The Benefits of Joining an Investor Club – Brian Davis

Welcome to another episode. Today, we’re thrilled to have Brian Davis, a seasoned real estate investor and co-founder of Spark Rental. Brian has a unique approach to investing through his innovative investment club model, which allows individuals to invest with as little as $5,000. This episode is packed with insights on why investment clubs can be a game-changer for both new and experienced investors.

Full Transcript:

This is the Mailbox Money podcast and I am Bronson Hill. As a busy professional I wrestled with how to grow my income without taking up more of my precious time. I learned that managing real estate, actively trading stocks, or being unable to scale up investments is not passive investing.

This is the place where you’ll discover new asset classes develop investing skills and learn from experts how to become financially free with less work than you thought possible. And now get ready for truly passive income.

Bronson Hill: All right. So welcome to the Mailbox Money Show. Today we’re talking with my friend Brian Davis about how to and why to be a part of an investment club. Now an investment club is different than a syndication, right? A syndication as you join at 50 or 100,000 we’ve raised over 40 million dollars for different deals.

This is why people come in sometimes as little as five thousand dollars. It’s not a crowdfunding, but it has some similarities except there’s a lot of connection with other members in the group and people can choose to invest or not to invest. It’s a very unique model I don’t know anybody else who has anything set up quite like him and I think you’re gonna like it whether you’re high net worth and you’re like, hey, I just want to grow my wealth and I’ve got this much to invest or you’re brand new. I think you’re gonna find some great takeaways here. So, let’s jump in.

All right. Welcome to the Mailbox Money Show.

I’m your host Bronson Hill. I am super excited today. So we’ve got Brian Davis in the house and super excited to talk with him. He has a very unique investing approach and the way he’s done it is through an investment club.

And investment club basically involves I’m gonna have you get into the definition behind in a minute. But it involves different people coming together sometimes with a small amount of money and everybody chooses to invest or votes to invest and they get into a variety of assets. So, there’s a lot of learning that can happen in something like that and so we’re gonna get into kind of you know, why people start investment clubs, why people join investment clubs. What are the pros and cons and kind of how does that compare with just doing syndication on your own and kind of who it’s good for? So, Brian really good to see you, brother. I know you’re coming all the way from Peru, which is awesome. So love that you’re living the the local or remote life and living your best life, brother.

Brian Davis: Bronson, thank you so much for having me. I’m pumped to be here.

Bronson Hill: Awesome, man. Well, that’s great. Tell us a little bit about well, first of all, why don’t we get into a little bit of your story? Kind of how you got started in real estate.

I know you’re super passionate you’ve got Spark Rental which you guys are doing a lot of different educational things. You’re putting out articles, resources, and tools and encourage everybody to go to your website to check you out but talk a little bit about how you got started and what kind of kind of sparked things for you as you get started in real estate.

Brian Davis: No pun intended, right?

Bronson Hill: Exactly.

Brian Davis: Yeah, so I fell into real estate totally by accident. I graduated college back in 2003 and had no idea what I wanted to do with my life like so many young people. I fell into a job working with a hard money lender who happened to be buddies with my stepdad, right? I mean, it’s a story that I mean the details differ but a lot of us have that kind of story where we just fell into a career by accident. But I discovered that I really liked real estate, you know granted this. So, the mid to the early mid-August everybody’s making money in real estate hand over fist, right? So, I’m watching everybody make all this money.

I figure I can do this too. Like I’m smarter than these guys. You know, I went out and bought a whole bunch of properties then lost my shirt in 2008. Went on a totally different career path and got a job with an e-commerce company, but it was a company that serviced mom-and-pop landlords and I never would have gotten that job if I hadn’t been a landlord and mom-and-pop real estate investor myself. So, you know, that’s how all that stuff goes, right?

You know the door closes window opens. In 2015 my wife and I moved abroad we moved to Abu Dhabi and it was around that time. I left the job I was working with that e-commerce company and a former colleague of mine and I launched Spark Rental and I moved abroad with a bunch of those rental properties that I’d bought when I was in my 20s. And quickly I learned the hard way just how much I had been subsidizing those properties returns with my own labor, my own efforts. So, even though I had a property management company, I had still been spending a lot of my nights and weekends, coordinated with contractors visiting the properties and dealing with difficult tenants. And I moved overseas and I couldn’t do any of that anymore and saw just how badly the properties were performing without me subsidizing them with my own personal, right labor and time. So, I end up getting rid of those properties

It’s the short version of that.

