Turnaround Specialists | Think Realty | A Real Estate of Mind
Profiles Master Investors

Turnaround Specialists

Equistream aims at lower-cost, often-rundown properties, but delivers a high measure of satisfaction to investors, buyers and its founders.

Who could have predicted that experience trading stock options, starting ministries and hunting elk would combine to form a successful real estate investment company? That’s the interesting path Kent Davis and Chuck Bates have traveled as co-founders of Equistream, formerly Kingdom First Holdings, based in Tampa, Fla.

Today, Equistream buys large pools of residential properties from banks and mortgage companies in more than 34 states, at large discounts. The company has $30 million under investment.  Its purchased properties are sold to other smaller investors, to flippers or to homeowners through its Buy Here Pay Here program, which offers nonbank financing. The end result is solid profit for investors, revitalized neighborhoods and new homeowners who, otherwise, would most likely have remained renters.

FROM MINISTRY TO MILLIONAIRE

As a pastor and missionary, Kent Davis spent 35 years in the nonprofit field. He founded a world mission organization that was in 38 countries, built churches and a drug rehabilitation center and provided for food pantries. Davis even built a 31-acre campus with an “aging in place” vision with everything from a preschool to an assisted living facility.

He had certainly improved others’ lives. But one day, when acute stress made him feel like he was having a heart attack, he worried about his financial worth and ability to provide for his family.

“Much of my adult life was serving others, and I really didn’t worry much about my future,” Davis said. “I realized I’d opted out of Social Security and had very little retirement savings.”

Through a hunting club, Davis met a man with 40 years’ experience in buying and selling assets that banks wanted to liquidate, and he became Davis’ mentor. In 2006, Davis began investing in “toxic low-end properties”—homes under $5,000, which came with issues his mentor helped him solve.

To Davis’ surprise, these investments turned a profit at a time when other investors were floundering—and they happened to fit his life mission.

“Not only can I make money, but I can continue doing what I spent my whole adult life doing—helping people—by taking buyers who wouldn’t qualify traditionally for a loan and dealing with properties that wouldn’t traditionally pass for a mortgage,” he said.

Through his mentor’s guidance and friendship, Davis grew the family of companies that exist today. He recommends learning through an experienced mentor rather than spending thousands on get-rich-quick events.

“I’ve met people who’ve spent $70,000 in mentoring, software programs, real estate school, but they’ve never bought real estate,” Davis said. “We can buy a property and sell it to our client and help them find an end buyer for less than some people spend on mentoring.”

HUNTING FOR A BETTER BUSINESS

Chuck Bates began his career in sales. Through the years, Bates earned stock options and exposed fraud through a whistle-blower lawsuit, which left him with money to invest. So he retired early and traded stock options for two years from home. But despite his knowledge of the market, he grew frustrated because a lot of ups and downs were beyond his control.

So he opened a mobile home park and offered owner financing for people who would probably not qualify for a bank loan. Then, thanks to an elk hunting trip, he met a man who connected him to Davis.

Before deciding to invest more than $200,000 in 30 properties with someone he had only spoken with over the phone, Bates flew to Tampa to meet Davis. Bates can laugh now that he was a little skeptical at his first meeting when he had to walk down an alley to a metal door to find his future partner. But Davis’ honesty and willingness to answer questions soon overcame the lack of a fancy office.

A PARTNERSHIP MADE IN HEAVEN

Bates was a customer first. That first purchase was “one of the worst pools I ever bought and sold a client,” Davis said. But the two simply rolled up their sleeves and worked through the issues together, which resulted in a very good return. The two wanted to work together on future deals, with Bates bringing his skills in streamlining structural and administrative processes.

The partnership works because they share a lot in common. Both are Christians involved in their churches and passionate about hunting, wildlife management and real estate. They liken their business relationship to a marriage.

“You don’t partner up with just anybody,” Davis said. “There needs to be compatibility beyond the financial model, and that’s been a real key to our success.”

Bates adds that, while they are both “really good salespeople,” he’s likely to be on the run when people want to talk, whereas Davis is a natural listener.

“Kent, being a pastor, is with you. You just feel his undivided attention,” Bates said. “He is so good at focusing on people.”

