#55 How to Buy Rentals with No Money Out of Pocket with David Dodge
David Dodge is a St. Louis Real Estate Investor with over 18 years of experience. He first started investing in Real Estate when he was in college, at the age of 20 while attending the University of Missouri-Columbia. David specializes in Wholesaling Real Estate as well as using The BRRRR Method to acquire Rental Properties with NONE of his own money!
Welcome to the Real Estate Masters podcast, where we interview the top names in the Real Estate game. If you want to grow your Real Estate business, see more podcasts, or get free resources – Go to www.REMmastermind.com. The only podcast that allows you to directly connect with the guests and many of the highest level names in the real estate game.
You are in for a treat with our next guest. Do me a favor, subscribe to the podcast, leave us a review, and don’t forget to go to www.REMmastermind.com to connect with some of the highest level Real Estate professionals in the United States through our community and through our high-level masterminds. Let’s go.
Itunes – www.TonyJavier.com/itunes
Welcome everybody to today’s show. We have an awesome guest as usual, Mr. David Dodge, we actually have a lot of similarities in common. Uh, he’s been in the business for 18 years. Um, done about 750 transactions. Um, he’s gonna talk a lot about Burr today. I am burning a lot of freaking properties right now, so this is gonna be great conversation. Uh, and the cool thing is, is that he is cash flowing 20 K a month on his, uh, portfolio. So a lot of you guys are probably looking to build up, uh, passive cash flow. And so we’re gonna talk to David, how he has been able to do that.
Welcome to the real estate master podcast, where we interview the top names in the real estate game.
You, like I said, you can turn a lot of those socalled negatives into positives. You don’t know what you’re doing. You miss a piece they’re gonna to yous harder, right? What’s up David?
Hey Tony. Thanks for having me, man.
Absolutely. Man, you said you’re there at your lake house, which is cool. Thanks for joining us while you’re on a little, uh, looks like a little que so, uh,
Yeah, bloody man. I am, uh, getting ready to take the boat out and I’m gonna pop a high noon in the meantime. So hopefully that’s okay.
There you go, man. That’s the first beer we’ve had that that’s a beer, right?
Yeah. It’s like a, it’s like a Selter type of thing’s
First drink we’ve had on our show. So they,
Oh man, you guys gotta have more drinks.
Evidently. Evidently if we’re, if we’re like, um, what’s his name? Joe? Roben, we’d have more stuff on here, but we’re not, we’re not quite to that level yet, so. Well, good stuff, man. Uh, so first of all, everybody who’s listening. Please do me a favor. Subscribe. Uh, leave us a comment. Let us know if you have any questions, any good takeaways, any nuggets, uh, anything that you can share based on what we talk about today, that’ll inspire us to get more guests on the show and continue to, uh, add value to you guys. So, so David, start with your story, man. Just take us 18 years back and take us all the way to today.
All right. I’ll try to keep it quick because um, I tend to talk a lot. I’m gonna warn you. So just feel free to interrupt me, Tony. So yeah. Started about 18 years ago. I’m 37. I started, um, at the age of 20 I’m coming on 38. So about 18 years. Give or take, um, at 20 I did house hacking. I was in college. Didn’t have a bunch of money at all. I was broke. I was delivering pizzas and working at restaurants and um, had a course in college. That was all about rich dad, poor dad. How cool is that? I don’t even know what the name of the class was it obviously
Class, a college class. No kidding at. Yeah. And it wasn’t named rich dad. Poor dad. I wanna say it was like personal finance 1 0 1 or something like that. Right. Very entry level. I was a freshman and my teacher was a landlord and he would donate his check every month to charity. He’s like, I don’t need the check from the university. I make plenty of money off my rentals and I was like, man, I’m hooked. So I just read rich dad, port, dad, and decided I wanna get into real estate. I did it wrong for the first 10 years. But in hindsight, looking back, I’m happy that I did it wrong because I was able to acquire rentals, but I also know now what not to do and what to do and we’ll get into that. But basically, yeah, did that three times Tony in college bought a house, rented out three or four.
