Hey, welcome back to the show! I’m really excited to have my buddy, David Dodge on the show today! Today, we are going to talk about the BRRR Method and how to build wealth with rentals. You will learn a lot from this episode! Let’s get started!
Mike: [00:00:00] Hey, everybody. Welcome back to the show. Really excited to have my buddy David Dodge on today. We’re gonna be talking about the bird method and really how to build wealth with rental. So it’s something that you should be doing if you’re not. And if you are already, you’re going to learn some thanks to welcome to real estate investing secrets.
We’re all looking for freedom and the opportunity to live. More fulfilling lives, but most of us were trained our entire lives to work for someone else to chase their dreams. How can we use real estate investing as a vehicle to achieve financial freedom? My life is dedicated to answering your real estate investing questions and helping you build an investing business that allows you to change your.
And the world around me. And to enable you to turn your dreams of financial freedom into a reality, my name is Mike Hambright from flipnerd.com and your questions get answered here on the real estate investing secrets show. Hey David, welcome to the show. Hey Mike. Thanks for having me, man. Yeah. Glad to have you on and excited to talk about this.
You. And I [00:01:00] talked again recently, uh, about rentals and stuff like that, and just how important it is. Like, you know, early on, I wholesale in a rehab more than I do now, but that was so I could keep rentals. And now I do multi-family stuff and some other bigger deals, which we all want kind of passive, I’ll say passive.
Air quotes, because it’s never quite as passive as, as it should be, but it it’s a great vehicle for building wealth. Like I’ve, you know, real estate is amazing. It’s an amazing things for me. And I know it has for you. So we’re going to talk about today. So, Hey, before we jump in, tell us a little bit about your background, how you got into.
David: Yeah, absolutely man. So I’m 37 years old. I started at the age of 20. I was in college and I started with house hacking. Right? That’s the best way to get started. You buy a property, you bring out the other rooms in that property and you basically can live for free. There you go. And I did that three times while I was in school.
And over the next, you know, seven years, um, I was working at various jobs. I even had a couple entrepreneurial stints to, you know, small businesses for friends, building websites and [00:02:00] selling products online. And over that first 10 year period, I acquired 12 rental properties. So, you know, I’m not awful. I’m not bad by any means.
Uh, but. After that ten-year period and working for other people, I decided, you know what, I want to do this for myself. And I really want to double down on real estate. So at the, you know, bright young age of 37 years ago, I went full-time into real estate, learned about direct to seller marketing and wholesaling.
And since then, Mike, I’ve done over 700 wholesale deals done over 200 burdens. You know what I’ve done, I’ve done about a thousand transactions give or take. Um, and my passion at this point is just helping other people learn about real estate investing and how to acquire rental property. And my favorite number, one strategy that I love is the burger method.
And that’s really where I spend the majority of my time nowadays is, is doing the burn method and acquiring rentals with very [00:03:00] little to none of my own
Mike: money in the end. That’s awesome. That’s awesome. So we’re going to talk about the bird method a lot today. Before we jump into that. Give your case for why rental properties make sense for real estate investors?
Because there’s a lot of people focus just on wholesaling or fix and flipping and, you know, uh, it ends up being maybe a high paying job ultimately, but I don’t want to steal your thunder here, but ultimately they’re not building up assets, but kind of give your case for why rentals make.
David: Yeah. So I have 18,000 reasons that rentals make sense because we get $18,000 a month in passive income right now from our portfolio.
So passive income is essentially, um, income that we earn. From the rentals and it’s above and beyond all the bills it’s also referred to as cashflow and the beautiful thing about passive income, which I think most people probably don’t know, at least I assume they don’t is, is that your passive income is taxed a whole lot less than your earned income and Mike, here’s the [00:04:00] thing.
I don’t really agree. With the way the government and the IRS tax people, but I know the way they do it and I play the game the way that we’re supposed to play it. So what does that mean? Well, most people listening probably have. I would think, and they go and they trade time for money. And it’s really unfortunate, but the, the, the highest tax that you can pay, you know, is earned income.
It’s like 30 to 45% somewhere in that range. Right. So with rental properties, you’re earning income, but you’re not trading time for it. And you’re in, you’re taxed a lot less. So that’s why I love that. Yep.
Mike: And, and the great thing is, you know, when I, so I have a rental portfolio here in Dallas and I had a mentor from the very beginning who said, now this is Texas.
He’s like, Hey, you’re not going to get a lot of appreciation here. You really want to focus on cashflow kind of. And he, this guy owns a 2000 properties. It has a lot of knowledge. Right. But I’ll tell you what the [00:05:00] appreciation has been insane. The last five or six years. I never counted on it, but it’s been amazing.