Bronson Hill: Stop one second, you know, that’s something I realized as well. I think a lot of people who are wealthy or just even real estate investors don’t realize their time is valuable. And you know, you can say I’m getting this great return or whatever but then if you take yourself out of the equation like well, what would you have paid yourself? Like what would your time have been worth especially for higher earners?

It doesn’t make a lot of sense so, I love that you brought that up because a lot of times you think, man I can just do all this and do single-family myself, but if it’s not scalable you’re not getting where you want to go.

Brian Davis: Well, right, and especially if you’re comparing rental properties to truly passive investments like index funds, for example, right?

Well, real estate syndications or bonds or whatever it is. That’s an actual passive investment if you’re comparing rental properties. Which do require some work on your part both to buy and then to manage even if you have a property manager you still have to manage the manager and you still have some accounting and bookkeeping and just headaches that you have to deal with. Then it’s apples and oranges and you do to make it apples to apples, you have to calculate how much time you’re putting towards those properties and then the cost.

The dollar value cost of your time and you probably won’t like what you find. It’s you know, especially for higher earners.

Bronson Hill: It’s true.

Brian Davis: Yeah, that’s a lesson that I’ve returned to again and again over the years in our blog and our podcast you know talking about that when all properties are not truly passive investments.

They’re semi-passive depending on how hands are and you are with them, you know, some ways of buying properties is, it’s more passive than others. You know turnkey properties are obviously less work than going out and doing brr deals, right? But you know, it’s not passive and you have to account for that labor. So anyway, went down a little bit of a rabbit hole there.

Bronson Hill: So you were sharing your story you see you’re an Abu Dhabi, you realize that these things you were doing you actually didn’t count your labor in that and so you made some shifts.

Brian Davis: Yeah, so I sold off all my properties, Spark Rental our original vision for it was as a one-stop shop property management software platform for mom-and-pop landlords. Because they’re at the time there wasn’t really a good one.

There are a couple of decent ones now. We did eventually create that software platform and we do like it. But it took us a long time to get there, I mean we hired a web development company that ran off with half of our seed capital and you know I mean we had all kinds of twists and turns. So in the meantime, we focused more on education. We built out a blog and we started doing video podcasts and YouTube and all that kind of stuff. I started selling online courses and doing a lot of free courses and classes and webinars and all that kind of stuff. At a certain point, I sell off my rental properties, and I realize I’m teaching something that I’m no longer doing which is inherently a problem, right?

I mean you’re out of alignment or out of integrity or however you want to put it when you’re teaching something that you’re no longer doing. So, it was around that time being overseas when I discovered passive real estate investing and I started by dabbling with crowdfunding platforms because some of those, I mean though that’s a passive way to invest right? It happens to be a more publicly available one than private equity real estate syndications or private equity real estate funds. So I dabbled in that I started investing passively and syndications. And I realized that I loved it and it was one of those like love at first sight things where I was like, I wish I had been doing this back.

Bronson Hill: I know I know

Brian Davis: So it was around this time that our course takers our students had kept asking us like, hey I’m not quite ready to buy a rental property by myself. Can I just invest with you guys and one of the deals you’re doing and we kept saying no, you know, we’re not doing that. And then, we looked at each other one day my partner and I were like, maybe the universe is trying to tell us, man. Maybe the market is trying to tell us something here like what would it take to say yes?

We experimented with a couple of single-family rental property deals. That we allowed our students to go in with us. It was just way too much work. It was kind of fun and we were earning good returns, but it was too much work. So, around this time I had started investing in syndications and I was like, hey these are not a lot of work like we could potentially do this. So, we did a pilot deal a real estate syndication deal with our students we opened it up to them and it was really successful. It was it was popular.

So, then we were like, well I mean what’s to stop us from doing this all the time and opening it up to the general public instead of just our course students? So, we did. And that’s how our co-investing club was born. Just kind of by trial and error and selfishly by me wanting to invest smaller amounts in these syndications. Then the typical 50 grand hundred grand 250 grand that real estate syndications require. So, you know, that’s how a lot of businesses start is, the founder has a problem and the solution that they find ends up being the solution that they sell to their customers.