The additional bedrooms basically lived for free. Um, and then all through my twenties, I basically bought a house a year. And at the end of my twenties, that’s, you know, full 10 years, I think I owned 12 houses. So I got lucky two years out of 10 and I was able to buy two versus one. But what I, what I wanna talk about real real quickly was why I did it wrong or how I did it wrong. Um, and what I did back then was, you know, I would say, Hey, I wanna buy a property. Right? So I’d find a local agent to then help me search the MLS for properties that were for sale. Find a property that I liked, make an offer on that property, negotiate a little bit, get it accepted, and then go walk into a bank and get a loan.
Well banks, aren’t doing a hundred percent loans for me, at least. So I would get an 80% loan. I’d put down 20%. And the average price point of the houses I was buying in my twenties were 150,000, excuse me, 20% of that is 30 K and the first three or four I bought, I didn’t even have the 30 K. I borrowed that from friends and family and acquaintances and used that as my down payment and got a bank loan and then I’d pay them off over like a year or two or three or whatever. Right. And then after college I had a job and that was really just a way for me to park cash. I’m not very good at saving money. I never have been, uh, but I am addicted to investing. So it kind of works out really well because if I have an extra 20 or 30 grand laying around, it’s burning a hole in my pocket and I’m like, I just gotta go buy a property and tie this money up.
So I don’t, you know, do something stupid with it. then that’s really the truth right there. So yeah, that’s my story for the most part. And then at the age of 30 Tony, I hired a coach. Um, I wanted to get into real estate full time. So all through my twenties, I was doing odds and ins jobs, working sales and marketing, and a little bit of travel. I was an entrepreneur for probably six years of those, of those 10 online businesses, selling products and, and services and websites and just all types of random stuff. But I was just kind of over that. And at the age of 30, I was like, you know what, I wanna get into real estate, but I don’t really want to be an agent. And so I just started reading and, and listening to podcasts just like this and, um, going to different Rios.
And I hired a coach and he essentially helped me get my first couple wholesale deals. And for the next three and a half years, I didn’t do anything but wholesale. And I, and I actually lost track of buying rentals. I was just caught in this transaction treadmill and I was making decent money wholesale and I was having fun and I built a team. Uh, but at the end of the day, I lost sight. So about, you know, four, four and a half years ago, give or take, I like woke up one day and I’m like, man, this is not why I got into real estate to just work my butt off. You know, like I got into real estate at the age of 20, because I wanted to be like the professor who, you know, could give his time to the university and to the students and not even need the money.
Like that’s amazing. Right. So I decided, all right, I need to pivot back to buying rentals. And for the first year, uh, we were still leaving anywhere from 15 to 20 grand in a property, you know, after we refinanced it, we weren’t very good at the bur method, basically mm-hmm and you know, the next year we got that down to maybe, you know, 8, 10, 12, and then the next year we got it down to about five. And over the last two years, we’ve averaged $1,200 left into a property at refi. So what that means is, you know, after a couple months cash flow, you don’t have any of your own money invested into that asset. So that’s what I love about the bur method guys, is that we can use earned equity. We can, we can use the, the, the equity that we capture from buying at a discount, as well as the forced appreciation from the rehab to capture the equity.
The big difference between what I did in the past and what I do now, obviously, um, I’m not going to an agent first and, and looking on the MLS, you know, I’m finding discounted deals. That’s part one, but part two is I’m not using the local banks and credit unions to purchase properties anymore. I’m only using the local banks and credit unions, and there’s even some national guys as well, now that I’m working with, but I use them to refinance. When you go and you use a bank to purchase, unless you get really creative and we’ve done a couple, you know, creative deals like this, but typically speaking, when you go to a bank for a purchase, they want 20% down. When you go to a bank for a refinance, the purchase price is irrelevant. What matters now is what it appraises for and how much you owe on it.
