it, I learned something new. Some of the information you may not be ready for. As you mature and get more experienced, you reread the book. You’re, like, “Oh my God! That’s what he was talking about! Now I get it!”
I had 20 Real Estate Agent friends. I had 20 wholesaler friends, mortgage bankers, attorneys, CPAs…I had a huge team. So, I can’t pick just one person. It was a ton of people who helped me.
I’m 57. Whenever I’ve asked for help, I’ve gotten it throughout my life every single time. People have this fear that they are out here alone, but that’s simply not true. So many people are out there willing to help you. I got that from Steve Jobs. He said in his book, “Man, from the time I started Apple, every time I asked for help, including from a competitor, they gave it to me.”
I looked back at my life and realized it was the same for me. It takes a whole team. It really does.
Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?
This is from The Seven Habits of Highly Effective People: you have to be proactive, not reactive. You have to look at each challenge and understand it. You have to spend all of your energy on a solution. The problem I see is that people spend 95–100% of their time and energy complaining about the problem and worrying about it, but spend little to no effort on what to do to solve the problem. It really should be reversed. 5% of your time should be spent analyzing a problem, and 95% of your time should be spent solving it.
I’m in the seminar business. When the pandemic hit, they literally shut us down. They said no more seminars, so we transitioned. We went digital, and we moved to online meetings. There’s always a solution if you focus on finding it.
I think about what Napoleon Hill said when working with Andrew Carnegie: “Nothing is undefeatable.” If you sit and think proactively about solutions, it may take hours, days — even weeks — but you have to think to yourself, “nothing is impossible to overcome.” People need to realize that and focus on it.
Another thing I believe is that every problem has the seeds of its solution within it. There’s always a way to put a twist on something and make it positive. During the pandemic, we approached it like this: “We know you’re stuck at home. We know it sucks. We ask that you spend an hour with us and let us teach you about having a second stream of income.” The response was incredible.
I had friends in the restaurant business who immediately had to pivot to delivery only, and other friends in the same industry who ended up closing. I credit the difference to their mentality, not just the pandemic.
Okay. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy, in general, have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long-term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?
Well, this is a tricky question for me to answer. I hate the stock market. I don’t invest in the stock market. I consistently get three times the rate of return in real estate, sometimes 10 to 20 times the rate of return. Sometimes, I see people in the stock market, and I think it’s simply because they don’t know anything else. There are no classes in high school on building wealth with real estate, yet 70% of the millionaires in the United States use real estate to become wealthy.
People don’t know about it, so they automatically turn to what their financial planner suggests or what their parents told them to do. Most financial planners are broke, yet we want them to teach us how to build wealth? It’s foolish not to have some real estate in your portfolio.
Over the last 75 years, the stock market average is a 7.5% return rate, including uptimes and crashes. In my last 30 years investing in real estate, I’ve had over a 21% rate of return which is three times as high. My advice would be, don’t just sit there doing nothing investing in the stock market. Educate yourself on alternative investments, because that’s how people get wealthy.
Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?
The answer is absolutely. There’s also an equal and opposite opportunity when there is any catastrophe. The people saying “I’m going to wait and see” are missing incredible opportunities. Our students picked up about 5,000 apartment units last year. This year, they’re on track to pick up about 10,000. There are opportunities all over the place. So many people are leaving the marketplace, and this is leaving a lot of opportunities on the table for us to pick up. We have less competition, and we can do things that we couldn’t do otherwise. If people are going to grow wealth in the United States, they need to educate themselves on alternative ways to make money.
Are there alternative investments that you think more people should look more deeply at?
I think everyone should have some real estate in their portfolio. Once they do, they’re going to want more. As I said, it does take education. There are courses out there for $500 up to $30,000, but with most of these $500 to $1,000 courses like mine, you’ll get enough information to get started. Once you realize how lucrative it is, you can take it to the next level.
So, yes, I think real estate is where it’s at. But it’s funny; I don’t think it should be an alternative. The rates of return are much higher, and it should be what people go to first. People are shy. They’re shy of more work, more education. It’s easier to hand your money over to the stock market or a financial planner, but that’s a lazy way to do it. That’s why you’re only getting a 7.5% return.
If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long-term investment, what would you advise them to do with it?
This will sound funny coming from me, but with $10,000, I would put it in a mutual fund until it was $30,000. With $30,000, you can buy a little $200,000 single-family home. Now, some of you are going, “But wait a minute, that’d be $40,000 down, plus closing costs” because you’re not educated in the types of loans that we use. You can buy a $200,000 house, including rehab money, holding costs, and closing costs at $30,000. This investement would probably give them about $500 a month cash flow which is $6,000 a year. That’s a 15–16% rate of return.
I know I’m throwing a lot of numbers out here, but if you study it all, you’ll find out everything I just said is pretty accurate in today’s market. I’m going to put $30,000 down. That $30,000 will turn to $60,000 the instant they close the deal, and they got $500 a month cash flow. That’s awesome!
Okay, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non-intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?
Let me tell you what I did with my son at age 8. I said, “Hey, Trevor, you need a second stream of income, here’s a copy of Rich Dad, Poor Dad. Go read this.” I gave him a copy of the book. I gave him a copy of The Richest Man in Babylon by George Clason. I told him when he was 9, 10, 11, 12, and 13 that he needed a second stream of income. My son graduated from college with 11 rental houses and $4,000 a month as a second income stream. Nobody tells their child at eight years old that they need a second income stream. The only difference between my son and everyone else is that he was told the right things to do.
You were told to get a job, speculate in the stock market, save for 45 years, retire, and die. The rich teach their kids differently than the poor or middle class. So, I don’t have five essentials. I have one, but it’s major: have a second income stream.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
I can’t give you the best one, because there are so many of them. I’d have to provide you with 20 or 30, but probably my favorite one is, “It’s not what you know, it’s who you know.” People are helping one another. People are sharing their ideas. People are sharing their efforts.
I put together an event this past weekend. We had about 400 members there and about 20 vendors. Those vendors made that event better than I ever could have made it without them because I know all of those people. We produced something people are still talking about and emailing me about.
Another one is something Charlie “Tremendous” Jones said. He said, “Who you will be in five years is a direct result of the books you read and the people you meet.” If you’re not reading non-fiction books and you’re not out there meeting new people, you will be the same person in five years that you are today. You’ll be boring. People will be tired of hearing from you because you’re the same person you were five years ago.
Those two quotes help me understand that my job is to help and serve people. If you want to align yourself with like-minded people, join a real estate investors clubm or a club for whatever you’re interested inm and get to know people. It’s not what you know, it’s who you know.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. :-)
I will refer to the Dalai Lama, who says, “The purpose of life is to be happy.” The catch is, you cannot be happy if you’re not helping and serving others. If you’re only serving yourself, there is a hollowness.
For example, I have a friend of a friend who had $815 million in the bank. He blew his head off six months ago because he was empty inside. Why else would someone do that? It’s okay to be happy. It’s okay to be joyful, but if you’re not helping or serving others, there’s that hollowness.
If you look at capitalism, capitalism is genius. With capitalism, the only way you make money is to help and serve other people. Other people are the ones who have the money. There’s no big pile of unclaimed money out there. If you want more money in your pocket, it has to come out of someone else’s! Why don’t you help and serve other people so they give you their money? When you end up wealthy, you can give a bunch of money to the charities that are important to you.
So, if I can start a movement, it would be one where everybody understands that it’s okay to be happy. They should be happy, but there’s a catch. You better be helping and serving other people; your spouse, your children, your customers, and your clients. Help and serve other people. That’s where happiness comes from.
Thank you for the interview. We wish you only continued success!