Bronson Hill: Yeah, well, it’s usually you the way you’ve kind of gone with it. I haven’t seen many people I don’t know if they don’t think maybe there’s one other one, but that has started a true investment club. They let people start a fund and say okay it’s the minimums of 50k or whatever. But you’ve allowed for some folks especially but they’re not accredited to come in at five thousand dollars or you know ten thousand like a smaller amount of money. Like how does that work? Does everybody put in the same amount or is it more? Do people vote on going into a deal? Like how is that structured from an actual investing standpoint is like, okay, well, we see this deal we’re interested in, and then everybody kind of votes on it. We put the same amount or they put different amounts in different deals or is it like, how’s the ownership kind of work in that?

Brian Davis: Yeah, no all-great questions. So. here’s how we approach it. And by the way, before we even get into that you mentioned non-accredited investors, that is a huge core value of ours is inclusivity with non-accredited investors. Because those are the people who historically have really struggled to invest in syndications. So, every deal that we look at as a club allows non-accredited investors. It’s a non-negotiable for us. So, what we do, is we aim to review a new deal every single month as a club.

So we do the networking with sponsors. As we get deals in our inbox from them, you know we look them over, we talk about them internally and we look for ones that we think might be a good fit for our club. And when we spot one, we’ll reach out to the sponsor and we’ll ask them to come do a Q&A about their latest deal for our club. So, we hop on a Zoom call or a Google meeting and have a live video call about this deal. Beforehand we send out the investment summary deck and if there’s a recorded webinar about the deal.

We send that out to our members. So, everyone shows up kind of informed about the basics of the deal and then we grow the sponsor together. So, we all sling our questions at the sponsor, and whoever wants to invest in that deal can do so with $5,000 or more. We form a single-purpose entity an LLC just to act as a joint venture for that deal. We open a joint bank account for that specific deal for that LLC and together collectively, you know, we’re investing 150 250 $350,000 in these deals and we pass the minimum investment, of course by doing that.

But each person only has to invest five grand, you know, or more if they want, you know, 10 15 20 whatever they want, but it’s a way for each person to invest small amounts and across a lot of different deals. So, you get that diversification? Yeah, and the sponsor only has to deal with one person they’re communicating with either me or my partner Denny. So other than them coming and appearing before our club to answer questions. They’re just dealing with us. So, they have a single LP that’s investing, you know, an LLC and they only have one person they have to communicate with but they still get that bull, you know, 250,000 or whatever investment from our club. But each of our members gets to invest small amounts.

So that’s how that works.

Bronson Hill: So, I guess my question for you then is, there’s some costs that goes into setting up an entity and doing K1s for each investor for each deal. Do you guys take a fee to do that as well? Or how like is that just kind of a like? I always think when somebody organizes something, there’s a lot of work that goes into it. So, how do you guys get compensated in that and also, you know with the fees?

I just know even for K1s to have 50 investors in a deal or something that can be tens of thousands of dollars Just to get the K1s out. So how do you how do you kind of manage that part of it as well?

Brian Davis: Yeah, great question. So, there are two costs involved in our club, one is membership dues to be a member of the co-investing club which is $59 a month or $497 a year and that’s for access to new deals for ongoing deal flow. We also aim to meet twice a month, once to discuss a deal and once for a purely educational presentation. So the membership dues get you access to the deal flow, you know to the meetings, etc. The other cost that’s involved is an accounting and administrative costs per LLC. So that’s just for the deals that you are participating in, right? So, the membership dues everybody pays and that’s for access to new deals when you invest in a deal there are like, you said there’s costs involved for accounting and you know maintaining the bank accounts and divvying up everybody’s distributions and capital returns and all that stuff. So that’s 75 bucks a year for that LLC that you’re a member of to cover those accounting costs. Which are joints among all the members in that we’re participating in that deal.

Bronson Hill: Yeah, okay got it and that covers. Let me ask you, what is the cost like to K1 a bunch of investors? Do you have like a special deal with an accounting firm that kind of helps you with that or do you guys? Do that in-house or how do you how are you able to manage that? That seems pretty reasonable to manage all that.

Brian Davis: Yeah, so we partnered with an accounting firm basically, okay, and negotiated a bulk volume discount with them to be able to handle each one of these LLCs for a relatively reasonable amount of money. Because you know, we’re doing dozens of them at this point a year. So that’s how we’re approaching that and keeping it reasonable per person per deal.