David: The last two has been
Mike: nuts. Yeah. Yeah. Yup. So let’s talk a little about the burn myth. Maybe you could, for anybody that doesn’t know what that is, just like, tell us what it is first.
David: Yeah. Yeah. So the bird method is, in my opinion, this is my definition of it. Everyone’s going to have a little bit different definition.
My definition is it’s just a simple strategy that us real estate investors use to acquire assets with little to no. Rapidly. That’s how I define it. Now. A burden itself is an acronym. It’s a B with three or maybe four RS, depending on you know, how you want to do it. And that acronym is, is very simple. It stands for B stands for by.
And then the three RS, the main three would be rehab, rent, and refinance. And if you want to add that fourth R that simply just means to repeat. So again, simple strategy that I [00:06:00] love to use to acquire assets. And the goal is to use little to no. And then again, that last R repeat is it’s very scalable, right?
So, you know, over the last four years, Mike, we’ve done about 200 of these, the average amount of money that we’ve left in our bird deals is about $1,200. And, you know, after three, four or five months of, of cashflow, you don’t have any money invested in the deal at that point. So it’s just awesome.
Mike: That’s great.
And talk a little bit about why, so maybe talk about the financing part a little bit. How do you, how are you typically, obviously everybody knows you’re gonna buy it, but we can spend a lot of time talking about acquisition stuff. We want it to, but we won’t on this episode, but then you’re going to rehab it for prepare for a rental.
Right? Get it, get it rent ready and get a tenant in it. And then talk about the finance part. Like how are you financing it? And the idea is obviously refinance, pull your money out. Go do the next one. Go to the next one, go to the next one. Right. So talk about what that, what that refinance typically looks like.
And then when you [00:07:00] buy, are you what you typically teach is using hard money or something else up front and then refinancing out of that or talk about the
David: yes. Yes, yes, yes, yes, yes. And yes. So before I do that, Say one thing, right? So I told you a little bit about my past, you know, I had 10 years of very passive investing.
I was working other jobs and I bought 12 properties, acquired 12 properties, which was pretty good, but here’s the thing. I did it the wrong way. And the reason I say that is because I would locate a property that was B full retail. And I would find an agent. Maybe I’d find the agent first. Maybe I’d find the property first.
It doesn’t really mean. And I would go and I would purchase that property and the banks would say, Hey Dave, no problem. We’re going to give you an 80% loan, but I was paying full retail. So that would mean that I had to bring 20% to the table. Right. And of those first 12 properties that I acquired, the average purchase price was about 150 grand.
And if you have to bring 20% to the table, that’s 30,000 bucks for each house. Right. So that’s the. Right. So now let’s talk about [00:08:00] some of these questions that you just answered. The new way is I am going to earn my 20% that I would have to essentially have to put down with the old way. I’m going to earn that by buying properties at deep discounts and increasing value, even more with regional.
So now the goal is to be all into these properties at 80% of what they appraise four or less. And the bank still gives me an 80% loan, but this time they’re lending on the appraised amount, not the purchase price. So I’m still essentially a hundred percent. So, so I’m not going to the bank to buy. I’m going to a private or hard money to borrow money to buy.
I’m typically getting 100% of purchase anywhere from 75 to a hundred. And even more, sometimes 120% of rehab. Right? So I’m borrowing as much as I possibly can to acquire into rehab. And then I get it rented, which makes it an asset because money’s now coming in. And then I go to the bank and [00:09:00] I asked for not a loan to purchase anymore.
I already own it. Now I’m saying, Hey, can I get a refund? And they say, Hey, no problem, Dave, we’re gonna send the appraiser out and we’re going to lend you 80%, typically, sometimes a little less, but typically 80% of what it appraises for. So I’m still putting in 20% like I was before. But the difference is, is I’m not putting it down, I’m earning it.
And I’m using that sweat equity that, that, that equity that either captured or gained from the discounted buy in the rehab to put down. So that’s how we’re able to acquire property. With no money out of pocket. Mike, the goal is zero, to be honest. It’s how do we acquire this asset? That’s going to pay us 3, 4, 500 bucks a month and not have to use any of our own money.
And again, private and hard money is, is the way we.
Mike: Yep. That’s awesome. Yeah. Leverage is really the name of the game. You know, obviously you want to stay safe, but if you’re doing it right, uh, there’s a lot of options, especially if you’re buying rental properties are, are in [00:10:00] high demand. They have been for, for a long time, but the rental rates have gone up and rents have gone up tremendously.
