Enhancing The Quality Of Our Community With Sterling Davis | S1 : EP2

Well, Sterling, I'm super excited to have you on my podcast today. I know that I've been talking about doing this for the last 2 years.

Yeah.

And I said I was going to have you on. So welcome. Um, I want to introduce everybody who doesn't know. This is Sterling Davis. He's the president of Color Blocks Syndications and Color Blocks Living. Um, I'm excited to dive pretty deep into that because that's a recent change that you've had. Kind of tell us a little bit about your background and kind of what, where you started and kind of how you transitioned to doing Doing the Color Blocks.

Yeah. So thanks Brandon for having me, man. I'm super pumped for this podcast. Like we've, we've, this is like seeing a dream come true.

Like, yeah.

Uh, this is so dope to be here. I'm super excited for it. Uh, so, you know, Sterling Davis, I am a serial entrepreneur, I guess, at this point, because I've started many, many businesses before this. I've been an entrepreneur for going on 12 years and I've gone, I was in real estate for a while in property management. I own Bethosdy Property Management, still own that. Uh, I own CIREA, which is Central Indiana Real Estate Investor Association, which we're the oldest and largest member investor membership organization in Indiana, where we have just over about 650 members, uh, that we teach how to do real estate investing. Uh, and then I of course have Color Blocks and Color Blocks Living, and then Color Blocks, the syndication company that I'm super excited to talk about today.

Yeah, no, I'm excited to learn more. I think that, you know, you and I connected, what, 2 years ago, right when I started my property management company. You're someone who'd been doing it for a while, so I reached out and we really connected, um, and we've built a great relationship since then. And we kind of talk about the same things, we share similar mindsets from a new investor point of view. So for me, it's you've helped other people buy assets.

Yeah.

You've helped other people manage these assets and you've mentored them and you've given them advice. Kind of what kind of brought you full circle to now you want to focus on doing that for yourself as well?

And that's a great question. I mean, it, this has been a long-term coming. Right. So, uh, as Brandon said, I started, you know, Ethosde, uh, Ethosde's been 9 going on 10 years of me doing this. And I, I was a, what I consider a vent, what people consider vendors, I considered I was a partner. Uh, realistically, I was probably tricking myself because I was only a vendor. Yeah. And I think, uh, investors make you realize that you're a vendor every day. You could be like, oh, we're partners in this and I'm helping them grow and things like that. And you realize that when it comes down to it, no, you're only a vendor. So me and you, you've talked about over the years of just this transition of when I first got into property management, for example, 8, 9, 10 years ago, it was not as competitive. It was not as much of a commodity to do the service, right? It was kind of one of those situations where I was taking over a lot of properties from mom-and-pop organizations. So they were working from Excel. I was able to use technology and then it was so easy to do. And then little by little I started realizing that it got more competitive and that vendors, I mean investors were not as friendly as they once were. And then, you know, little by little you start realizing that Um, that people will leave you not because you're not doing a good job and you're not adding money to their portfolio, just because there's cheaper gas prices down the road or there's cheaper management fees down the road. Uh, so, you know, it was really intriguing for me to start owning more than I was previously because the ownership piece was so vital to it.

Yeah, no, I think you hit on a really good point. Something that I've started recently doing in my business is not all clients are great clients, right?

Right.

So one of the things that my business coach has kind of taught me to do is grade them. You know, you have your A clients, your B clients, your C clients, and you kind of look back at what traits make them an A client versus what traits make them a C. And then you find yourself realizing like, wow, we don't have this partnership mentality. It is a very transactional relationship. And for me, that's more of a C client because we do have a partnership mentality, as you do with your clients. And if you have that mentality, the amount of growth that you're able to achieve on both sides, yeah, is tremendous. Because if you have that mentality with an A client, our growth is their growth, right? Their growth is our growth.

They understand that.

And 100%.

So No, I mean, I've seen all sides of that, right? Like, we've, we've managed 700 units at one point of single-family properties, and then to go and only manage 250, but you're more profitable because you're not talking to them every day. Are they, they like to see that you go on vacation? Are they, you know, these things that are kind of important to survive, right? Like, and those are the things that really made me not like what I was doing. Like, I wasn't happy. Like, if I'm going to be transparent, as a property manager owner, I was just dissatisfied. Like, you know, just being a vendor because people mistreat you. People just assume— it's almost like, uh, this is a crazy example, but follow me, right? Um, Will Smith smacked Chris Rock. Right. I'm not, what I'm not debating is who was right and who was wrong. But what I heard was, well, Will Smith should just take it because he's famous. Like he should just be able to take the criticism that everybody says because he's famous. And oftentimes I feel like in situations as a property manager, people just assume that I should just take it.

Right.

Like I should just take the abuse. Like I should just get tenants to cuss me out. I should get owners that call me at 2 o'clock in the morning I should pick up and I like, you know, I shouldn't have time for my family. And it's just frustrating at times, just, just assume that we should allow that level of abuse as a property manager. And that's where I was like, nah, I'm good.

Yeah, no, I can definitely see where you're coming from on that. I think one of the challenges that I've had starting my property management company who were now more, more than just property management, like, like you are, was explaining the value that we bring into the table. Because there's— yes, property management can be considered a commodity. There's a lot of us out there. We are all not created equal. No, right? And figuring out a way to communicate that to my potential clients has been something that I've been working on over the last few years because Again, we're not all created equal. No, there's people who can collect, collect rents, and that's about all they can do. There are people who understand the full cycle of what the client's doing, so we can be a partner in that growth, in that decision-making, which kind of comes full circle of like, from the sounds of it, that's been the biggest driver of you deciding to become more of an owner, is you now have more, more control over all of that?

