From Setbacks to Success with Don Spafford

Today’s guest is Don Spafford. 

Don helps people build wealth and achieve financial goals through passive income. 

After nearly 20 years in corporate finance, he left his job by investing in real estate, focusing on high-return RV campgrounds (12-15% cash-on-cash) and build-to-rent communities, including single-family homes and apartments, for long-term equity growth.

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Creator/Main Host: Vish Muni

Show Advisor/Editing: DBT Marketing

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Transcript

>> Vish: 0:00

Well, welcome to another episode of Outrunning Failure Out Running Failures. Today we have Don Spafford. Don and me belong to a couple of masterminds and we have a couple of real estate investors and that is how I met Don. With that being said, let me get straight to the point. So Don has been an entrepreneur, a lifetime entrepreneur and then who got into real estate. And Don, could you please tell the audience a little more about how you got into real estate and what is your why factor, please?

>> Don Spafford: 0:38

Yeah, yeah, for sure. Thanks very much for the opportunity to be on here on your show. As you mentioned you and I have known each other for a few years. Pretty much as I got started in commercial real estate. I kind of met you very early on there and great to have the this you know, great relationship with you that we've built over time. so a little bit of me. Yeah, I currently live in Idaho Falls, Idaho. If people have no idea where that's at. I'm about maybe an hour and a half, just kind of south west of Yellowstone park, about three hours north of Salt Lake City. And I, I worked for almost 20 years in I guess the finance industry working for a company there, based out of Omaha, Nebraska. I was able to we'll say retire from that job at the end of 2022 and I was able to transition into real estate. I started investing in real estate in 2017 and just kind of helped build that up from there. I started with a small fourplex was my first property. Then I got a couple more about a year and a half later. Then started scaling into other commercial properties, such as a ground up development of a triple net lease and then some, some land flip. Got into build to rent multifamily. Eventually got into RV campground resorts. And I'm still expanding more and doing other things as well. I, I'm, I consider myself opportunistic. So I see if I see a great opportunity or someone who brings me a great opportunity, I like to get involved in some way or another if I can. I obviously have certain time constraints. There's lots of things I have to say no to because I don't have the bandwidth to do much more. But I like things that get me excited. I think there's probably people just like me. They're looking for something different outside of your standard value. Add multifamily. I kind of got started real estate. I Guess going back maybe about 10 years ago, my wife became a Realtor, and you know, some of her very first clients were investors. And that's really got, got my mind thinking and looking into real estate as a, as an investment opportunity and a way to kind of create great wealth and passive income long term, you know, more than just working more hours or getting a second job or something. and so that's really what got us into it, with the intent being of course passive income to help replace my, my W2 income so we could retire early. But also additional resources, for taking care of my mother at the time. She was, she was you know, as all of us deal with, you know, aging parents and my mother also had Ms. At the time and we knew that at some point she was going to take or was going to need a lot more medical care and attention. So we wanted to help cover that. But also as our kids were getting older, we know that college was coming up for some of them and all of them at some point so want to have all these different things available to help take care of our family's needs, and eventually as ourselves get older, as like oh, I want to make sure I'm not a burden to my children. If I have the resources to pay for you know, you know, full time medical care, I would like to build a, make sure we can, we can cover that to not to burden our children someday. So so yeah, all these different reasons, you know, got kind of were the reasons I was looking for. What is out there? What can help provide those solutions. And the best answer is always real estate.

>> Vish: 3:29

Well, thank you Don for that warm introduction. And that is that is a big why what you have and taking care, taking care of your aging parents and then the medical expenses, the bills and you don't want to be dependent on anybody else. So I'm with you 100% on that because I have my mom in India, who's also aging and she has als. So I've been frequenting India every few months. So I'm with you on that front. And real estate is the way to go because it gives you the flexibility and it gives you buy back, you're able to buy back your time. So with that being said, so what, what is your primary asset class? Because real estate itself, within real estate there are multiple asset classes. Everybody are good at one or ah, the other. But even though as an entrepreneur we look for opportunities in every challenge and every failure is a, ah, setback. It's a, it's a feedback for us because we fail almost every day in every single deal. But sometimes we have gotten so much used to failures, sometimes we don't even see them come and go. But unless somebody tells me, hey, did you see that? Did you see that? So we don't even see them right. So can you tell the audience, what is that one asset, ah, class you're primarily focused on and what kind of a failure you had in your past? Failures or setbacks which has made you a better investor?

