Episode 211: The BRRRR Method

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Show Notes

Let us join David Dodge and Michael Slane in Discount Property Investor in this episode, as they talk about the BRRRR method. What is the importance of BRRRR in the Real Estate Wholesaling industry. How the BRRRR helped them in their journey on being a millionaire, and how it would also help you. The Pros of using BRRRR and how to make wealth with security using Legal Shield.

To learn more about Wholesaling visit: https://www.FreeWholesaleCourse.com

Check out our Tool Kit to see David & Mike’s Secret Weapons:

Things that will cover in this episode:

  • Make wealth using the BRRRR method
  • The BRRRR Method
    • Buy
    • Rehab
    • Refinance
    • Rent
    • Repeat
  • BRRRR Pros
    • Business Credit
    • Liability
    • Organization
  • Secure your wealth using Legal Shield
  • Legal Shield Pros
    • Help make LLC
    • Helps you open a bank account
    • Helps you with everything in Legalization



Welcome back to the Discount Property Investor podcast. Our mission is to share what we have learned from our experience and the experience of others to help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate, the discount property investor way. To jumpstart your real estate investing career, visit freewholesalecourse.com, the most complete free course on wholesaling real estate ever. Thanks for tuning in.

David: Good morning BRRRR group!

Mike: Good morning. How we doing Dave?

David: I’m good buddy.

Mike: Awesome.

David: Good morning, good morning, good morning.

Mike: Awesome. So today, we’re going to be talking about the BRRRR method, right Dave? That’s one of the kind of side tangents that we talked about. We love wholesaling real estate. Wholesaling real estate is just finding great deals so that you have an easy exit to flip it for cash right away, right? One of the other really cool things that we started doing and we didn’t do this initially, is buying and holding rentals together and we did this through the BRRRR method. Honestly, I don’t even know if we called it the BRRRR method, we didn’t really know what we were doing at the time. We just said hey, we’re making some money with wholesale, we’re working really well together, let’s buy some rentals together too. Like we’re doing it on our own, why not do it together, we said okay, but we don’t really want to leave any money in these properties right? So we’re like, okay well, how do we do that? So we kind of figured it out on our own, we said okay, if we buy this property, we use some private money then we kinda fix it up, then we can go to banks and get them to refinance it based on the appraised value, not the money that we bought it for or put it in cuz we’re finding great deals on these properties.

David: Yeah, such a big difference between the amount of money you have invested versus the appraised value. I mean that simple simple thing changes everything.

Mike: Yeah, well its night and day difference.

David: Changes everything.

Mike: Well, it can be night and day difference and hopefully it is, if you’re finding great deals on properties and that’s again kind of what we consider ourselves experts in, is finding really good deals. So, we started doing that and then we started to get into this BRRRR strategy, figured it out, I think we’re applying it pretty well. Got up to about a hundred or so doors pretty quickly and so lets talk about what BRRRR is real quick.

David: Yeah.

Mike: Just go through the acronym, very simple. BRRRR if you’re not familiar, if you haven’t read our book ‘The BRRRR Method’, is an acronym for buy, rehab, refinance, rent, repeat,

David: BRRRR.

Mike: That’s the BRRRR method and again, those are all the steps to it. There’s not much other hidden or secret about it. It’s just kind of how you apply each of those steps and what you do in it. Yeah, I mean, that’s the BRRRR method, that’s what’s amazing. We- okay.

David: PBRRRR is really the method though.

Mike: It is.

David: Lets talk about that for a second.

Mike: Okay.

David: Go ahead, this is your thing.

Mike: So PBRRRR, why do we call it PBRRRR?

David: I love it though cuz it makes more sense.

Mike: It does. So, you have to begin with the end in mind with BRRRR, which is that refinance and repeat. If you can’t refinance-

David: You can’t repeat.

Mike: You’re going to get stuck.

David: You can’t even really do anything, like the whole- like the- really, I look at it like it should be like all little r’s except for the refinance part cuz like that one is like, you know what I’m saying? but either way PBRRRR [inaudible].

Mike: Yeah, I like that. I like that.

David: The refinance is the thing like you have to buy at a discount, right? You gotta fix it up and you got to refinance it. If you can’t get approved for a loan, you are going to be in trouble because you’re going to have borrowed that money most of the time to buy it and fix it at a high rate on short-term.

Mike: So PBRRRR, the P meaning pre-qualify.

David: Pre-qualify.