I mean, we’ve, we’ve been turning around some properties lately, just make readies and I can’t believe how much we’re getting on the bumps.
David: Yeah, cost of rehabs going up cost of labor is going up, uh, the values of real estate. You know, those within themselves, each property is going up just due to low inventory.
Also due to the amount of money the government is printing inflation and, uh, you know, rates are going to be going up to, which is going to. Prevent people from buying. So yeah, it may hurt us a little bit whenever we’re getting refinances, but it’s also going to prevent other people from buying, which means they’re going to need to rent, which allows us to re you know, rent those properties and, or increase the rents of those properties.
So yeah. All things considered. I love. The bird method. I love real estate, but I love the burn method because it allows me to acquire an asset and not put [00:11:00] down 30 grand. Like I used to do. Now I can borrow all of it. And you said leverage. So I want to double down on that for a second. I love leverage. So much so that I use it in every aspect of my business.
So I use leverage to market, to sellers, and I have a team of virtual assistants and acquisitions folks that I leverage, but then my business to do that for me. Right. I love leveraging other wholesalers because I can buy from them and still make the burn method. Yeah. So I’m leveraging all of those efforts.
I leveraged the private and hard money. We mentioned that I don’t fix properties. Mike, come on. Right. I leveraged my general contractors and my subcontractors to make them look pretty again, I don’t like to live. I don’t like to manage either. So I’m going to leverage a property manager to get at least into maintain the relationship and collect the rent.
And then last but not least, I’m going to leverage the local banks and credit unions to refinance. Leverage is the name of the game.
Mike: Yup. Yup. [00:12:00] Also, let’s talk a little about people that might be listening that are wholesalers or rehabbers, and I’ve, I’m sure you’ve done all. You do all those. I’ve done all of those as well.
Um, when I told you upfront is what I, you know, used that have to wholesale, you kind of have to have active income for marketing and covering the cost of your, your team. If you have an office, stuff like that, to pay for that. Right. And then, but that gave me the opportunity to keep some of his rentals.
But the truth is, is in hindsight, if I could go back in time, We’re just trying to learn like, well, what would I do differently if I was, you know, 10 years ago? And hopefully you can apply that to 10 years a future, you know, back in 2000, let’s just say 10 to 12, 13. I started 2008. Like if I look back now, I could have bought every property right off the MLS at full.
You know, retail price, anything under 150, I would look like not only look like a genius. I would’ve been like just wealthier, wealthier than hell right now, for sure. Right. Right. The question is, is, are we going to look at that in 10 years and say all back in, back in [00:13:00] 2022, I wish I had done that with all the inflation stuff going on.
We might, you know, who knows. Um, but the reality is, is in hindsight, I worked so hard to buy deals at super deep discounts for playing the role of a wholesaler and then effectively selling it to myself as a, as a renter. I. Bought a lot more rentals just by buying them from wholesalers. Um, and they would have worked just fine.
Right. I didn’t get them quite as deep, but I also didn’t have a marketing expense. I have to pay an acquisitions guy, probably, you know, there’s less expensive for me, so I could have paid more. Um, talk about that a little bit. Um, how in the. You know, the bird method or for rentals, you can, in theory, not that you always want to pay more, but you can in theory pay more because you don’t have some of the costs you do if you’re wholesaling and rehabbing.
David: Yeah, absolutely. So I am a wholesaler just like you. I am a fix and flipper just like you, and I’m a landlord just like you. So when I’m wholesaling a deal, I got a typical. You know, get it to where there’s quite a bit of meat on the bone, right? Because you can’t sell a deal to another [00:14:00] investor, a wholesale and sell it to them at 95 cents on the dollar, not going to want it.
Right. But most investors will buy at, you know, maybe 80% or even maybe 85% in some cases, if they’re able to add value with rehabbing it as well. Right. Right. Well, as a wholesaler, you typically got to be at, you know, 70 or 75% of the ARV minus 300. Because you have to leave some meat on the bone. You got to take a little bit of that meat to pay yourself, but you got to leave it on the bone.
Right? So as a, uh, as a landlord, I’m able to pay 0.8 or even 0.8, five, assuming I can add value with the rehab as well. So it allows me to be much more competitive. It also allows me to piggyback off of all the other efforts of the wholesalers in my mind. And let them go do all the cold calling and in the appointments and the follow-up for sometimes years to get the deals.
And I’m happy to pay him a 10, 15, $20,000 wholesale fee. Assuming I can still [00:15:00] buy that property, you know, at a discount. Right. So as a landlord and using the bird method specifically, Mike, um, as long as I’m all in and that’s all in for purchase rehab, closing, holding. All all, all, all in at, or below 80% I’m in.