A WIN-WIN BUSINESS MODEL 

Equistream is the “ultimate wholesaler,” bidding on lots of distressed properties offered by banks from Hawaii to Puerto Rico. Davis and Bates buy more in warm weather—giving themselves more marketing time during a typical calendar year—bidding on as many as 6,000 homes in a month and winning 10 to 20 percent of those.

First, they present the properties to around 200 in-house clients who buy wholesale, offering the properties at steep discounts for a modest markup. The rest of the properties go into the Buy Here Pay Here program, where about 20 to 30 percent are sold to local flippers and another portion go to clients who use the turnkey real estate solution. The rest are sold to families who will make the house their home through Equistream’s seller financing program.

While Equistream is a servicing company, with deeds for sold properties going into the seller’s name, they continue their support through marketing to buyers and offering owner financing. They service the note and make reminder calls if anyone is late on a payment.

The model includes risk because the homebuyer—whether buying directly from Equistream or from an investor to whom Equistream sold the property—is from the lower income bracket, usually with a credit score below 600. But the end result benefits everybody.

For example, for just over $5,000, Bates was able to buy a house in Louisville, Miss., with a caved-in floor, a bad roof and 6-foot-tall grass in the front yard. Where some saw a teardown, Bates saw opportunity. He found a buyer who worked in construction but had no money for a down payment. So Bates traded major clean-up for the down payment.

“He got three boys and went there one weekend and cut ridiculously tall weeds that should have been cut with a chainsaw,” Bates said. “You should see what he’s done with that house now.”

The buyer and his family, who were paying $350 in rent for a broken house his landlord wouldn’t fix, have made big improvements while paying less per month on owner financing.

The house—which Bates sold him for $11,000—is now worth more than $70,000 thanks to the owner’s hard work.

“He would never have had that opportunity if Kent hadn’t started doing what he does,” Bates said.

TURNING AROUND COMMUNITIES

Although Equistream began buying pools of property for investment, Davis and Bates realized over the years that they could help season small investors and increase homeownership. Their five-year goal is to place 10,000 renters in homes as homeowners.

The partners are enjoying both the double-digit returns and the ability to offer “the wonderful gift of homeownership at an affordable price.”

“We’re helping revitalize communities that have been given up on and returning houses that were hurting neighborhoods,” Davis said. “We’re converting them. The lights are back on. Taxes are being paid.”

Equistream is able to run a profitable business and serve others because its founders focus on nontraditional properties that otherwise wouldn’t perform, wouldn’t appraise or qualify for HUD. And the buyers, who most likely wouldn’t qualify for traditional financing, can pay less a month for homeownership than they were paying in rent.

“Our heart is to be able to help nonprofit organizations,” Davis said. So the team volunteers in the Tampa community and in other areas where they do business. They rehab homes, set up soup kitchens, get single moms in houses and even give away homes.

“Everybody needs housing,” Davis said. “We have this wonderful commodity to advance well-being across the country.”

The partners travel weekly and often revisit communities where Equistream actively bought properties in 2006 “in the worst markets, in the worst parts of those markets and on the worst streets in those markets” and now are rewarded with revitalized neighborhoods.

For example, in cities like Detroit and Philadelphia, where Equistream purchased large packages of housing, it’s paved the way for locals to contribute to the transformation. Hipsters are moving into neighborhoods, fixing up houses, starting coffee and art stores, turning vacant lots into community gardens and opening ethnic restaurants.

“It’s exciting that we actually have a big hand in helping turn those neighborhoods around,” said Davis.

MAKING A PROFIT WHILE MAKING A DIFFERENCE

The partners are happy to turn new investors into seasoned ones, resurrect sad properties, enhance communities, turn renters into unlikely homeowners and make a profit for themselves and their families at the same time. It has all been possible by embracing properties where some investors fear to tread.

“Focus on the profit and not the product,” Davis said. “Too many people are looking for the pretty deal —and pretty can make you money—but the new pretty is these little ugly houses that have been discarded by everybody.”

Davis adds that with the right family, a so-called ugly house can provide a lifetime of help to a family and still bring double-digit returns to an investor.

“I would encourage readers to think out of the box of what’s traditionally done in real estate and stop following real estate trends and start offering people the opportunity to do well financially by buying low and selling high and offering seller terms to people who otherwise would never be able to do anything but rent,” Davis said.