Mike: Not just get pre-

David: Get approved essentially for the refi before you need it.

Mike: Right. Find the banks that are out there, the local banks most likely they’re willing to refinance rental properties. So pre-qualify, find the banks- find the banks will lend to you, find out if you can get qualified. If they say no, find out why and fix that aspect so you can get pre-qualified, so you can get approved for a loan. Again, it’s not- again, and just because a bank tells you no, does not mean no forever. It means no-

David: It means not now.

Mike: If you just had a bankruptcy, maybe it means no for 7 years, which is a long time but guys, 7 years in your life is not that long of a time.

David: Right.

Mike: I mean, I literally I just got one of those reminders on Facebook the other day, it said it was 7 years ago that I quit my job, so that means seven years full time in real estate. I had no idea it was that long. Like it’s been 7 years, that’s crazy.

David: It’s gonna be 10 before you know it man.

Mike: That’s crazy, I should be retired.

Both laugh.

Mike: So I got three- I got three years left and then I’m out man.

David: Then you’re done.

Mike: Three years out, you can mark the date you know.

David: Okay, okay.

Mike: Pretty close to it, that’s my goal.

David: Confident that in three years, we’ll be uh- we’re doing great already.

Mike: We do, we like what we’re doing and again, I think we try to have fun and to me that’s the most important part is if we enjoy what we’re doing and I enjoy applying the BRRRR method, I know Dave does too. Dave loves finding those awesome deals, I love fixing them up and getting tenants in there and just seeing those checks build up, so that’s what we like to do. Today, we’re going to talk a little bit about how we set up our business and why we treat BRRRR as a business and landlording as a business not just kind of a hobby. Well one, it’s our full-time thing, right Dave?

David: Yeah, yeah.

Mike: But two, think about this-

David: I’m probably at 6 years, I’m right behind you Mike.

Mike: Full-time?

David: Full-time, yeah absolutely.

Mike: So yeah, you gotta get out in 3-4 years man. We can’t be doing this for decades.

David: That’s right hahaha.

Mike: Alright, so landlording is a business, why? When you have someone in a property, that is their home, someone lives there now. Like think about this, think of you just treated as ah whatever, their heat’s out, I’ll get to it when I get to it. Like nobody wants to live in a situation like that, nobody wants that and I don’t think most landlords have that mindset but again you also- you have to be the bigger person and you have to expect or plan on having problems. So, it’s another one of those begin with the end in mind and this is where it gets a little over my head and Dave I think- I mean again, not over my head, but I just I need to consult with experts. So, my thing is you have to plan for legal issues ahead of time, so we set up our business in kind of the following way. I know each of us have our own entities for our privately-held rental properties but then in our company, we also hold our properties in LLC’s. Why do we do this?

David: Liability.

Mike: Liability and taxes, and both of those things we have people help us with because we’re not experts at it. So, yeah legal issues will rise and it’s not necessarily that a tenant’s gonna sue you per se, but they might.

David: It’s possible.

Mike: It’s very possible.

David: Or it could be anybody that just gets hurt on the property, they don’t have to be a tenant.

Mike: Exactly, yeah yeah yeah.

David: That’s a big concern. You know, it’s kind of rare that that happens, but it can and it does happen, so that’s why it’s important to have the liability insurance or the liability with the LLC. Also, you want to have your properties in a business so you can file business tax returns therefore getting business credit, right? So this is important. Even if- so even whenever I’m doing my personal taxes and I own a couple LLC’s that are just me that hold rental properties, I filed those up under myself, but that’s just my personal ones, whenever you have a business that does it as a business, right? You should be filing separate taxes on that LLC that then owns those properties. Again, it’s going to allow you to build business credit. Now, there’s other reasons that you would want to do this as well, but building business credit is very very important when it comes to getting commercial loans, wouldn’t you- wouldn’t you agree with that?

Mike: Yeah, absolutely. Well, and this again, the BRRRR, there’s so many levels to it. So, you talked about getting commercial loans, absolutely. We get commercial loans, but when we started, you had to personally guarantee it because again, your business doesn’t have a credit history, doesn’t have a performance history, it doesn’t have assets so you had to personally guarantee it meaning you’re putting your signature on the line so then the bank can still come back to you. So, to get the commercial loans in just the businesses name without personal guarantees, eventually you’re going to have to get more and more assets in it. So, yes Dave, that is a great point and another reason to do it that way. What else do I have? I said legal issues can arise from tenants if you don’t again, do things properly. If the tenant does sue you like we were getting about, you don’t want to have them come after your personal assets so that’s another reason to set up the LLC.