Oh yeah, man. I mean, it's, you know, it's funny, like at times it just takes self-belief. It takes me believing that I'm capable. But when I look at my track record, when I look at that, I was able to take a, you know, a 23-unit in Greenwood, Indiana that was getting $700 in rent and I was able to grow that. And within a year we grew the rents to $900. I was able to literally add 200% value to their portfolio. I say to myself, well, if you can do it for them, why can't you do it for yourself? Right? So, um, but it, it took a lot of, it took a lot of conquering of self-doubt. It's comfortable being able to do things for people, good, bad, or indifferent, right? Like, because with those people, we separate, we separate. But if I fail, I fail, right? So for me, it was really important to, to understanding how dope I actually am. Um, you know, and I think a lot of times people don't want you to acknowledge how dope you are because once you acknowledge how dope you are, uh, like the great words of Fat Joe, today's price is not yesterday's price, right? Like, so I think it's the same thing when we talk about it. It's like just because who I was yesterday doesn't mean who I am today and doesn't mean that I won't charge more for who I am today. And I think that makes people afraid because the same people— and I don't want to think that like everybody that is investor is abuser, but you have to be careful that you don't mistreat people. Inside of my segment of real estate in the last 3 years, I've had seen people grow to 600 doors and they leave the industry in a year, right? I've seen people that grow to 400 doors and they misappropriate funds, right? And so for me, it's being able to say that I'm still here through COVID and being able to say that, I say, man, it's, it's time for a change.

That's an amazing point. As entrepreneurs, we are blinded by some of our really good things that we have going on and some of our success, and we kind of harp on the negative things that are happening. And we kind of have to take a step back and realize like how we're doing all these great things over here. We had this one little hiccup. Why can I only focus on this little hiccup versus all the great things? And that's, you know, I think a lot of entrepreneurs suffer from imposter syndrome. Yeah, I know. I know that me and me me and imposter syndrome, we kind of have a good, good relationship right now, you know? Right.

Um, I mean, we, we're going to fake it till we make it. I mean, to a certain degree, like that's what we all do.

Yeah.

And what I've seen is, is people, some investors actually love imposter syndrome because, and, and this is the fatal, like you talk about toxic traits, right? The toxic trait is in a person that thinks that they can make their plumber into their general contractor. The same person is the same person that thinks that they can make their property manager into everything in every aspect of the property, right? Like, and so you have to be careful that even as a property manager, that you don't take on too much and try to be everything for everyone. And that's why I love being able to do the syndication, right? Because inside of the syndication, I know exactly my role and my responsibility and who I really am as a creator. I love creating things and I love adding value to things. And so for me to be able to be the principal of this syndication, I'm able to now take this thing that somebody didn't see value in and I'm able to make it valuable. I'm able to give it context. I'm able to give it structure so that people like it.

Yeah. I know. It's like, as, as you're making that shift from being more of an operator with Ethocity to being more of doing your own thing with Color Blocks, what would you say would be the biggest thing that if you could— if I was an investor wanting to invest in Color Blocks, what are some things should I be looking for as, as a new investor when I'm— because like we've all heard that the sponsor is more important than the deal, right? And we know that to be true. So if I'm a new investor, what are some things that I should be asking, what I should be looking for if I'm looking at a deal with Colorblocks.

Absolutely. So I think it's bigger than the deal. Like I look at it holistically of the impact and influence that we're trying to have inside of Colorblocks. It's a peculiar name, right? Colorblocks. It's, it's the idea that when neighborhoods are flourishing, they have color, they're thriving, they're vibrant. And that's what we're trying to be able to add is back color to these impoverished and underdeveloped areas even that I grew up in, right? So for me, when I look at our syndication side is being conscious and aware of our monetary investment to be able to influence. And the reason I say that is it's just not about investing in an area, but it's about impacting in an area in a major way. Not, you know, we've flipped houses, you know, me and you talk about our deals every time we get together.

Yeah.

Like, oh, we got this property, we're doing this, but What we are different is, is we understand the economic impact, but also the social impact that allows for a neighborhood to go from $700 in rent to $900 in rent. And also being able to have relationships with, you know, the government to be able to use tax credits and things so that our economic impact does not hurt our social impact to make sure that our growth is is, is prudent to the people that's already been there.

No, I think you made a great point. A lot of people who are newer investors, I don't want to generalize, but they kind of come from this background of they want to take that $700 rent and they want to raise it to $900, but they don't understand the full impact of what they're doing to that neighborhood. So it's not as simple as just going into that, that apartment community or that home and just increasing rent, right? You have to increase the value of the asset. And one of the easiest ways to do that is to also increase values of the community that you're in, be a part of it. One thing that we like to do is when we go into a new community, we like to find like Little Leagues that the property can sponsor, those Little Leagues. We want the properties in these little markets that we're in to be a part of the community. That way when we go to do those big projects and we need the city to approve our permits and stuff, they can see that we're being good stewards and they're more likely to work with us at that point.

As well as the neighborhood people want to be able to see it, right? Like I have a, we have a 23-unit that we're rehabbing, adding value to right now. And inside of that, I've talked to every neighbor inside of a block radius of this property. And part of it's very strategic, right?

Yeah.

