12 Million Dollars In Debt at 22 Years Old!!! Cody Davis

Hey YouTube, Cody and Christian here, and today we're talking about a $12 million debt snowball. Now Dave, we appreciate you mapping this out for us because we're going to debt snowball $12 million before I'm 27 years old. So I'm excited to be on your channel in 5 years. Christian, how the heck are we going to do that?

We are going to pay off all of our debts with money.

Wow, that's a foreign concept. But where are we going to get the money?

Well, we use the debt to buy cash-flowing assets, and we talk about this all the time. How do you own it? How do you never lose it? Well, you don't lose it in long-term fixed-rate debt. What we don't do is buy liabilities with debt. We don't buy things that lose value or lose money. Now, does that mean bad things never happen?

No. I mean, our septic just blew up. That kind of costs a little bit of money.

Whenever we get properties with a lot of septic tanks, we get immediate septic issues.

Always within a month. It just happens.

Yep. So you need some reserves and you need some, you know, you need to plan these out. But how are we paying for the septic issues?

With money. It's crazy. People don't think about this. Money just has to move around. And so the way we do that is with cash flow. We borrowed money to buy assets that pay us money every month. And the key to this is if we want to eliminate risk, we have to eliminate our debt. But that's not realistic day one to buy $20 million in real estate at 22 with cash. So we borrowed it and we made sure that the actual real estate cash flowed. The goal is to convert these cash problems where you need these cash crunches into cash flow problems because I can borrow my way through cash flow and use the cash flow to hammer the debt.

Now, if you're paying down a loan, because this is something Dave Ramsey will tell you to do, and I actually disagree on this.

Sorry, Dave. Yep, you're worth a lot more than us, but we're gonna prove you wrong on this.

Yes, on this one concept, I am all for paying off debts. One thing that you'll hear online all the time is, hey, just kick it down the road, credit stack, uh, borrow, borrow, borrow forever, just leverage forever. There's a lot of people online telling you to do that.

Not a good idea.

No, you do actually have to pay it down. But what you don't want to do is pay down your real estate over time. What happens is the more money you have in real estate— what happens if you don't pay your taxes or your mortgage, Cody?

Well, you lose the property.

So if I only have 10% down in a property, let's say it's a $100,000 property, we found a real cheap deal somewhere.

So we lose our $10,000.

Okay, $10,000 gone. If I put $90,000 into paying it off and I lose the property, how much do I lose?

Your $90,000.

I don't want to lose my $90,000. Your risk actually goes up.

Keep the risk on the lender until you can write a check. We love the idea.

So you pay it off with a check instead of the snowball We're gonna do just one hammer. We're basically gonna cannon a whole piece of debt in one shot. I don't know if I can do that symbol on YouTube, but we've done it now.

You did it.

But we are going to eliminate all the debt on one property in one shot. So we'll go from high leverage, risk on the lender, to no— yep, just push it away. And if you keep doing this, you will pay off all of your debts. The concept of take your smallest debt, or in some cases your highest interest debt, and Just whack it and move on. Well, it turns out if you owe less money, your cash flow goes up and we want cash flow.

Yeah, that's crazy.

That's some easy math. You have less expenses, you have more income that you get to keep.

Yeah. So it's super simple. But the goal is some people want to just pay it down early. And that's great with credit cards because it's super high interest rate and it's not the same collateral as real estate. If you lose your credit card or whatever. You lose your real estate, that's not whatever, that kind of sucks. So when you're going out buying real estate, the way that we do stuff is instead of just paying it down over time, we want to keep as much risk on the lender as possible and we don't want to lose any real estate. Our only objectives are how do we buy it, how do we never lose it, and will it be fun? The never lose it part is really important to us. We don't want to buy stuff just to lose it. So what we do is we stack liquidity in a side account. And when we're ready, we can hammer the debt. We can just pay it off, but we keep the risk on the lender until we don't have to. Then we can pay it off. And if anything comes up in the meantime, like our septic blowing up, we get a $10,000 bill. We can just use some of that liquidity and hammer it. But we're not using that liquidity just to go buy Lamborghinis. We could have done that already if we wanted to, but we just let it stack. And then when we can write a check, this is the debt snowball part, except for with a hammer instead of paying every month. When you have enough to pay off the The least expensive property, you do it. And then we go to the next most expensive property as far as debt goes. And we just keep paying it down and paying it off and off and off. And eventually we own all this real estate outright.

Now, practical application. How do you apply this and how did we get to the number of $12 million? Because how we got here in the first place is really important. You have to start by setting your goal. And so however much real estate you need to buy to reach your goal, that's the first step. For you. And I recommend leveraging your way there because I don't think most people can save their way to— it's a $20 million portfolio.

I'm not going to do that at 22. Just saying it's not going to happen.

So if you're like us and you're not liquid the $20+ million you need to just go out and write a check for all of this, you're going to need to use leverage. How did we actually get that much debt this quickly?