I want that deal because my banks will typically. 80% of what it will appraise for on the refi.
Mike: That’s great. And let’s talk about the person that’s listening right now. That’s got a full-time job right there at W2 person. I mean, one of the benefits of, of this model versus wholesaling or rehabbing, um, is that you don’t necessarily have to get at the deepest wholesale price because let’s be honest, the acquisitions and sales part of a wholesaling business.
Uh, business in and of itself, it is front end. And so if you’re able to buy from other wholesalers and you don’t have that front end business, you in theory can do that part with a job. Right? So talk about folks that maybe have that W2 job. They have some money for rentals, but they don’t have the time to go run a wholesaling [00:16:00] operation, kind of marketing and acquisitions operation.
Absolutely. A hundred percent makes sense for those guys.
David: Yes. We have several students, you know, that, that come into the program and they have a full time. And, you know, I always tell people the best deals you’re going to get are going to be the ones that you go direct to the. Mm, but if you have a full-time job and you don’t have the time to do the marketing, or in some cases, people don’t have the money to do the marketing.
That’s okay. And I mentioned this before, but I want to really emphasize and double down on this. We can use the, we can piggyback on the efforts of the other investors in our area. So, you know, I’d say somewhere between. 30 and 40% of all the deals that Mo that we buy me and my partner here, you know, in our business come from other wholesalers.
And again, we’re more than happy to pay them a wholesale fee because we’re piggybacking on all of their efforts. Mike wholesaling is a lot of work [00:17:00] in itself is a job, and we do it right. We do the marketing and we wholesale, but to us now, we’ve we, we know we’ve, we’ve basically identified the fact that Hey, wholesaling is a very transactional business.
And we want to get off of this transaction treadmill. So we’re still going to wholesale the deals that we get under contract that we don’t want to keep. They don’t meet the buybacks, but we’re no longer just actively marketing for, for deals just to hold. Right. Okay. So to answer your question though, is how could somebody that works a full-time job and doesn’t have a ton of time.
How can they, um, you know, do use the Burma and it’s simple. They can use leverage just like I do, and they can leverage wholesalers. They can leverage hard and private money lenders. They can leverage general contractors. They can leverage property managers. And then of course, Local banks and credit unions.
And that’s what we teach and, and show our students and hold their hand through, [00:18:00] through deals and partner with them on deals to show them that, you know, this is not that difficult. In fact, it’s actually pretty simple. Um, but you gotta, you gotta, you gotta, you gotta jump in. You gotta get.
Mike: Yeah, what’s another interesting thing about the W2 folks is honestly, if you’re listening to this and you have a W2 and you think even thinking about quitting your job, um, you know, your chances of getting financing are better with the W2 job.
We are absolutely. As soon as you become self-employed, you know, there are still opportunities with hard money and things like that, but you have some tools that a self-employed people don’t have until they get a few years of track record. They have two years tax returns and all that. So take advantage of that while you still have your.
David: Absolutely man, you know, having a W2, like you said, it’s. You know, I never, I never tell my students to, Hey, go quit your job. I’ve had multiple students over the last couple of years, multiple that have had great success and they’ve been able to quit their job. Right. But that was their decision. I never tell them to do so.
And the main reason is because of what you just said. Yep. You know, [00:19:00] if you want to go get a loan from a local bank or a local credit union, they’re going to either want to see a W2 or they’re going to want to see at least one, if not two years of tax returns for your business. And if you don’t have that already and you just.
Now you’ve eliminated that W2 and you haven’t had built the time to get those one or two years. So it’s not always the best idea to quit your job. Now, the only caveat Mick is there are some lenders now, Nate national nationwide lenders that will lend to an LLC and I’m using a couple of them and they don’t check taxes or W2’s, it’s amazing.
They’re lending more so on the asset, which is awesome. Now the flip side of that is, is their fees are gonna be. Right now you’re going to have three, four or $5,000 worth of closing costs and you have to prepay some escrows, you know, so on and so forth. But that doesn’t mean that, you know, it’s going to stop you from getting into
Mike: Right. Right. So, David, let’s just talk just for a moment about if folks are listening right now and they really want to keep some rentals, but they’re primarily just wholesale and [00:20:00] everything, or rehabbing here and there. How do they kind of transition and start to layer? Other extra strategy and where they can keep some
David: Absolutely. So if you’re already wholesaling, you are a leg up because you essentially I’d hope at least you are doing some direct to seller marketing. You’re on the phone with sellers, you know, how to negotiate and put properties under contract. And I think the most important thing I’m going to save the best for last is that you’ve built confidence and that’s a lot, that’s something that’s, you know, that’s, that’s typically the hardest thing for me to do whenever a new student comes in and.