Part of it's strategic and let them know, hey, we're making this area better. So if you see anything, say something, here's my number, call me, let me know. I want to clean this up, right? I want them to be partners inside of this because they are committed. These are homeowners that's been living here through the good, through the bad, through the indifferent. So for them, they're excited for us to be there. But you know, then on alternative, you have people like with this 23-unit that we're displacing 23 people from this property. And me and you talked about it, one of my tenants came to me and was like, ah, majority of the people inside this building was Black, brown people. It's like, you doing this to your people? And the reason I, it stunned me for a minute. I said, oh man, what? And I thought to myself, I'm like, I'm doing this for my people. I'm doing this because they deserve better. They deserve to live in a place that has functioning water. They deserve to live in a place that actually is improving the area and not— this same building has been sold 7 times in the last 4 years. Wow. Nobody did anything to the property. There was no rehab done. There was no— so when you start talking about value, That's the value. We've already put upwards of $80,000 into this building for the outside, inside to make sure that it's getting better habitability. But, you know, it's so important to what we're doing inside of Color Blocks is just not increasing and making a return on their investment. We do just like everybody else. We have preferred rate of returns. We have all those things. But when it really comes down to it is we're the people on the front line and we're the people that are actually having value to it. And that's why, you know, a percentage of our business does go to exactly what you're talking about, the Little Leagues, the places inside that helps our community that we're investing in.

No, I mean, you keep hitting on great points. And as if you're just the property manager, there's this misconception from the tenant profile, our tenant base that we own it.

Right, right.

So if maybe there is an asset that maybe is undercapitalized, so repairs are happening slower than what we would like, a lot of times the owners aren't the ones taking that kind of pie to the face. It's the people that are on the ground doing that. And that, I would imagine, that would be another motivator for you to switch to being an owner because you're already in front of these people, you're already making improvements, you're already doing these things. Now you can take direct accountability for everything that's happening.

Yeah, I mean, I mean, to, to that point is a great point because, you know, it's almost like put your money where your mouth is, right? To a certain degree, like we have this property in Newcastle, Indiana, and part of the frustration I have The part of my frustration with this is going on year, finishing the year of year 1 with this property is that we should be done with this value-add property already. And part of the frustration is the owner probably says it's our fault. We say it's his fault. And there's two sides to every story, but part of the issue is, is what you're talking about is being able to turn these units as quickly as possible. The owner wanted to use his preferred contractor. So because he is the owner, we say, all right, your preferred contractor. Well, the contractor is taking severely delayed inside of his endeavors as well as then the owner now has a preferred contractor. So when I walked the property, I said, oh man, you know, When I look at this property, I say, this, this, this needs to be done and you didn't do it. And he says, well, Sterling, at the end of the day, the contractor said that that is the value. I should be able to get the value for what it is with the rehab that I did. And I say to myself, well, you should let the contractor manage and sell this thing for you, right?

Yeah.

Because at the end of the day, what you did was You didn't do exactly the plan. You, it's almost like you, you wanted to, you know, cook KFC, you know, KFC chicken, but you didn't use all the herbs and spices that's needed. And so when you bite into it, it doesn't taste like KFC chicken.

Yeah.

And that's the same thing that happens inside of property management at times where the owner feels that he needs to diversify his knowledge base Or he feels that he's more knowledgeable than us, which, okay, that's fine. In some cases, maybe. In this case, I will say no. This is where we spend our 10,000 hours mastering, um, you know, the, the art of value-add apartments, less than 50 units. That is what we do for a living. So then when you say that you're going to listen to somebody that is a contractor that that spent their 10,000 hours figuring out how to be a contractor, then you don't get the value of the property that you're looking for. But we have to be the one responsible for the outcome. And so for me, that's why I'm very excited to be able to do Color Blocks because when I have complete autonomy to be able to do what I need to do for the property as well as my business partner Lee, Lee's the quants guy, right? I'm the pretty face, right? Like Lee's the guy that, He's a very great numbers guy to make sure everything happens. But we're able to have the autonomy through the, the business plan that we put forth for every property to say that this is going to be great. And because of that, we already would know that we're going to do this grade of rehab, we're going to do this level of flooring, we're going to do this, and we're going to use this contractor because they're reliable. And we won't have some of the hiccups that takes a year to do 4 units because your contractor that you chose was too busy.

Yeah, no, I think that brings up a good frustration that we share as operators, but also investors share sometimes too, is construction rehab is almost unpredictable sometimes, especially in a post-COVID environment to where labor prices are going up, material shortages are happening everywhere, and it's worse today than what it was during COVID right?

All facts.

So with that being said, We both have experience taking over, I like to call them C-minus assets.

Correct. Right.

Right. Right. Would you recommend new investors invest in those type of assets or would you recommend that they kind of stay away until they get their feet wet a little bit before they go into those C-minus neighborhoods and assets?

I say you got to do what's best for your temperament. What I mean by that is what's good for me is not good for you. What's good for out-of-state investors is not necessarily good for you who's local, right? So you have to be really in tune with what that looks like as a local investor, right? Because at the end of the day, I bought my first 6 homes in the hood for $30,000. One, I lived there in Indianapolis. Two, I was familiar with the hood. I grew up in the hood, in this hood that I'm talking about. So I was good with it. Now those properties are— I'm selling one on Friday that I bought for $30,000. I'm selling it for $110,000 on Friday, right? So is that a good investment? It was absolutely a great investment for me. Like, I'm making, you know, 7x on what I've paid for it, but that's a good investment for me. So as a new investor, you— and there could be a new investor just like how I was a new investor that could go to that same neighborhood and be successful. Because they're familiar with it. Now, if I'm an investor, I think every investment investor has to figure out the strategy that works for them specifically, because I think I have a lot of people that come to me and was like, Sterling, just sold a company. I got $3 million. And I say to them, I say, well, do you need your $3 million right now? Like, you know, because if you don't need your $3 million, then you're in a wealth preservation stage where you're looking to conserve as much as your wealth, but you're not looking to make it risky. So you need to go to a or B asset where appreciation and, and you can just start making 6 to 8% on those each year. Now, if you're in a place where you need money to turn quickly, then it's important that you invest in areas that are allowing you to be able to turn it. Now, I think those are better in C+ B- areas where I can turn my dollar quicker. Now, I think for C-, D, F, I think I think you have to be mature. I think you have to understand the neighborhood. I think you preferably, you have to be local. If you're not local, then you have to really understand the risk that you're taking.