>> Don Spafford: 5:03

Yeah, for sure. Well, ah, it's kind of. I mentioned at the beginning I'm actually involved in several different asset classes of real estate. I have multiple offerings that I can provide for investors when I talk to them, which is great because you know, not everybody has the same needs. So I can kind of help direct people to what's the best fit for their needs. But what I'm probably most known for, I guess is the RV campgrounds, RV resorts and marinas. with my group beyond our holdings, we purchase these as similar to value added multifamily. We purchase RV resorts, improve them, expand them, do things to help increase the value and provide great cash flows and great equity multiples, depreciation, benefits, all these fun things. People can actually go to the property and use it as well. so that's what I'm probably most known for. aside from all the other things I am involved with. and so, for me, failures, I mean there's, as you said, there's, there's, there's many failures. You can't, Anybody says they've had no failures. They're either not doing enough introspection or just not the one to admit it. But we, you know, I'd say each of us fails in some way every day. Right? hopefully most of our minor things. But nothing is done perfectly even. Even as far back as, you know, or as little as just, you know, maybe we could communicate more. I mean that's could be a failure to say we should, you know, provide better communication or more communication or something. so I'd say for me along the way there's been a few things that have been, I think the, the biggest failure for me personally. And these are outside of the, the campground resorts or other syndication type of deals, kind of more. They've been more so on my personal level, on my, you know, JV deals or things I've done. one of them I'm still dealing with right now. actually two of them are still dealing with right now that did not go as planned. But, as you said, they've helped to, be learning experiences. and really, I'll say three. Three failures that I could talk about are kind of all in the same area, I guess. And so, I'd say first of all was as I was again starting to build my personal portfolio, you know, buying these four plexes, I, got my first one here in my local area, which I still have today, and it's still being fine and doing well. the. The next purchase I made was about a year and a half later I bought a couple. Four plexes out of state. And I'd, say the, The. The biggest mistake I made on that was just not doing more due diligence. I, I trusted too much on, you know, people I really didn't know. You know, the brokers and property managers, lenders, people that were in the area that I was working with, relying on what they were telling me, feedback and and trusting their word. And hopefully they were being honest and not, trying to, pull something over me. But, but, I think, you know, I just gave. Relied too much on their knowledge of the local area, then doing my own personal due diligence to really understand it better. and the problem with what came with that is just, you know, this area was in, kind of central Arkansas, we'll say southeast of, Little Rock. I, was expecting, you know, the, the tenant base to be very similar to what they are here in Idaho. People paying on time, taking care of their property. You know, that was not the case. You're right. I, you know, pretty much everybody, you know, it pays by the end of the month, and that's in that area gets considered normal. They're not considered late as long as they pay within the month it's due. Which I'm like, well, no, they're, you know, past the due date there. It's late. You know, they should be charged. Charge late payments, you know, evictions. But. But, I had to learn to deal with that. And And just regular, it was almost constant, you know, turnover. Evictions. During, Covid time I had these properties during COVID I had, you know, the eviction moratoriums were going on where you couldn't evict people, except for certain circumstances. So Here in Idaho, I never had to deal with that. You know people, people still paid on time, never any issues there. I had at least a couple tenants that went almost a full year without paying before we could finally evict them. and then had of course completely renovate the units after they left because they were trashed. So you know, definitely issues there that I did not want to have to deal with would not was I hoping to have to deal with. luckily I was able to later sell those properties near the end of 2022 and transition those into one of our campground deals. But, but definitely something I learned to to do more due diligence. But along that around the same time of those purchases, not, not long after, I, I'm, I made I guess two additional purchases in a sense or JV opportunities where I we partnered with a couple people on some land that we planned to flip. And this was now kind of in that same general area. Not this, not the southeast side of Little Rock, but now the northwest side. So it's a little bit better area as far as the I guess we'll say your customer base, tenant base, a little more affluent area. but there was a lot happening in this area. A lot of new development coming up and potential opportunities. so with a couple of JV partners we purchased some land with the intent to flip it in about a year. If we wanted to save on capital gains, we'd get long term gains after a year. So we bought this in 2019 hoping to sell it in 2020. And of course when Covid all happened that put a stop to a lot of the construction and plans that were going on in the area. So we're not able to sell that as quickly as we thought. Held onto it for quite a long, quite longer. In fact we still have it today. come down a lot on our expectations for selling price. But we're also now trying to I guess transition and make that into a development opportunity. We're looking to possibly build a medical office space there, or to sell it to a medical company that may want to use it because it's right next door to a brand new living center that has been built. so could turn into a good opportunity. But obviously the failure there was not you know, not understanding well enough the. I guess just land flipping in general. obviously nobody could foresee covet happening. So we can't really say that you know we should have expected that but, but you know, definitely we, we should have did more due diligence on again the possible land value, what it could possibly sell for. we, we may have possibly overpaid for it at the time. We got it again trusting a broker that was giving us some off, off market, opportunities there. and then again another failure. Again, this is all sort of related, the same, same kind of area, same time frame when these are all done, but kind of this is, this is far before me getting into commercial real estate and syndications and understanding a lot more I do now than back then. I was still very much newbie, you know, a new investor, not really knowing what I was doing, but you know, seeing opportunities and get involved. and so just down the road from the other land, you bought another parcel of land with different JV partners with the intent to build on this one. we went in there looking at you know, what could be done for the area. We saw the potential, highest returns and less headaches would be for a triple net lease building. so we again got together a couple partners, got the funds together, bought the land, got the construction loan. again going into a triple net lease situation, not really knowing anything about how you should do it the right way. Yeah, we figured, yeah, that's no big deal. what could be, you know, we could figure it out along the way, you know. And so very, you know, very early on, which is what gave us a little bit of motivation was before we even had any construction plans in place, we, we just in, in I guess talking with the, the local zoning office and you know, what do we call it? The I don't.