And that was the game changer for me, Tony. So obviously you’re into Burr. I’m, I’m assuming you’ve talked to your audience quite a bit about it. Buy rehab, rent, refinance, repeat that’s what bur is. Some people call it bur and they just replace that last R for repeat with scale. It’s the same thing at the end of the day, but let’s elaborate on that real quick. Tony B buy, you gotta buy at a discount. You know, that hope the audience does too, if not very, very important, you know, we’re buying at a discount every single time. Uh, I think last year we bought 162 properties, Tony and I think three of them were on the MLS. And the only reason we bought those three is because the agent that had the listing knew the seller was motivated. It was sitting on the market and they reached out to us and said, make an offer, but we don’t go to the MLS to look for deals. It’s all off market. So that’s the big, you know,
You know, what’s interesting back in, I can’t remember what the year was. I think it was like 2016 or 17. We bought half of our properties off the MLS. Wow. And overnight it went from, what was that? 30 some properties we bought, cuz all we do is rehab at a 30. We went from 30 some properties on the MLS to like three the next year. I mean that’s how quickly yeahs dried up. And it’s pretty much been that way for the last five
Years. Yeah. We, we, we, we got creative a couple, yeah. About that same time. And we were buying, you know, some then, but for the most part, it’s all off market and we’re going direct to seller and we’re using creative marketing to, to get direct to seller. And that’s really what it comes down to. And then from there we get a discount. So what all, all investors do is trade convenience for a discount. That’s all we really do at the end of the day. You know, the more convenience that I can offer to a seller, the more that they’re, that, that they’re gonna be willing to leave a little money on the table and give me a discount. In fact, people love selling me houses and I’m sure they love selling you houses and they know they’re leaving money on the table, but we come and we offer so much convenience to them.
And really the convenience, in my opinion, you know, boils down to three things, you know, the 80 20 principle. Well I think three things make up the 80% cash quick as is simple. That’s lesson 1 0 1, right? So we’re offering cash, we’re closing relatively fast and that’s, you know, that’s a relative term three to four weeks, not three to four months. We can do it quicker. But you know, usually that’s about the timeframe. And then as is, we’re not requiring people to fix paint clean. We bought one the other day, it’s gonna need five or six dumpsters just to be hauled off. No problem. You know, we factored in about nine or 10,000. Um, and it is what it is, but they just wanted to walk away. So be buy it a discount. Very, very important. The rehab, the rehab is one of my favorite things about the bur method, Tony, because I’m not adding properties to my portfolio that need a bunch of work or will need a bunch of work in the immediate future.
And that’s what I really love about the bur method. I’m adding properties to the portfolio that have new roofs, new H V a CS, new flooring, you know, new water heaters, maybe new windows, typically a new kitchen. We typically spend 25 to 30 grand on average when we’re doing a bird deal and there, and, and, and there’s a couple reasons. Number one, we like to add properties to the portfolio that don’t need a bunch of work, but number two, in order for banks to lend on the refi on the appraisal, in the appraisal, only on a refi and they know that you’re burning it, they typically have a minimum and they refer to this. Every bank actually has a different name for it, but the main banker that I use, he refers to it as the entrepreneurial credit. And he basically says, Hey Dave, I don’t care what you paid for this property, but I’m not gonna refinance it and give you an 80% loan on it unless you fix it up because what that does for the bank.
If you put yourself in the banker’s shoes, it mitigates their risk. If we don’t pay the mortgage, which we’ve never not done, but in the event that we didn’t and the bank has to take that property back and foreclose on us, it’s gonna be relatively easy. If not easy for them to be able to unload a property, that’s got all new finishes, right? So adding the, by doing the rehab, you get to, uh, you, you earn that entrepreneur credit, you get to add properties to the portfolio that, you know, have updates. And you know, really what we try to do is we try to mitigate the, the capital expenditures for the next seven to 10 years. It doesn’t always work that way, but ideally speaking, I don’t want to have to go into the property and spend, you know, more than five or 10,000, you know, hopefully for seven to 10 years.
So it’s nice to knock all that big stuff out of the way. The rehab also does two additional things. It allows you to get a higher value of the property, which helps your appraisal. And it also helps you get higher rent. So it just makes sense for us to rehab properties before we rent them, because we’re able to use financing with a refinance based on the appraisal, we’re able to get a higher value and we’re able to charge the best rent in the area. I mean, we’re, we’re often setting rent records because our houses are way better than the competition.