So like, I'm looking at it from more from the perspective of they're investing in a syndication. So they're investing with the sponsor. Right. But you also hit on a really good point that I don't think a lot of new investors or even sometimes experienced investors spend time on. Is identifying your criteria.

Right, right, right. You are—

all you hear nowadays is, I want to invest in a value-add asset, I want to go after 50% IRR. And it's like, okay, if the majority of people are looking for similar things, how do you stand out? Yeah, well, you niche down even further, right? Um, what would you say to that?

Yeah, you're absolutely right. Like, with our syndication, we've, we've done a lot of due diligence on what areas that we're looking for inside. So we look for mostly A and B assets for our syndication just because it's lower risk, but the return is what we prefer as well as in areas. So one of our plays that we've been utilizing recently inside of our syndication is short-term rentals just because the short-term rental game has been phenomenal.

Yeah.

Yeah. Insane. Right. But what we've looked at initially was like in AirDNA was areas in which long-term rentals and short-term rentals had the largest margin. So what we thought there was, if it has a large margin of long-term rentals to short-term, meaning, all right, you can rent it for $1,000, then you can short-term rent it each month for $3,500. That margin is good. What it's really good if you're doing arbitrage. But even what I was telling Lee, my business partner, while we started diving into it, I said, if it's good for arbitrage,, it should be good for our syndicate. Meaning that if it's good for a long-term rental at $1,000 and we can get $3,500, that means it's going to be good for a mortgage that we can actually, you know, 10x and stuff. So we've identified 10 different cities in which that we're kind of looking to operate in. And we've been evaluating deals to be able to do so. Charleston, South Carolina, you know, San Diego, you know, Phoenix, Arizona, these places where the margin is great and we can give a great preferred return to our investors as well.

Yeah, that's a good point. I think as interest rates start to kind of trickle up, there's going to be more investors looking for a certain yield on their money versus chasing an artificial IRR or something like that. It'll be more of a yield play than anything. Um, so I think that Color Blocks is going to be unique from what I can hear, is you're not just going to do multifamily assets, you're not just going to do straight up single-family rentals, but you're looking at maybe doing possible different types of things underneath that umbrella to really attract a diverse group of investors, um, diversify your investors outside of just being solely focused on one asset class. Is that right?

Absolutely. So, and then we're able to give them, like, inside of our performance, if anybody wants, you know, have any interest, like we are able to look at, you know, Phoenix, Arizona and kind of see some of the properties that we're analyzing. But also even with that analyzation, we can give a good, better, great kind of scenario or probably more like worst case scenario, good scenario, best scenario type situation so that the investor, I think if you're a person that's looking to invest in syndication, I think you just need to have the most information information possible. And that's all that we're trying to do is give the most information to that person so that they can make the most informed decision.

So as you're looking at all these different markets, I think that being able to go into different markets is key. So like we're, we're looking at assets in the triangle, Ohio, Kentucky, and Indy or Indiana. So more specifically, Cincy, Indy, and Louisville, right? So we want to focus on those, but you're going nationwide, it sounds like. Right. Um, what, what are some of the cool things that you think bring to the table when you are looking nationwide versus just a small region like I am?

Yeah, so what we looked at based off is just statistics, right? Like, you know, we initially when we first started you know, opening Colorblocks. Colorblocks is a manifestation that came way before, you know, Colorblocks, right? Like me and Lee's been doing this together for 8, 9 years now. And so we've explored the Ohio's, we've done, you know, the Louisville's, we've seen, you know, so for us, when we started really looking at like deals and started, It was more or less like these places that are investor-friendly, you know what I mean? They are business-friendly as well. So it allows for a lot of flexibility, freedoms, tax benefits by doing it in down south in some of those states as well. Though we're not rewriting the wheel, but we're not so late that, you know, there's no more meat on the bone.

Correct.

Right. You know what I mean? It's, it's so we're kind of playing that game because one One of the things I saw in one of my previous, like with Ethocity was we grew too slow. We should have expanded way quicker and sooner to take advantage of the markets and things that we saw. And we were just too conservative to be able to take advantage of those. And so with this, we're changing and our model is always changing, right? When I first started, me and Lee been looking to explore this and we've done small deals You know, our goal was to, you know, hold every asset for 5 years. And it's like, if you give us money, we'll hold it for 5 years. And now, like, I mean, times has changed. Like, we evaluated this 12-unit that we're evaluating right now. Our goal is to be out of it in 15 months, you know, which is different because we want to be able to hedge the risk that we kind of feel is on some side of it with inflation and things. So we want to be able to move it a little bit quicker. So we're really excited for it. But our strategy is ever evolving. It's not a one size fits all, right? And I think that's what makes for us being good operators and good principals because, you know, Lee has invested, you know, for years. He invested in Amazon, so the stock. He's invested in gold. He's invested in all these different things. For myself, I've invested in businesses. I've invested in houses, properties, retail, you know, all these different things. So it makes for me to look at things not as narrow-minded as some people might. Um, and then some people might say I'm unfocused.

Yeah.

Right.

So no, I, I think that's one of the things I've always respected about you is you, you haven't, you have the courage to, to branch out of your comfort zone and look at doing these, doing multiple things. Like For me, I, I'm so niched. I'm singularly focused on multifamily, 50+, um, either buying them or managing them from our clients that, you know, sometimes I may lose out on other good investment avenues like short-term rentals. Short-term rentals, I feel like, are all the rage. Arbitrage on these short-term rentals is like all everyone's talking about, but I don't allow myself to get kind of sidetracked that for better or for worse because I'm really good at multifamily. I know multifamily. I stay there. So that's one of the things I've always respected about trying new things.