>> Vish: 12:08

The city.

>> Don Spafford: 12:09

Yeah, the city planners I guess, who were plans for stuff and approved stuff. Right. so word of mouth kind of was getting out that we were going to be building this property and so got a call from a well, known national financial company. We won't see names here, but so they called us up, you know, almost from the very beginning asking you know, how much we're gonna rent it for, how much space is gonna be. And I was like, I, I don't know, we, we even have a plan. It was like, I don't know how big it's gonna be or what we're gonna charge you. You know, we, you know, we're still working on all that, you know, so so it gave us some, some motivation. Think, okay, wow. We're already getting interest from, from those national Companies that this, this was going to be a great location. Right. So, so we kept moving forward. We got actually a few Lois from some other local businesses, because the banks required that to even approve the construction loan. So we got those in place. and we had initially, you know, the we got a bid for the build was relatively good price around 700, 750,000 I think at the time. of course it's not kind of the land cost but, but was like hey, that works out great for our numbers looked great. and we started moving forward. Of course getting the design plans ended up being a lot more costly than we were anticipating. I guess I had no idea what it would cost to get some design plans. So that was much more than anticipated. So we had to pay for that. And then as we began construction, this was now during 2021 I believe, or 2022. I can't remember now at the time, but maybe 2022, I don't, I don't remember. But the point is, the costs started to go up, considerably. Like the materials were going up, labor was going up, some materials couldn't even be be. They were on back order. So we had to make a lot of changes to the construction. And the cost of course went up. by the time it was done, it ended up costing about 50% more than we had initially planned for. and then the. It took a lot longer to get done as well. We had some delays with you know, getting some materials, even just the electrical transformer in the city. There was a tornado went, went through near, near the area some months before. So they gave priority to replacing those ones that were in existing neighborhoods. So we had to wait to get ours. and then we had a lot of weather delays. Kept raining constantly all the time to pour the cement for the parking lot. So all these things led to a lot longer time to get it done, A lot longer hold time for us. We had a full year of interest only payments to get it done and built and then be ready to get leased out. And that time got used up before it was even available to lease it. so it definitely caused some pain points there. By the time we were getting near completion, those, those Lois we had from the start, pretty much disappeared. You know, they were. One of them just moved away from the area. Other ones were, you know, didn't want to wait I guess and found other locations. So we were left now with a vacant building that we had to pay for with nobody, to rent it. So, you know, we, we've changed property managers during this time. Got another, you know, commercial, lender or not under commercial property manager in the area. But I think as kind of the case with most commercial property managers, you know, they don't really give priority to one over another. So we were kind of just out there available, but you know, they can't really focus on just ours and not others. So it's still taking a lot longer to get those spaces leased out. I've talked with several other people that are in that triple net lease space that said, yeah, you can't rely on the property managers. You need to get the work and go find tenants yourself. So we've been trying to do that. you know, of course not being in that local area makes it a bit more challenging. We have to do some, you know, social media, online things and get, get creative. So we're trying to do that as well. so, so just to say, you know, it has not been a great experience for the first time, you know, going into this, I'm thinking tripping at least. This is gonna be awesome. I might just focus on this only because, you know, no headaches, no, no tendency issues. But, it has not been a, ah, great experience to start with. I, I, I definitely know that again, this is our part of our, our mistakes, our failures here, but not understanding it, not working with somebody that has done it before to make it an easier process. I've since learned now, you know, better ways to do this. If we do another one, it'll be a much better experience, I think. But.

