271 – David Dodge – How To BRRRR With None of Your Own Money!

Synopsis

In his eight years as a full-time real estate investor, David has become a great supporter of the BRRR method. In this episode, he’ll explain how this strategy has helped him with his deals and how we can do the same.

Key points

How He Started

David has been investing in real estate for 20 years, but it wasn’t until eight years ago that he decided to make it his full-time career. When he first started, he learned about wholesaling and jumped right into it, selling directly to sellers, and doing different types of marketing over the following two to three years. While doing so, he realized that one of the reasons he went into real estate was to be able to spend more time with his loved ones, which he couldn’t do with his previous setup. As a result, he started pivoting towards buying rental properties, which he feels he did poorly because after learning about the BRRR method, he realized he was missing out on a lot.

Traditional Fix-And-Flip Vs. The BRRR Method

He still does traditional fix-and-flips but prefers the BRRR method since it allows him to acquire properties without spending much money.

Previously, he would spend roughly $30,000 on a fix-and-flip property versus the BRRR method, where he doesn’t have to use a single dime of his own money at the end. Furthermore, with this method, he borrows money to make the purchase at first. Essentially, the BRRR method is a strategy that enables investors to swiftly buy a large number of assets while spending little or no of their own money.

BRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. The nice thing about this method is that it is highly scalable. You may be working on ten or more deals at the same time. Another difference between the BRRR and the traditional fix-and-flip approach is that before, when he was purchasing rentals, he would go to the bank to ask for a loan. When you buy a home with the help of a bank, they will lend you 80% of the purchase price. You’ll need to provide the remaining 20% to purchase the property unless you can convince the seller to lend it to you, which is a strategy, but it’s not something you’ll be able to do with every seller.

David does not go to the banks to acquire houses using the BRRR method. To obtain the deal directly from the seller, he works with hard money and private money lenders. He buys it at a discounted price and then fulfills the remaining R’s on the property, starting with rehab, which prepares the property for rent. According to David, he often spends $20,000 to $30,000 on rehab since the units they’ve lately dealt with are in desperate need of repair.

Presently, he has 90 units leased. He also employed property managers to identify and screen good tenants for the renovated units.

Moreover, to complete the BRRR method, in the end, David would go to the bank to refinance the existing loan he had made with a private or hard money lender.

Securing 100% Financing

When asked how he gets 100% financing for his deals, David said that it all comes down to having a solid connection with his hard money lender. Starting out, you shouldn’t anticipate 100% financing right away since you don’t know each other yet, but after you’ve done around 15 loans together, you may try bringing up the topic of working together in future deals.

According to David, people will want to continue working with you if you develop strong ties. This is his formula for success. Purchasing homes at deep discounts might also assist in obtaining 100% financing. Your lenders would be pleased to assist you with any offers on which you can get great discounts. If you’re new, another option is to offer better terms. In David’s case, he would approach his private lender and propose a 12 to 14% payment and a 20% profit share. If he doesn’t have the money to do the deal and no other method to generate money, he partners with people. If you’re faced with this type of situation, you can team up with somebody who has strong credit and can get a refinance, and you can offer to handle all the work while they just show up, sign some paperwork, and become your partner. Basically, you can close a deal in various ways; you just need to be resourceful.

Relationships With Banks

Keeping a good relationship with hard money lenders isn’t the only thing that may help you close deals fast; a great relationship with banks is also beneficial. When you first start out, you may come across banks with seasoning requirements. They do this to minimize the risks they face, but they have the option of reducing the number of these requirements. If you continue to do business with them and gain their trust, you may be able to get these seasoning requirements reduced or eliminated.

Finding Local Banks

Local banks are preferable since they are more flexible. Local banks and credit unions often have less than 10 to 15 branches, so you should be able to find one or two close by. They usually take up small spaces, and you’ve probably never given them a second thought in your community.

Big banks, such as those with ATMs on every corner, often need you to speak with numerous personnel and submit a slew of documentation before approving you for a loan. On the other hand, local banks generally require you to communicate with just one person with whom you may develop a relationship so that the next time you contact them for refinancing, they already know what to do.

References

More from our guest

• If you want to know about David and the BRRR method, you can visit his website at wholesalinginc.com/rentals.
• You can also find their contact information there if you want to talk to them directly.