Bronson Hill: Yeah. No, that makes sense. That’s great What are some things that you found when somebody joins your group?

I know some people listening may want to join your group or be interested in Spark Rental. What are some things you found from people who are just joining the people who have been in the group for a year? I like when they take away. Oh, I feel like I understand how that deals now I understand kind of how the process works or I’ve gotten started and I’ve got some kind of peer support in this as well.

Brian Davis: Yeah, so people come initially for the deal flow and they often stay for the community element. I mean the deal flow is obviously important too, but sure people when they first join the club. They underestimate the value of the community and I’ll give you some examples. So, when we vet deals every time we hop on a Q&A with a sponsor our club members ask really sharp questions. That never would have occurred to me and I’ve been in real estate for over 20 years.  You know, that’s the power of having all of these different sets of eyes coming from all these different industries all these different perspectives all these different political backgrounds all that. All of these people are looking at the same deal, but they’re coming at it from a different angle. So, we get, each gets the benefit of that hive mind if you will that mastermind. Where people are gonna ask questions that would not have occurred to you to ask. But you get the benefit of them asking that question and or commentary too. I mean, I’ll give you a quick example. There was a deal that we invested in in Dallas. There’s a multi-family property that was really designated for young professionals was the target market for this property and we had a woman in our club who you know raised her hand after the sponsor left the meeting and said, hey I live five minutes down the road from this property and I can I drive past it every day on my commute and I can tell you firsthand that it’s a good property. It’s got good bones there and there is not enough housing rental housing for young professionals in this market. So, you know, it’s a good investment I would never have known that right? I mean, I’m living in Lima, Peru so yeah, and most of the other members in the club never would have known that but because there are so many of us each looking at these investments together.

We get the benefit of each person’s expertise.

Bronson Hill: An experience with it well, I think that’s great because if you know the two things I found that really impact people’s lives and most Brian really when it comes to investing and just about anything is networking and education, right? So being in the room with people that are ahead of you or at least you can learn from there’s that quote, “You’re the average the five people you spend the most time with”, so if you get around people that are more experienced in any area or maybe they’re in better physical shape or financial shape or whatever like you just you’re gonna draw from that, you know learn a lot from that and then. The other piece of that is with the education piece of just learning together. You know, there are things I didn’t even think about that or somebody whether it’s I have a church men’s group of men on Tuesday nights and it’s just like somebody shares something I was like, oh, I never really got that from that before from this verse or anything. So it’s just amazing how when you’re in the room with amazing people and you’re allowing ourselves to be educated and being in a place of networking, it can really be powerful.

Imagine there are probably a lot of different people that come from all different backgrounds, different areas of the country some professionals or business owners. Some people have really high net worth some people have more modest net worth. What would you say like is kind of the ideal fit for someone in your group?

Like if somebody’s listening and they’re like, I’m not sure if I should join that like what are some things kind of some of the questions they’re usually asking?

Brian Davis: Yeah, so our ideal customer avatar if you will, working professionals, you know often with families, you know, they have demanding jobs. They love the idea of diversifying into real estate. They don’t have the time to go out and become a landlord, right? So, they want the benefits of owning real estate.

They want the cash flow. They want the appreciation they want the tax benefits, but they don’t want to go out and then start a side hustle of buying rental properties or becoming a landlord. Which I totally get that’s where I am in my life as well. So they earn a solid income, but maybe they’re not you know laughing all the way to the bank. Yeah, right, right So, you know again, we have a lot of non-accredited investors we also have a lot of accredited investors in our club.

We really want to service both so, you know, we work. We only look at deals that allow non-accredited investors. That being said we are planning on launching a little subgroup within our club for our credited members. To be able to feature some deals for them that are accredited only you know without diluting or taking away from our regular monthly deal flow. That allows everybody, people upper-middle-class, middle-class professionals, you know people are earning a solid income, but maybe who you know, haven’t struck it to they haven’t joined the two comma club yet necessarily. But they’re on their way and they’re looking for these passive real estate investments that give them all those benefits of real estate without having to start a side hustle of becoming an investor.