>> Vish: 16:12

Well, Don, thanks. Thanks for sharing that awesome experience. I thought I had a lot of failures, but man. Yeah, you could, you could get, a PhD in that failure.

>> Don Spafford: 16:23

Yeah, well, thanks. Well, I hope, not, not an award I want to have necessarily, but yeah, yeah, well, it's definitely been like I, costly learning experience.

>> Vish: 16:31

Well, listen, listening to your experience, it looks like there's one thing which has been consistent. It's not just with you, with most of us is the due diligence. That is number one. And we tend to take a lot of things for granted. Number one, we tend to think that, well, everything looks good. The broker gave me all the information. That's number one. And number two will sort of rely on the information what we already have. And by the time we realize it's too, it's too late. And number three, we don't, we don't do much due diligence in terms of what type of tenant base is going to be and what is their payment, mode and how often do they pay. And just like you, there are so many things which have gone wrong for me from the every deal the least expected things could go wrong. I mean a simple thing like we one thing happened was me and one of my m partner, we got excited about a 22 unit apartment deal. There's a great price. So we just walked in, we just walked the apartments it all as if we knew everything about construction. We just walked in and we bought the deal. And then later on at every step the city would say well you don't have permit for this. So when you go to get a permit, the city will say wait a second, this apartment is built in 60s. Well, you got to do everything up to code now. You got to bring everything up to code. So, so these are the things which we didn't know. If we had not done that deal, we would not have known about this. All this code violations and getting. You need to get permit for everything, anything and everything from the city. And after getting permits you need to get an occupancy certificate, which we did haven't. I didn't know about it. So that looks like that is an ongoing experience that the setbacks, I decided to call them instead, of failures, I call them setbacks. I call them feedback. So those are the things which makes all of us better investors. Because I figured out there they're going to sneak up one way or the other. Like in your case, when you're building the triple net, you didn't expect the weather to put brakes on all your construction. I mean you, you didn't expect all the tenants were giving you Lois to bail out. You didn't expect to run out of interest only payments. Right?

>> Don Spafford: 19:04

Yeah.

>> Vish: 19:04

So none of these things would. Now, now all that experience has made you a better investor. Now you're going to step in with knowing very well these are the things you're going to take care. But something else will come up. Trust me.

>> Don Spafford: 19:20

Yeah, yeah, I think so. What it's in the end, it'll all work out. Right now it's just, you know, just definitely a pain point in the struggle. But it'll all work out in the end. And you know, like I said, learning experiences, we'll do better next time, improve and.

>> Vish: 19:32

Right. So tell me Don, what is that, one thing which gets you up every morning and gets you going with the same excitement, same enthusiasm. Because every day is a different challenge. By the time, every evening, when you get back, when you get to bed, you'll say, man, these five things happened. They're driving me crazy. And I, so the next day, morning, you got to be more excited. You got to. What is that one thing which drives you every day?

>> Don Spafford: 20:01

Yeah, well, I, I think it's probably two things, I guess. One is obviously my family, right? I, I have to make these work because I'm, they depend on me. I've got to provide for my family, my kids and I, I can't let these things fail, and you know, cause more, more, I guess pain and suffering for, for my family. Then. 2. Kind of related to that is, is, my, my partners and investors. you know, my partners have partnered with me in these deals or investors that invest with me in, in syndication deals or anything else. You know, they you know, they rely on me, depend on me, and I, you know, I, they trusted me. I also have to make sure that these all work out for them. So I, I don't want to be, you know, leave them hanging or, have them be disappointed in me for not, you know, not looking out for their best interest, which, which I am. so, so those are things that definitely keep me going that, you know, I, I have to succeed for them. you know, family, investors, partners, to make sure that, you know, everybody's comes out in the end happy and satisfied. it definitely is a lot of work and causes a lot of stress for sure. You know, I definitely don't want to be doing this forever, but, for the time being, this is, you know, the opportunity I have to, to make these work and set those, set up this great future for my, myself, my family and, and others as well that, that look to me for these opportunities, so.

>> Vish: 21:18

Well, that's great, Don. So, so let's say what, what are you working on right now, apart from, what, what deals are you working on right now and is there something you want to promote?