Especially these days, like we’ve got properties. We bought a year, year and a half ago that rented for, let’s say $1,200 a year, year and a half ago. And now they’re renting for 14 to 1500. Right? That’s awesome. I’m not saying this is gonna continue to happen, but right now with property values, going up, rents are going up and it’s just a perfect time to burn. I’ll uh, keep this story short, cause I want you to continue. But if you, I, I just put a Facebook post out, I think a couple days ago, about three properties. I just refinanced and they ended up appraising, uh, collectively all three appraised for, I wanna say it was like a hundred and more than $150,000
Saw that post. So
But I thought they were going to when we first bought them. So that allowed us to get over a hundred thousand dollars cash back. Normally it would’ve been like even we might have gotten some money back out of that. Um, but we got over a hundred thousand dollars tax free tax
Free. That’s not income that’s debt
Tax free. Right on top of that, uh, we were able to take the renovations and I, you may be getting into this, but like the renovations we put into the property because of accelerated or bonus appreciation, we can write off most of those renovations in the first year. So I can’t remember where the math was. I think it was like run 150,000 in renovations. So if I I’m in California, so if I’m saving 50% on taxes, that’s about $75,000 in tax saving. Yeah. So if you do the math on it, really, if you buy the properties really right, and you get, you maximize the value on the rehab and you get really good appraisals, you can actually get as much, if not more money back doing the bur as you would selling the property and then paying taxes on that. And you have all of this equity built in, right?
Absolutely. And Tony, I think a lot of people, they have the goal every day when they wake up to, you know, either go to their job or, you know, go to their business and make more money. Wouldn’t you agree? I mean, typically people wanna make more money, right? Well, there’s a big difference between creating income and creating wealth. The IRS tax code is I think 96,000 pages and only three or four of those pages tell you when, how and where to pay the rest of those tax pages are loopholes in ways to defer and deter. So real estate is such a great way to avoid eliminate, avoid, reduce all three in some cases taxes. So my goal every day, when I wake up isn’t necessarily to make more income because yeah, I get to put more in my personal checking account, but soda’s uncle Sam and I don’t like paying taxes.
You just brought that up. And whenever you do the Burr method and you acquire a property with little to no money, ideally zero out of pocket, right? The goal is typically no money and you have 20, 30, $40,000 worth of equity. That’s not taxed that wealth that you just created or that we create is tax free. When we sell that property, we create an income incident. Then we’ll have to pay taxes unless you 10 31, unless you 10 31 actually, unless you 10 31, my friend. Yes. I love it. I love it. But that, that equity that we captured that’s wealth and it’s non-taxed and we can borrow against that equity. Like you just told me in your store here, amazing real estate is awesome. I love it. And the ber method is, is by far my favorite strategy when it comes to investing in real estate. So B by a discount first R rehab, I gave you four or five examples of why rehab is important and you know, super beneficial.
The next step is to rent and you can do this yourself. You can hire a property manager. I have three different property managers for my ties. I don’t like dealing with the people I like dealing with the property. So I let somebody else do that. Um, and then the, the next R is refinance. And we talked a little bit about the refinance. Um, I love working with local banks and credit unions because I can walk in, I can meet the vice president of the bank. Well, give me their cell phone number in most cases. And I’m not bouncing from a call center in Seattle to a call center in Phoenix to a call center in the Philippines to try to get my paperwork to the processing department. I just hand deliver it to the guy down the street at the bank, love the local banks.
Also the local banks are gonna typically lend on what’s called portfolio loans or portfolio lending, which means they’re gonna keep those loans in house. They’re not gonna take ’em to wall street and sell ’em off on the secondary market. So there’s a couple advantages of using the local banks. Um, we have started working with a couple national hard money lenders that will originate a 30 year fixed note, and then sell that off pros and cons. Closing costs are double. You have a prepayment penalty typically for three to five years, but in today’s economy and market with these interest rates going up, we’ve started doing that to quite a few. I think we’ve maybe done 10 or 12 this year on 30 year fixed. And we have a long term mindset on these. So the prepayment penalties doesn’t bother me at all, you know, uh, but that’s basically, you know, Burr 1 0 1 right there.