David: I would say, my number one reason isn’t business credit and it’s not liability, even though those are very very important. My number one reason is organization guys. You can’t get a bank account for a business without an EIN number, therefore you have to have an LLC to give the EIN number and when you have a separate bank account, you’re organized for that entity and that’s really really important when it comes to calculating return on investment, when it comes to knowing how much to depreciate the property, what your expenses are, your income, I mean the bank account is the business.

Mike: You know that’s a really good way to look at it, and that’s actually so I was working with our account with Jen and that’s what something she was talking about. She was like, you know, some of these guys, they just run everything through their personal bank account and that is a mess.

David: That’s a mess.

Mike: Like there’s no way, like at the end of the year, so then we’re still working on our taxes from 19 I guess.

David: Yeah, almost done but yeah still working on them.

Mike: And she said yeah, like some of these people like they go back and they cannot provide me with the details of what happened.

David: They don’t know.

Mike: They don’t know because money came in and out from different things.

David: Different properties and different things that shouldn’t be in that account.

Mike: That’s a good point, so separating.

David: Organization I think is a big thing, you know, it really is but again, there’s really no negative, maybe a little cost, you know, when talking about pros and cons, lots of pro’s. The only con is that it’s going to cost a little bit of time or money setting up and to manage, but at the end of the day it’s a necessity in my opinion. You can’t act as a business or operate like a business without being a business so go get your paperwork in line.

Mike: Another thing, it’s just kind of fun to- so my wife, so I set up our little entity a long time ago and made her partner on it or whatever and she’s like, she texted me the other day, she’s like and I think she’s just talking to her co-workers, she’s like what am I at Slane properties? and like, what’s my title? I’m like you don’t have a title, you’re not, we don’t give out titles at Slane properties. You know, just kind of joking and she’s like well, I’m gonna say that I’m the CEO or the CEOO, I’m like okay, sounds good. So, it is, it’s just kind of fun too. I mean again, there’s great legal reasons to do it, there’s tax reasons to do it. It’s just kind of neat though, it’s also- and when you’re starting out, it’s just kind of neat to say yeah, I’m an entrepreneur, I started a business, I own a business like it’s just kind of cool.

David: Absolutely.

Mike: So again, in addition to all the legal and practical reasons for it, it is kind of fun to be of that mindset. One thing that we both I think have used now is Legal Shield, we’ll put a link below. They’ve got this pretty cool-

David: It’s 145 bucks man, plus the filing fee of the state but they help-

Mike: Wait, how much is it?

David: It’s 145, it’s nothing.

Mike: Dude, that is cheap. Yeah, so they’re gonna help you do a business the right way. They’ll help you form your LLC the right way. I mean Dave, correct me if I’m wrong-

David: Filing, optional kit and seal for your business if you wanted it, but you can consult with an attorney as well and they basically help you set up the LLC, the operating agreement, help you get the EIN number. Basically get you everything that you would need to open up a bank account and/or buy and sell property in the entities. You’re going to need to give the operating agreement and articles of organization and the EIN number to the title company or the closing attorney when you’re buying and selling real estate. They need to know what entity is owning it so that can be displayed on the tax records and you file on the deed in the county. So, you got to have this paperwork to be able to buy and sell in the entity but also to open the bank. You need it, it’s a requirement, right? and then you need to know who to tax on the profits of the deals, and so again, it’s either your name, which holds a lot of liability, is messy again with the banking, you don’t want to do that. One property maybe but 3-4, no way. You got to have those into an entity.

Mike: There’s also some- and that’s the other thing, I forgot, you mentioned about putting the title of the property in it. That’s another thing, it kind of is a veil.

David: It’s a veil, yeah.

Mike: So when somebody looks up on the tax records, if they pulled up Michael Slane or David Dodge, they’re not going to see 20, 30, 50, 100 properties and be like oh, I want to try to get some of that money.

David: Get hurt on his front yard.

Mike: Right, exactly man, or they got hurt on the property, they look it up and then they see 50 properties, like they’d just think oh, cool jackpot, I just hit the lottery.

David: Right.