Well, it was all seller financed. And it was all non-recourse. What I don't want to do is I don't want to cross-collateralize everything. That means this asset's tied to this asset. I don't want one thing going wrong to screw up everything that I've built because I had built a multimillion dollar portfolio before I met Christian, and I didn't want anything I did with Christian to mess that up. Those are some of my top performing assets today just because I bought it years ago. Time does wonderful things in real estate. As long as you're buying a good location. And so what we did is we just kept getting seller finance deals after seller finance deals because we built relationships with people over time. I built relationships for 2 years, and then Christian and I started working those same relationships that I had already started building, and we just kept getting deal after deal after deal because we didn't try and go after deals. People give things to you if you're not asking for it. So we just kept learning from folks how to play the game at a higher level. More opportunities came up, and we didn't have to have any personal requirements. Christian Osgood has great credit. I have okay credit, not quite as good. I haven't been on the planet as long borrowing money. However, we could maybe fit a conventional loan, especially when you had a job at CoStar, but I wouldn't qualify for $12 million in debt and $20 million in real estate. Just, it would not happen. And so we are able to get it through the seller finance route. And because we were able to structure all our terms, we could write it where it cash flows. And all the cash flow allows us to pay it all off.

Mm-hmm. And as you build this, there's a few hard phases. The build phase is hard. Actually acquiring this much real estate, you don't see a ton of people doing this online. I think that's why Cody and I get some attention. That's probably why you're watching this channel, is we bought a lot of stuff relatively quickly. That's hard. The how do you never lose it is also very hard, and that's the part we're in the middle of. The income is great. We talk about the rental income all the time. The expenses— Cody, what do we burn in a day just running our business?

$5,000 a day.

You can't earn your way through that.

Debt. Yeah. I mean, debt adds risk. We want to put that out there. We're spending $5,000 a day and it's painful. Now, are we actually writing a $5,000 check every day? No, but it's like $15,000 and $20,000. You know, it's staggered, but we are blowing through cash and some of it's debt payoff. Paid off multiple six figures of debt this year. Some of it's legal for random stuff that pops up. You know, it's just, it happens. Some of it's for earnest money, some of it's just for business expansion, some of it's payroll, but it costs a lot of money. And when you borrow money, it adds risk. So it's super important if you're going to borrow money to manage expectations and manage your risk by making sure that everything cash flows and you don't have close balloons.

Now, how do we know it's time to start rolling down the debt? Well, for us, we hit our initial goals. I retired my wife, I own my time. Granted, I want to spend my time building this business, so I spend spend it all here. But I don't have a job. I am professionally unemployed. My wife gets to work with us. She's actually in the other room working on some projects for some of our properties, and she's having a blast. Cody has reached his financial goals. You've got your real estate goals, and you have one that you've mapped out but haven't accomplished yet because you're doing some logistics. But your original goal was—

well, I wanted to be able to retire my mom, and that just came down to knocking out her mortgage. And so now I'm figuring out the gift tax with my CPA. Shout out to Mike, appreciate you. But when that's figured out, I'm in a position now where I can start doing that.

But you created the financial position where you got the money part figured out, and that was why we did this, was get the money part figured out young, early.

Went really hard, really fast, and now we got to stabilize it. It's one thing to build something, it's another thing to never lose it, and most people forget that part. So we are focused on hammering the debt. But we do want to make sure, you know, topic of the day, we want to keep the risk on the lender as long as possible instead of paying it down. If something goes wrong, they take it back with all the equity. We want to just stack cash. So if something goes wrong, we can just write a check for it out of liquidity. And when we have enough cash, we can knock out the mortgage, own it outright, which is our goal. And then just have great assets. Because when you don't have debt, it's 100% of your net income is net to you. You don't have mortgage. Eating up that NOI. And when you have that, you can really make your properties nicer than everyone else around you. Does it make perfect financial sense to blow extra net income just to improve things or over-improve them? No, not necessarily, but the story is awesome. No one else can typically afford to do that because they're leveraged to the hilt and you can actually really improve the community.

And if you get to a point where you've reached your goal, you got your finances in order, your real estate is paying for the real estate and your lifestyle, Well, now when you whack the debt, you just have excess income and you can over-improve properties. So now you have nicer properties, less stress, stability, and ultimately that's what I think most people are after. I'll end on this: too many people push the leverage, leverage, leverage, leverage forever. Brrr. You'll never have absolute peace of mind if you just keep scaling, and at some point those are usually the same online gurus who've already lost everything once or twice. They have the story of, oh, I learned all this, and they tweak their model and they leverage and they make all this money until they lose it all. If you don't want to lose it, at some point deleverage, lower the risk, map where that is for you. What are you trying to build? Once you build it, stop building.

And there's a lot of people online that are either pro, you know, borrowing to the hilt, like they're like Robert Kiyosaki. And there's some people that are just, I'm going to Dave Ramsey this. If you can take the best pieces from both people's strategy, both people's models, you can build your own. And if you think about it, in a perfect world, the model that works in every rate environment, every real estate environment, if it can work in all points of the cycle, you have a superior model. BRRRR doesn't work in all cycles. Wholesaling doesn't work well in all cycles. Flipping definitely doesn't work in all cycles. Consistently. But if you can build a model that works in all cycles, you can figure out how to get debt without banks, you can figure out how to play the creative game, and then how to write your notes where the tenants— you're going to, for one, provide a great place, a better place than the previous owner, but they're going to help you pay off your obligations. You can figure out how to buy it, how to never lose it, and how to have fun along the way. If you can build that model out for yourself, you're more likely to win in this game. Whatever that means for you. So that's it for today's topic. However, we appreciate you sticking around. Probably 23% of you are still here. We appreciate all of you that are still here. And if this is your first time on the channel, thanks again for following along. Make sure to hit the subscribe button and give us a comment if you want to see an upcoming video. But have a phenomenal weekend and we'll see you tomorrow.