Bronson Hill: One thing that’s been frustrating to me, just over the years is the fact that if somebody’s not accredited it limits. What is available to them and there’s actually been talk you listen to Mauricio Rauld or some other people in the industry they say that the SEC has talked for the last couple years about having a test or have some having some sort of you take a test and now you’re accredited. It’s less on net worth or income and it’s more based on sophistication. What would your thoughts on something like that be if there were just more stuff available for non-accredited investors?

Brian Davis: I would be very supportive of having it be knowledge-based and not net worth-based. I know plenty of non-accredited investors who are very savvy and experienced real estate investors and I know plenty of accredited investors who are not savvy at all.

So, you know, to me it’s an antiquated notion that oh, you know we have to protect the unwashed masses, you know don’t know any better, you know, just because they don’t have a net worth of a million dollars. It’s such a paternalistic government kind of notion. I think it’s outdated. So, I’ll be very much in favor of having some sort of sophistication tests and letting anybody invest in these deals without that because like you said for non-accredited investors, not only is it hard to find deals. It’s hard to find sponsors in the first place because they can’t advertise these deals so it’s hard for sponsors and investors to connect when sponsors aren’t allowed to advertise those deals if they allow non-accredited investors. Then non-accredited investors can’t find them can’t find a sponsor so how do they connect with each other in the first place?

And that’s part of what we’re doing in our club. Denny and I are doing that networking for our members and going on meeting all these sponsors on behalf of our members. They don’t have to do that.

Bronson Hill: Yeah, that’s awesome, man. Well, I love the value you’re creating, man. You’re really starting with education and helping people to figure out a way to kind of get where they want to go. And I think that’s really what this business is about. I think that the biggest competition we all have is not you know, other Clubs or other syndicators. It’s just Wall Street and just people don’t know that these options are out there. So I love what you have created for people and just want to really honor and mad props for that. So if people want to reach out to you and want to connect what’s the best way for people to reach out to Brian?

Brian Davis: Sure. Well, you know start by swinging by our website Sparkrental.com. There are tons of free tools on there for active investors too, by the way I mean that is how the website started for active investors. So a bunch of free tools like interactive maps and calculators and stuff and email me personally [email protected]. Super easy to reach we are very much a mom-and-pop business. It’s not like there’s a VA who’s checking my emails for me or anything. And we have a couple of big Facebook groups for real estate investors.

We’ve got one for active investors It’s about 48,000 members another for passive investors at about 8,000 members very active groups have very high engagement. So check those out as well. And yeah, don’t be a stranger reach out

Bronson Hill: Awesome, Brian. Well, thanks for being here brother. Appreciate it and look forward to chatting with you again soon.

Brian Davis: Oh, Bronson, thank you so much for having me. This was fun.

Bronson Hill: All right, so great interview here again I always love talking with different operators and people that do things in different ways, now Brian’s group there is Spark Rental. They’re not operators, but they do help vet deals.

And so there are a lot of groups out there, there’s a group called Long Angle. There’s the 506 Club. There’s Left Field investors all of these groups help passive investors to educate to network one of the most transformative relationships you can have as a passive investor is connecting with other passive investors. And so we’re working on creating things if you’re a passive investor and you’re somebody sign at worth and you’re like him looking to get Connected reach out to us.

We’re kind of truck. We’re trying to create some things around this that are gonna be really unique events. Maybe some modeling education and just really putting high net worth investors in the same group, in the same room physically, virtually, and because again a passive investor another passive investor is not trying to pitch you anything, right? There’s nothing to sell right like we’re sponsors We want everybody to do our deals and want everybody to invest both because we love what we’re doing But you know another passive investor just simply will share their experience.

Hey, this is what I learned I would invest with these guys. I wouldn’t invest with these guys. I would do this again.

I wouldn’t do this again It’s really valuable stuff. So hope you found that interview valuable If you did, please share it with a friend. Please review it hit the flight this is the like the thumbs up button give us a five-star review, and look forward to seeing you on the next episode of the Mailbox Money show.

Outro: You’ve been listening to the Mailbox Money Podcast.

For more free resources articles and videos go to bronsonequity.com.

There you can download your copy of the special report The Single Best Investment Strategy During and After a Pandemic. None of the information shared here is an offer to buy a specific investment and this is for educational purposes only.

Consult your financial legal and tax professionals and use your own common sense before making any investment decisions. Thanks for joining us and be sure to tune in next time for more Mailbox Money.