Mike: So again, it gives you a little bit more anonymity, try to pronounce that. So yeah, I mean that’s just something that’s pretty pretty important. So yeah, the launch from Legal Shield, or I guess they call it the business launch, I was talking to somebody about it the other day as well. It’s basically a lost leader for them, so what that means is they’re not making money on this, it’s like a- it’s a pretty good deal for a 150 bucks to be able to set up a business, set up an LLC, so check that out if you’re interested. If not, again you can do it yourself like I know Dave and I have done it ourselves. What ends up happening though is you always end up having little issues or errors and you don’t quite know like-

David: Can’t be the member of the manager, come on man.

Mike: I was just gonna- I was just going to bring that up. Are you a member? Are you a manager? Are you managing member? So you end up having to make all these amendments and resolutions.

David: 12 amendments on the back of it, right.

Mike: Exactly.

David: Just do it right from the beginning, it’s worth-it’s worth it. I’m also a Legal Shield member for the Legal Shield service and the ID Shield Mike, it’s like 50 bucks a month.

Mike: That’s pretty inexpensive.

David: Or maybe less, maybe 35, 40 bucks a month. Access to all the Legal Shield Services, which is amazing and being able to monitor your credit, that’s huge too so I actually really like all of the services that they provide but specifically today we were kind of wanting to talk about the business launch, which is the entity creation, the docs, the preparation, the filing with the state, all of the above, very cool.

Mike: Yeah, and I think just to emphasize the importance of it as a BRRRR investor because you are trying to create, I mean at least me-

David: It’s required if you are going to be doing BRRRR, 100%.

Mike: Exactly. So, what I think Dave and I though is what the BRRRR method is, is it’s a way to create wealth. So, for somebody who’s trying to create wealth, it’s super important to protect that, like you’re not trying to do this to work a day job and live paycheck-to-paycheck, you’re trying to build something here so if you’re building something, you don’t want to have it on a rocky foundation, like you’re never going to put a house, build a house on sand, quicksand. You’re gonna dig down to bedrock, you need a strong foundation to do this and it’s the same thing with your BRRRR business. You have to set it up right so that you’re protected, your family’s protected, that’s the whole point is that you can you know, create a better life for you and your family, so yeah, very very very important.

David: I love it man, that’s cool.

Mike: That’s pretty much it.

David: Guys, check out the link below. Literally, this is a steal of a deal, they’re going to help you set up your entity, doesn’t matter what state you’re in. They’re going to help you get it filed. If you want to be a BRRRR investor or a landlord that’s using bank leverage and refinancing out to where you can basically take the same small amount of money from a private lender or hard money lender and continuously buy property and add to your portfolio over and over. I mean, you could do this with a hundred grand or you know, maybe even less than that and go buy a house, rehab it, get it rented, refinance it and get all of your money back like literally all of it. Pay the lender back and do it over and over and over, that’s the repeat process.

Mike: You know Dave, I don’t think we emphasized enough how cool that is either.

David: It’s very cool.

Mike: So that- and how we do it.

David: We have 4, 5, 6, 8 going at once but you can do this with one at a time.

Mike: That’s it, if you just do one at a time and let’s say that the average one takes about 6 months, now lenders or a little bit slower with everything going on in the economy. So let’s just say it takes you six months to buy a property, rehab it, refinance it.

David: Rent it and refinance it.

Mike: Rent it and refinance, it takes 6 months. That means you can do two a year. So just think if you did that for 5 years, you would own 10 rental properties that you personally brought $0 to the table for.

David: So awesome, every ones spinning off cash flow.

Mike: Like it’s unbelievable, 3, 4 hundred dollars a month.

David: Every one of them is being depreciated which helps offset income from other areas. That has so many advantages here. Someone else is paying down your debt while the property would assume to appreciate, maybe not a ton. Appreciation’s the icing on the cake, you know that, but over five years like you would assume you’re going to have some 5, 10, 15 grand, like some. There’s just so many advantages here, it’s such a great way to build wealth with leverage it’s safe and secure as well, very low risk if you know what you’re doing. If you don’t, go buy our BRRRR book ‘The BRRRR Method’ on Amazon, you can also listen to the audio version on Audible. But guys, this is our passion, we love using the BRRRR method, we love the ability to refinance these properties and take the private money and just repeat, repeat, repeat and just keep doing it over and over. We highly encourage you guys learn this business because this is almost guaranteed to create wealth, not just a couple hundred grand, I’m talking millions of dollars over 10 15, maybe 20 years very very easily, 5, 10 million not crazy to think that that can be acquired guys. It’s very very possible and actually quite easy. Check out the link below and/or in the show notes. Signing off.

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