You gotta buy it a discount. That’s the most important thing. So the goal to do this with little to no money is to capture equity and use that as your skin in the game. So how do I buy properties with little to no money? I skipped over this. I borrow from hard and private money lenders to buy, to actually take the property down, purchase it, put it in my name. I never use my own money and I never use banks. I don’t like to use banks because again, they’re gonna want that 20%. I never use my own money because if the bank sees money coming back to me at refi, they’re gonna typically look at that as a cash out, even though I’m not really cashing out, I like to get rate and term refis. So what I like to do is borrow 100% of the money I like to borrow the rehab and the purchase.
And often I’ll borrow an additional five, 10 or 20,000 on top reason is, is again banks. Don’t like to typically do the cash out. They’ll do ’em, but they’re gonna give you a little higher rate and they’re gonna give you a 70 or 75% loan versus an 80% loan. So we can still cash out. We just do it on the front. So let’s say I borrow an additional 20, but I gotta bring, let’s say $8,000 to close. Well, I’ve already borrowed that 20. I give eight of it back to close, and now I’ve cashed out 12,000, but I did it three months ago. So there’s still ways of doing cash out refis without doing it on the back pro tip. So that’s basically, you know, how we’re able to do it. Tony. I love the Burr method. I love rental properties. You know, I’ve wholesaled about 700 houses to date.
Wholesaling is a great way to get in the game, especially if you don’t have a ton of money. But wholesaling to me is a means to an end. It is really just marketing and I kind of group wholesaling and marketing together. I don’t know why I do that, but I do, um, you know, we market to find deals and then if it makes sense and it fits our buy box, we keep it. We’ll keep it for a rental and we’ll bur it or we’ll fix it. And we’ll flip it. If it doesn’t meet our buy box, we’ll wholesale it. So we just have a simple saying, keep the best wholesale rest, super simple. And, uh, you know, it just goes really well. So we market and we use all the strategies that you’re gonna learn as a marketer and as a wholesaler to get into good deals. And then from there again, if they meet the buy box, we’ll, we’ll take ’em down and
Keep ’em good stuff. Good stuff, David. Yeah, the first, um, I’ll kind of add onto the bird of how powerful it is when I was, I started, what year did you say you started 2000?
It was 2003.
Okay. So I started 2001. Uh, I was in college and 21 years old, it was like 20 or 21. Oh gosh, I think I was 20. And then I turned 21 before I bought my first property. But any which way I was 21. Um, when I bought my first property and I kept my first, it was at least 10 properties. It might have been 12. And I did the Burr on my first 10. So like, I feel like I invented the Burr. Maybe I did
But any which way I
Had how’d you buy it? What, like, what was your way of getting into it? Did you, did you refinance it? Is that how you heard
It? Or so the first property I ever bought, I actually Wells Fargo at the time was looking at the after repair value and giving you the full amount of the after repair value. Um, they would only fund the purchase up front, so they wouldn’t give you any cash. Back. At that point, they would fund the rehab, they would do the final inspection. And then if you had money left over, they would just give you the money. So the first property I’ve bought, is that
A 2 0 1, 3 B or something like that or no?
Um, no, no, it wasn’t. It was it’s similar, I think to what you’re talking about. Um, but I was able to pocket, it was somewhere between 10 and 20 grand. I think I estimated 20 and it ended up being less some somewhere between 10 and 20.
That’s awesome. That was your first
1, 21 years old
Pocketed. Yeah. You were hooked at that point,
Dude. Totally. Um, and then, um, so to be able to do that from 21 to 22 or 23, it took me a year to two years to, to get those 10 properties had a net worth of several hundred thousand dollars at 23 years old. I mean, where else can you do that? Right? And then I’d actually bought a property subject too. It was actually my aunt’s house and she just didn’t take care of it. And she wanted to sell it and I’m like, Hey, I’ll buy it. I’ll take over the mortgage. And I ended up refinancing it two years later after I did a little bit of work to it, rented it for a while and got $35,000 cash back tax free. And I just finally sold that like last year, I think, but that is powerful. It is so powerful. Like to be able to add something like that to your arsenal, because if you can flip, if you can wholesale, you can wholesale and you can bur properties like being able to do all of those just allows you to do so many more deals.