Build for them to be confident. Yes, I can build them up. But the best way to get confidence is to, to do into, to win. Right? So if you’re already wholesaling, you are a leg up because you have a bunch of skills now that will help you position yourself into deals. The only difference is. Once a property is under contract instead of turning around and marketing it to another local investor and trying to make a quick pop it’s [00:21:00] changing the mindset.
Just say, all right, I’m going to hold this one. You know, so you may have to actually buy that property, which is what we do. So you’re going to need to go build some relationships with some hard or private money lenders. And then from there, fix that property up, get it rented, take it to a bank and refinance.
And again, even if you leave a couple thousand in the property in the beginning, that’s not the end of the world because it’s better than 30. Like I did it in the beginning. Right. But after you do a couple, and my goal with my students is, is to speed them way up. So that way they can start doing burrs with no money out of pocket on their very first deal.
Mike: That’s awesome. Yeah, I don’t, and I think there’s a mindset shift there, cause I don’t think that a lot of, a lot of people would get into wholesaling because they see. Quick and easy money now. It’s not easy and it’s not as quick as most people would think the key is consistency, but I don’t think that you can have success in life unless you learn how to have some delayed gratification.
Like you have to be willing to say, Hey, I won’t take a $20,000 wholesale fee right now, or a $10,000 [00:22:00] wholesale fee, because I’m going to bet on myself in the long-term and that’s going to be worth hundreds of thousands, if not more. Right. You have to be willing to set some aside if you want to build wealth.
Otherwise this whole thing is just a job.
David: 100%. And Mike, let me add one more thing real quick. So, and again, I I’m, I’m assuming that most people don’t know this, but the IRS taxes you on your income, right? They don’t tax you when you create. Now you may create wealth and then sell that property in six months or six years or whatever.
And you’re going to have an income event. That’s going to be taxable, but why? One of the main reasons why I love rental properties so much, not only, I mean, there’s like 10 reasons, right? But one of my favorite reasons is, is that if I can get a 20, 30, 40, $50,000 equity capture event, that’s wealth that I’ve created, that I don’t pay a dollar in taxes.
Hmm. I only pay taxes on my income. Right. So if you do that [00:23:00] 10 or $20,000 wholesale, Hey great. You got 10 or 20 grand now you gonna have to pay the government somewhere between three and 7,000 of that. Right? Right. Well, if I do a 20 or 30 or $40,000 equity capture, I don’t pay the government a dollar on that until I see that.
And realize that money as income. So I think one of the biggest mindset shifts that I have. Took place probably about four, four and a half years ago. And I decided, you know what? I don’t like paying taxes. I’m going to just not pay taxes or, you know, not illegally of course, but I’m gonna do everything in my power to prevent having to pay taxes.
So not my, when I wake up now, my goal isn’t necessarily to create more income. It’s a secondary goal by all means, but it’s not my number one goal. My number one goal is create wealth because wealth isn’t tax. Income is that’s
Mike: awesome. Not yet. At least not yet. That’s right. That’s right. Yeah. So David, if folks wanted to learn more about [00:24:00] you, what you’ve got going on, you’ve got a lot of stuff going on with.
David: Mike. I really appreciate you having me on the show today, man. Thank you so much. Yep. If anybody’s interested in buying rentals in and or using the burn method, that’s what I love to do. That’s my passion. Um, I do have a program. I mentioned, you know, a couple of times the students doing this or that, um, you can learn more about burn method, myself and or the program at Burr method mastery.
Dot com and that could be, be with three RS. It could be be with four hours. We have both of the domain. So don’t worry. Burr method, mastery.com is going to be a place to learn more. And if you want to book a call with myself or my team, you can also do that on that page. Cool.
Mike: We’ll add a link down below in the show notes here.
So, David, thanks for sharing some knowledge with us today, my friend.
David: Hey Mike, thank you so much for having me. I am super grateful for you your time and your podcast because you’re providing so much fun. To tens of thousands, if not hundreds of thousands of
Mike: people, man, it’s well, glad you’re here. [00:25:00] Uh, thanks so much.
Great to see you always. Thanks, Mike and everybody. Hey, thanks a ton for joining us today. Hope you got some good value here. We’ll add some links down below in the show notes. Make sure you check them out. Um, hope you’re doing great. Happy investing. We’ll see on the next. Thanks for listening to today’s show.
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