I think, I think what I realized is my, my niche is not single-family property management, less than 50 units. My niche is the ability to create value for whatever property that I'm able to find, right? That's why, like, with, I got a 4-unit that I closed on, right? That was the first time I really done a, I became the bank for somebody else. Right. And, and so for me it was just, I, once I get the asset, then I can figure out the deal versus a lot of people like miss out on deals because they're like, well, is that a 50-unit? Is that a buy and hold? Is that a, can I hold it for 5 years? And, and it's like, well, if I can't do that, I'll at least wholesale it. Like, you know, like there's, there's some way to make money off of these properties. And that's all I'm trying to do is the capitalist inside of me is just trying to be able to make money and value off of each property that I touch.

Yeah, that's definitely a good perspective to have because so many people, one, are scared to even make the jump. Um, you have the experience of being a serial entrepreneur, like you said, and you've invested in different types of businesses. And what I've learned as an entrepreneur is you learn how to run the business different ways no matter what you're doing. So when, when I first started, when I left my W-2 job that I really enjoyed and started my company, I was just going to do third-party property management, right? And I had the knowledge to invest and buy and do all those things, but my niche, my expertise was just third party. Yeah. Over the last year and a half, um, I've kind of found myself advising my clients more than what I thought I would ever, ever be doing, um, which, which I, I enjoy. Education is a big part of, of our culture. But if I'm, if I'm advising these clients on how to handle their, their asset or what part of the cycle of that investment they're in, it kind of got me thinking like, I need to be doing this for myself. Like, I need to be going after these assets and then maybe bringing them on to invest, you know, with me versus vice versa.

I struggled. I struggled for years. I literally struggled for years. And I, kudos to Vicky Perry, who's the executive director for a long time for CIREA, which is Central Indiana Real Estate Investors Association, because I struggled with monetization of my time. I mean, I remember sitting on phone calls with people that literally I'm giving them all of my knowledge and 6 months later they fire us, right? Um, because we went to Disney World and they felt like we were charging them too much, right? And then that same person would go and write a blog from the knowledge that they gave us, right? That I gave them. So it's, it's incredible to me that like I really undervalued my, my knowledge and people were able to take advantage of that for so many years. And I think with becoming the president of Sirea and owning, you know, a good portion of it allowed me to learn from Vicki because Vicki was like, nope, we're going to charge for that. We're going to charge for that. I'm like, oh, I was uncomfortable. Like, Vicki, are you sure we can charge? Like, I remember I did this real deal walkthrough with the Ethos Tea. And I was like, it was basically where I give people our budget for the property, our outcome, our comps and everything of what we did to evaluate a deal. And we walked into the property. Every time I did this, I had 20, 30 people show up. People loved it. Uh, and I was really excited by it. We drank wine and beer and it was a great time all the time. And then I told Vicki, Vicki saw it and she was like, all right, cool. We're going to do a flipperama and we're going to charge people $200 to come in and we're going to, you know, go to each property and we're going to do the same exact thing. And I was like, I was upset at first because I was like, man, how did, how did she took my idea? Even though I monetize off of it because I'm a part owner. But I was like, when I realized it's like, no, she was able to understand the value of it more than I could even see the value. And she knew how to monetize it. And now Flipperamas are a thing with Cyria. So if you ever want to learn about flipping, like, it's the best value you can have. But I struggle with— I don't know if you've ever had this issue of like at times struggling with monetizing my information and my knowledge. And so Colorblocks, the, the syndication and, and living, allows me to be an owner of this so I can utilize my knowledge in that way. And then Cyria, I'm able to build packages and help. Like we're starting with Cyria boots on the ground for out-of-state investors where they can kind of have a one, once a month we have a Zoom call with me, Cherie Hensel, who is at Longhorn. She's Longhorn, the hard money person, as well as some, a couple other people that's involved in out-of-state investors or whoever can jump on these Zoom calls as well as get knowledge from us once a month. And, you know, for $100, $125, you can kind of have this boots-on-the-ground aspect to it. And we have a mentor program with it.

So no, I think your, your mind's in the right spot. I mean, I feel like everyone listens to podcasts now. Everyone's on BiggerPockets. Everyone's on YouTube watching all these gurus. Well, most of these gurus were like us. They were boots on the ground, closing deals, running deals, and they kind of slowed that down and realized, wow, what I have in my head is very valuable. And a lot of these big gurus make more money from their education than they even do from investing in real estate.

Oh yeah.

Or going after the path that they were down before that.

Well, I mean, you know this, Brandon, man. Like, I've seen people grow from zero doors and I've helped them grow from zero doors to 60 doors and 70 doors and 75 doors, and then you ask yourself, you know, I'm sitting here with 15 doors, like, what? How can I? It's almost like the therapist that can give therapy to people but like is the most effed up in the mind or something, right? Like, yeah, where I'm literally able to give people knowledge but for some reason I can't give myself that same knowledge. And that's what I'm That's what I'm taking, uh, taking back. I'm like, listen, you guys should be part of this because I have this track record. I've done this before. Um, I've had investors that have grown from 0 doors to 60 doors, and now it's time for us to take advantage of that model. And that's why I'm really excited for the syndication side. But the living side is, is just as dope. I mean, because what I've realized inside of this is There's— they're inside of my property management businesses. We cater to 3 different shareholders. We carry— cater to the investor, we cater to the tenant, and then we cater to the maintenance professionals that we work with. And what I'm doing with the Living side of it is, uh, that's going to be more of a tenant-facing. If you want co-living or short-term rental, we have membership programs and stuff that allows people to have access to our portfolio and they can go seamlessly from one property to another. And it's really exciting endeavor that we're kind of taking on.