>> Don Spafford: 21:30

Yeah, thanks. well, I'm working on a few things actually. So, I, I, I, I'll mention that I, I do have opportunities for, for non, accredited and accredited investors. But just in general, we'll say for now, I've got, for, you know, the, the RV campgrounds talked about that we've got actually a new development one coming up very soon. That's going to be a fantastic opportunity. It's, it's going to be adjacent to an existing water park. so there's already a great built in customer base from the water park people that are, they're going there enjoying that and cash flows from the water park to help sustain investors while it's being built. that is coming very soon. I've got a A new business acquisition fund that is available also for credit investors to purchase into existing service based businesses for consistent steady cash flow that will go on for life. There'll be a refinance period there to get your capital back and still have cash flows after that point forever. I have some private money lending opportunities for people that want looking for something more short term, quick, quick return money. and I'm m also involved with a JV partnership deal for a Costa Rica resort development. seeking a few more maybe JV partners for that. and then I've also involved some, some build rent opportunities where people can invest in some new construction multifamily build trend for long term holds on those as well. so yeah I've kind of you know I'm well, well I guess diversified and have opportunities for, for different investors depending on their needs. So feel free. I definitely contact me if I, if I don't have what you're looking for. I probably know somebody that I can refer you to that can help you with that because I'm very well connected with my network with lots of different sponsors and opportunities that if I don't have something you're looking for I can definitely direct you to someone who can help you.

>> Vish: 23:08

Thank you Don for that. And then so apart from that you at ah some point you mentioned that during our conversation Your wife is also into real estate. Now does she work on the side with you on all the partnership deals or how's it.

>> Don Spafford: 23:25

Yeah, so she's a realtor. you know she works with a lot of out of state investors that buy in our area. Again you know we live near Yellowstone so a lot of people are buying here for like short term rentals, airbnb kind of things. but also you know local buyers that looking up to buy and sell here as well. as well as she's, she's open to she can help those are looking for commercial properties. This area is not. Doesn't have like a lot of let's say vintage multifamily for example. there's A lot of new construction, multifamily. This area is definitely growing a lot. lots of additional future appreciation to come here for sure. So those are looking for great long term appreciation opportunities. This is a great area for that. but her and I, I work more with her I'd say than she does with me. she's not really on the syndication side of things or you know, jv, partnerships and whatnot. She's more on that service side helping you know, buyers, investors, sellers, to, to purchase and sell real estate in, in our area here. she covers all of east Idaho, I'll say that. But but so I help a lot more with her. I bring, you know, I, I do a lot more than networking and connecting with people on, on different social media platforms and things. So I drive to her.

>> Vish: 24:26

I think, I think that is how we met down. I think I know you, you love networking That's good. And then one other thing, one final question is you, you don't want to be doing this forever, but let's say you get your financial goal or financial number tomorrow morning when you get up. So how does your life look and what will you be doing if not real estate?

>> Don Spafford: 24:50

Yeah, well, I'll say I still will be doing real estate, just probably not active. I'll be much more of an LP investor, passive. Since doing all this, as I mentioned, I've been able to meet a lot of great deal sponsors that I'll trust and so I'll definitely put my money with several different sponsors on several different asset classes, to keep that money working and building and growing. But I've probably spent a lot more of my time in, in service. You know, I look to do some volunteer opportunities and help serve, you know, my local community and also travel more. you know my wife is from South America so we like to go visit her family more often, help take care of them more, provide more funding for their healthcare, and and do a lot of things just to help, you know, people not in that area, provide, essentially provide jobs. I'd like to maybe start a business and provide jobs for people down there and maybe here locally as well. yeah, I just want to be more, more involved on active, on giving back kind of opportunities more so than you know, active work, you know.

>> Vish: 25:43

Well that's great Don. I think. I hope you meet your financial goal quickly so that way you can do things which you, which you're passionate about like helping family, traveling with them and giving back to the community. So those are the things which are extremely important for all of us at least. so money is important. So that way what we do with that money is more important. And good luck with that. And then finally I think your dedication towards your family and giving back to the community is extremely inspiring. Thank you. And don't ever stop doing that. And in the meanwhile I think all these failures or setbacks I think are the only ones which sort of add more fuel to the fire. In other words we just using them as stepping stones to get to the next opportunity or next deal. And I should say thanks for taking time to come on this podcast and wish you good luck on your next journey. Thank you Don.

>> Don Spafford: 26:42

Thank you very much.