It does right now. I can’t remember if I mentioned it earlier. I’m buying pretty much everything I do in my main market of Wichita, Kansas. We’re running TV in other markets, we’re whole selling and flipping and doing other stuff. My main market where I started 20 years ago, we, unless it’s like a $400,000 plus house, which is expensive. , we’re keeping everything rents are
Going up. Yeah. We, we try to do the same
Price prices are going up and the tax, the, the taxes alone, uh, the tax savings alone, make it worth it.
Yeah. The depreciation is a huge bonus. You got the cash flow. Um, I mean, you get to make money while you sleep rentals are the, the, I mean, I love it. It’s, it’s, it’s the easiest way to, to create passive income for most people. And, um, it’s really not that hard. A lot of people will start with wholesaling. I actually started with rentals and, you know, I wanna make that. I wanna, you know, definitely highlight that, that, you know, if you don’t want to be a wholesaler, I know a lot of people that they don’t want to build a big marketing engine and hire virtual assistance or local assistance and have a team. And, you know, they don’t want a wholesaler. They’re just not interested in it, but they wanna own rentals and you don’t have to be a wholesaler to own rentals. You can start with rentals.
So I love that. And, uh, speaking of doing cash outs, we did a, a small commercial building. It’s like a little strip center. It only has four tenets in it. Uh, but we bird it and walked away with 53,000. Did that about four months ago. Yeah. And we bought it at a steel of a deal. We only put about maybe 15 or 20 grand into painting the exterior of the building and patching the roof. And then we raised the rinse, took it to the bank. They saw that we had done some work and they said, we’ll give you 75% of what it appraises for. Cause it wasn’t the nicest neighborhood. We said 75% works for us and we walked with 53 grand. So you can, and you know, the last point I wanna make here is you can get paid to buy rental properties. Tony just gave you guys couple examples.
I did one, you know, for 53, I did one last week where I walked with about five grand. I think it was 48 or 4,900, not a home run, but I acquired an asset that was fully rehabbed and it’s getting market rate rent or above no immediate capital expenditures, hopefully. And ideally for the next seven to 10 years. And I walked outta closing with five grand paid back, the lender interest, all the above closing, everything was rolled in. So that’s one of, I mean that is, that is the magic with the bur method. You can actually get paid to buy rental properties. I love it, man.
Absolutely good stuff, man. Well, Hey, I know you teach people the Burr method. Um, you, you do a lot of stuff with Burr, tell people where they can get ahold of you so that if they wanna learn more about Burr, they can, uh, get in contact with you.
Yeah, absolutely. So that’s my passion at this point. Um, I spend the greater of two days a week just helping my students out. And if you guys wanna learn more about me about Burr and or, you know, my coaching group, check out wholesaling, inc.com/rentals. Again, that’s wholesaling inc.com/rentals. And, uh, I encourage you to book a call and, you know, have a conversation with, you know, one of my team members or even me. And you know, let’s, let’s talk about how we can get you some passive income. I mean, most people’s goal at the end of the day is they wanna be able to quit their job. And they think that their goal is financial freedom, but really most people’s goal is time. Freedom. It’s very difficult to create time freedom. If you don’t have financial freedom and that’s what rental properties will do, they’ll give you financial freedom to where you can then, you know, have the time freedom. And I’m literally getting ready to go jump on my boat and go fishing. You know, I don’t have to report to the office. So Reynolds are the key. They will help you exit that. J Oob that you probably hate Tony. Thanks for having me on your show today, man.
Absolutely good stuff. Again, go to wholesalinginc.com/rentals, check out Dave’s program. Uh, please guys, subscribe, leave some comments. I’d love to hear what you guys thought about. Today’s episode. If you have questions, put ’em down in the box and we’ll try and answer those for you. And if I can’t answer it, then Dave, I’ll get with Dave to see if he’s got answers for you. But, uh, yeah, we appreciate it, David, and uh, keep doing what you’re doing, man, the left connecting and we’re part of a mastermind together. So I’ll probably see you here in the next couple months and uh, we’ll keep cranking away, man.
Hey, thanks Tony. I really appreciate your time and I’m really grateful to get this opportunity to, uh, provide some value to your audience.
Sounds good, man. We’ll talk to you soon, buddy.