Now, I am really intrigued by your Cloud Blocks Living tenant-facing program. I think that tenants are more important than I think— than what some people realize. Some investors may get real deep into their spreadsheets and that kind of makes the tenant less human. I feel like sometimes, right, because they don't have to deal with them. We're the ones increasing their renewal rate $400 a month. And to kind of put that focus back on the tenant is going to help everyone because a happy tenant is going to pay that higher renewal. A happy tenant is going to actually call and report that work order. Change all those things.

So, you know, like I did a video on my Facebook about how to hedge against inflation. I said, keep your tenants, right? Like the best way to hedge against inflation is a happy tenant. You know, so, uh, you're absolutely 100% right. And that's what we want to be able to give them is a better experience, um, through our platform in which, um, they can go seamlessly through, you know, our homes, you know, our homes are all smart technology. Um, they're, they're a good experience, man. They're, they're really cool experience to be able to experience.

So you've been, so you've been an entrepreneur in the, I think you said Ethos is going on 10 years now.

Yep.

So you started Ethosity after the downturn, 2008. We're kind of in this weird spot right now where depending on who you are and who you talk to, some people think we're going to go hit that again. I wouldn't be doing our listeners a service if I didn't get your opinion on where you think, one, rents are going.

Yeah.

But two, the overall rental market as a whole.

You know, it's interesting. Before I got here, I was looking at Mybor. Um, which is our multi-listing site for, for Indianapolis. And, and it's where we have our homes for sale and for lease and things. And man, I don't know if you've seen this, but it's a spike of from like 700 homes added each month to like last month we added 1,400 homes. Like, and it's like almost like this graph and it's like this and it goes boom. I was like, oh, Crap, like, what the— and so I just thought that was interesting, like, and then the, the demand of the pricing of the average houses hasn't gone up or down either, um, which I, I think to a certain degree what I say is this thing has been lagging for so long that it tells me that this is going to be like this for some time, right? It has to catch up, um, inside of the rental market I think, you know, specifically when the multifamily rental market, we have not hit our demand pace for so long that it's going to take some time for that ever to be able to catch up if we ever are going to catch up to that. And I think more and more people when it comes to like what I see is like people like, oh man, rents are increasing crazy. I'm like, I mean, rents are not increasing more than any other inflation that we see. Yeah, in January it was 7%, but years past, like months past, it was 3, it was 2.7, you know what I mean? Like, it's within range and reason. Um, so I think we just need to chill out, you know. I think rents are still a good way to hedge against inflation, uh, you know, renting properties and things like that.

I think it's a good point. We have, um, kind of the way that we look at it is We obviously, we all do our market comps, you know, before we send out renewal rates to make sure that we're, we're in line. And we do that, but even with that being said, I mean, we're seeing our lowest increase in the last 90 days was like $125. Our highest is like $421, and that $421 renewed.

Yep.

Um, but what I, I guess what I'm trying to get to is we're all increasing rents across the board, right? I'm seeing some companies utilizing financial technology, kind of like the hotel and airplane industry, where I'm seeing— yeah, I'm seeing some 1968-built, uh, 600-square-foot apartment home is renting for over $1,000.

Yeah.

So my question to you is, with that kind of being said, we're all being aggressive on our rent increases. Do you think we're gonna get to the point where we're gonna have to lower our rents?

I think the market would tell us. That's why I always say the market is the indicator. Like, you know, at the end of the day, I'm not a huge fan of making it at the ceiling, right? Like, I think, uh, because when people are at their highest, you, you also got to take in the fact— so when we do our rent increase, we also look at, uh, the population density. We also look at like medium income, home income, and things like that. Because what you don't want to do is you don't want to outpace so far that now the medium home income is so far out of reach that anything that shifts the market, that they're now going to be, you know, in chances that they're not going to be able to pay their rent. So you have to be in reason inside of that as well. And we look at that inside of our increases. Right now, some of these medium income that these people have been living at has actually in some areas, being higher than the rent. So now we're just catching up the rents because the rents in some cases for 2 years, we didn't do rent increases during COVID right? So when you think about like for 2 years, you didn't do rent increases because of COVID and things like that, that's 3 to 5% of inflation that you just lost on each year. So is it crazy now that, you know, a house in McCordsville that was $2,000 in rent that didn't get an increase, then now you're going to increase that, you know, $40, $50? No, it's not right. Just because you're already losing from just the general— your, your general nature of what inflation is giving you. So I think, you know, I think at some point the market's going to tell us. I always say that, like, I, I believe in the market. I let the market dictate everything. And, you know, to the people that say that we're slimy landlords that just try to increase. Well, if that was the case, the market would tell us.

Yeah.

No, you—

I loved your last point. I feel like property managers and property owners were almost vilified, right, during COVID right? Where we were being attacked left and right. Like, how dare we expect rent to be paid on time? How dare we do all these things? Um, but I want to circle back to all the things that you look at when you are determining your rates. I feel like a lot of people who aren't kind of boots on the ground, hands deep into operating their assets, they think that we just pull up these rates, you know, willy-nilly, and we're like, oh yeah, the rent should be $900. But there's the amount of time that our team and your team likely, and a lot of other people's teams spend weekly, monthly evaluating the market, evaluating where rents are, It's kind of like it's not talked about enough because we are the market experts on rents, I feel like.

And what happens, Brandon, you know this, man, like, so at one point, like, I would say 85% of my people, investors, were from California. And so they, it was good and bad, right? Because initially they're like, oh yeah, let's buy 100 homes because it's only $65,000. Man, that's only $6.5 million, you know? And so it was great. Uh, and now, like, I feel like at times people with inflation and gas prices, they, they now are looking from a California lens and they say, well, let's raise it $150. It's like, whoa, what? Like, the rent's only $600. Like, to raise it, you know, and we haven't done anything. What's the value that we're— that we can say that it went up? That much, right? So you have to be careful because sometimes, sometimes what you got to be careful for if you're a third-party manager is, is kind of the idea of, um, like one of my bosses I used to have, right? My boss used to love letting me fire people. He'd be like, oh Sterling, go in there and fire that person. I'm like, what? What do they do? Well, there's time for them to be fired. And I'm like, what? And what I realized is like it's just easy for him to send me in there and fire him. But the minute I'd be like, all right, you go fire him. He was like, what? I was like, go fire him. You, you, you, you are really okay with me firing him and you, you can give me the consequence. Oh, Sterling, you fired him. They, they backlash on you because X, Y, and Z. Well, thanks, coach. Like you jump in the game, you, you go raise that $250, right? So I think sometimes investors It's real easy to be like, like, you know, BiggerPockets says, yeah, BiggerPockets said we should raise it $200. Okay, cool. Would you raise it $200 if you're the one having that conversation?

Yeah.

Right. Like, it's easy to say that, like, but when you start realizing part of the other, so, so that's part of the reason, right? It's like, you gotta be, you gotta humanize this, right? You gotta understand that as people we're talking about, and sometimes it is just that the rents just went from $800 to $1,000. That's just the value that the neighborhood has brought. But on the alternative, it's also times where it's situations that you just have to be able to be able to understand how the market is shifting and is it worth it. And what I mean by that is, is yes, I can increase it $100, but maybe I should only increase it $50 because that might keep the tenant in here another year. 2 years.

See, that's where I think— that's where we differ the most. Um, we— I think my clients would attest, like, we are extremely aggressive. Um, like, where we're— our clients are underwriting $875 post-rehab, we're, we're getting almost $1,150 on that, on that apartment. And we're renewing current tenants, no upgrades at $950 on one of our assets.

Well, I think where the difference is, single family is different. The reason why single family are different, single family homeowners don't necessarily stay as long as apartment homeowners. You get people in apartments that are home, that apartment people for the whole, their whole life. They never seen a house before. So for us, we kind of have a transition in where people have off-ramps. Where they might live for 2 years, 3 years, but they have off-ramps to go get a house because now they have in their mind that I already lived in a house before. Now I have an off-ramp. And so what we're always fighting against is that off-ramp because these people are now able to have accessibility to being able to do X, Y, and Z, right? Like where I find with my apartments that we have, some of these people, and this is not, I don't want to stereotype people, but some of these people are like, all right, it's $200 increase. All right, cool. Because they just don't know any different. Like, they live in apartments. Like, that's just who they are. And that's not— I'm gonna probably get emails about this, but it's just my take. I'm sorry.

No, I get it. Like, maybe 5 years ago, I would definitely be on that same mindset. I think technology has kind of shifted in the last 3 years to where, at least in the assets that we kind of have in the multifamily space, our prospects and our residents know just as much about where rents are as, you know, we do almost.

Did you say, would you say that's a class thing?

No, because it's the same thing on apartments that where our average rent is $750 versus—

See, I see a difference inside of class.

Really?

I see it like, yeah, I find that class, they still want value. I don't get me wrong, like a C and D class, they still want a value for their— what they're getting. Like, you know, I mean, they want to make— they want the highest value. Everybody wants the highest value for what they're getting. But when it comes to sophistication of what that value is, like what you're a— like there's a different standard for every class, you know what I mean? Just like back in the day, I, I could— I only had to put carpet in clean living and things like that in a D-class house. And now inside of a D-class, I got to put LVT, I got to put— so yes, it's improving, but I do see there's still a different level of sophistication inside of A, B, C, and D that could probably be broken down into a—

maybe, maybe. Yeah, it'd probably be pretty micro at that point. Um, because, you know, we— our lowest class asset, the average rents around $750. Our highest class asset right now, um, is around $1,000. We're taking over one in Cincinnati where it's going to be around $1,250. But when we're trying to raise rents on our $750 asset, they're pushing back way more because Apartments.com says the apartment down the road from them is renting for the same price that we want to take them to, but they're not including appliances or utilities. And that's one of the things that we struggle with on small assets. We compete from an institutional perspective with mom-and-pops where we're rubbing out water, sewer, trash, those things. Some of our mom-and-pops are— have higher rents, but they're including water, sewer, trash.

And see what our single family homes, like what I see a little bit different is our, our cost to turn is just so much higher.

Yeah.

And so oftentimes when they got that single family house, it's not that you're raising as much as what you would on a lower level, like on an apartment, because apartments, there's a lot of values that happen from this to this, right? Um, where my single family, it might raise, like we did a raise on one from $1,100 to $1,200. It's a $100 jump, but it's still percentage-wise, it's probably relatively low. Yeah, relatively low. Um, but the turn on that, if that person would leave, is $5,000 compared to $1,800 that we get on our apartments, right? So, um, it's definitely what we try to do is we try to have a cost analysis, um, to look at like the good, better, and best. Like even inside of our rentals when we're trying to make renewals and make those decisions. Because there's a cost aggregate to say we need to keep this person no matter what, and then there's a cost aggregate that says no, if that person— hopefully that person leaves, you know. And it's the same way that— I don't know if you guys do it, I'm sure probably in some way— that somebody says month to month, we're like, all right, cool, you can do month to month for XYZ, you know, amount of money, right? Um, so I think it's just more or less, I guess the moral of the story is figuring out what that cost aggregate is for you in that threshold. For us, our, our thing is specifically single-family homes. The cost to be able to turn units right now is at an all-time high.

Yeah. Same with multifamily as well.

Yeah. Like, so for us, like, we're like, all right, I know it says that we can go $100, but what if we can go $75? And because maybe that low— the cost of rehabbing will be different in 12 more months.

Now, when you're— so that's, that's a really good point. One thing that we did definitely look at, that one thing that we kind of track aligned with that is our leasing velocity. How many phone calls, how many emails? If we're getting a lot and we could turn that, that apartment or home pretty quickly at a higher rate, we're okay with eating that cost. And that's kind of how we build our market rents too, is like we just keep inching up and until we see a change in that velocity. Because let's be real, we can say we know what a market rate should be, but in a climate like today to where I feel like they're changing week to week, we don't— you don't really know what that ceiling is yet until you keep pushing until you hit it.

You're absolutely right, because I mean We, uh, we did the same thing inside of our apartment. We listed the one in Newcastle for $800,000. Now because of how fast the two went, now we're at $899,000 because like clearly there, there's something here, right? So yeah, you have to, it is a little harder to do that with the single family houses just because like there's not a big pool unless you have a big pool of the same houses in the same area. It's hard to pull from.

That makes sense.

That, you know, this house is going to be able to perform better. And that's why I say start higher and then be able to work your way down.

That's a good point. As we look to wrap up here, so I have a few questions for you. One, what would you say in the last 12 years of you being a serial entrepreneur, would you say it would be maybe something like your biggest failure that you learned the most from?

Yeah, man, that's, that's, that's an ever-evolving question. Uh, one of my biggest failures is Is, um, I would say it's the ability not to believe in myself. Um, and, and with that lagging belief, it allowed me to move slow to do certain things, or even when I needed to go to a different area and pivot, I thought that I needed somebody with me, um, to do so. It's almost like, you know, I don't know if you ever, you know, follow the Bible and like with Moses where Uh, he had like these three, his life is broken up to three forties, right? Well, when he was leaving from one forty to another forty, he asked Jethro, his father-in-law, he was like, come with me. And Jethro was like, no, you don't need me. You have, he was like, I need your eyes. He's like, you know, you don't need my eyes. You're good. And I think a lot of my failures inside of these 12 years is kind of being like Moses when I'm trying to go to my promised land. I thought I needed somebody with me to do that. Or I had these lagging doubt inside of me and not understanding that I am Moses. I am, you know, being able to fulfill this mission because I'm called to do so. Um, so, you know, I think as I grow from that and as I, you know, made some decisions based off of those in the, in the past, I've, I've had partners that I shouldn't have brought on. I have, you know, investors that I shouldn't have did business with, um, because I thought they were giving me value and in return I was giving them value. Or, you know, so those are some of my big failures.

No, like, I, I really love that because that's, that's something that is hard to kind of say, hey, I didn't believe in myself enough. So that's hard to kind of, kind of rationalize in the beginning, which kind of is a perfect segue though for my second question. The big point of my podcast is to introduce people who've always wanted to do what we're doing and kind of show them that it's not— yeah, they can do it, right? So for someone who is listening to this podcast who is researching real estate, researching investing, but they're scared to do it, What's one word of advice that you would give to that listener to motivate them to get out and do it?

Well, I mean, the easy question, the easy answer is if somebody like me can do it, then anybody can do it. I mean, I'm a straight-A student in freshman year in high school. I'm, you know, I grew up in the roughest part of Indiana. I mean, I, my first 6 homes that I purchased, I purchased with no money down and, you know, on contract. Uh, so because I understood the problem that the person was having, right? So if I can understand that, then you can understand that. And that's why, like, I'm always, uh, my goal is to help motivate people but also to coach people. So if you ever are hearing this and you have a deal or you are having trouble launching, then you should reach out to me because I I'm here to help people, and that's why I love Cyria for that. It gives me a platform that I can pour into people.

No, I mean, we've talked about Cyria enough tonight. Maybe they should sponsor this episode.

Yeah, I'm down.

Um, and so, I mean, you're gonna cut all that out, but, um, okay. And my third and final question for you is Where do you, where do you think Color Blocks Syndicate and Color Blocks Living, the biggest impact is going to be in the next 3 years?

That's a great question. You know, number-wise, our goal is to grow to 200 units in the next 2 years, right? So on a monetary level, that's where we want to be on the numbers-wise. I think the biggest impact is I hope to be able to change the landscape in which we kind of see people utilize short-term and co-living spaces. You know, I think right now we utilize it in as a little more of like hosp— aggregate between hospitality and hotels and things like that, where I kind of see it being able to really transform into a space in which we look at it kind of like co-working, where people in co-working go to those things because it's a necessity to be able to work from one place to another. And I kind of see the same thing inside of this, like as a business person, as a medical professional, how can this work from one place to another? So I really see the impact of being able to, to give access to places and people that it normally wouldn't.

Perfect. No, I love to have— I'm going to really enjoy having a front seat journey to that growth and having plenty of conversations about how that's looking. Um, if someone wanted to reach out to you about Color Blocks specifically, how can they get ahold of you?

Yeah. So Color Blocks, uh, is on Facebook. Go to Color Blocks Living. It's on Facebook as well. Um, you can, I'm a huge Facebook person. So if you want to DM me, uh, Sterling M. Davis Sr. is where you can find me. You can DM me there or you can call me on our office line at 888-212-3764.

Awesome. Thank you, Sterling. It's been a pleasure having you on the second episode of the Wells Way Podcast. Looking forward to having you back.

Thanks, man.

Thank you.