David: Alright guys, welcome back to the Discount Property Investor Podcast. I'm your host David Dodge joined by my co-host Mike Slane.

Mike: Hey, how are ya guys? I am excited to be doing another episode today. It's a beautiful day here in St Louis, it feels good out.

David: That's right.

Mike: Feels good outside, Dave. I likae going out on this appointments.

David: It's pretty out there today.

Mike: Bought a house yesterday.

David: Nice, I made some offers already this morning.

Mike: I know.

David: Rocking and rolling.

Mike: Getting on the phones, right? You were out there training somebody today?

David: Yep raining a guy to do some cold calling today. We made about 140 calls in about a 30-40 minute period.

Mike: Fingers are sore from all those dials, right?

David: We did good though, we got one qualified lead out of it though. It was worth it.

Mike: Couple of hours, get a lead. That's awesome.

David: Absolutely.

Mike: We are going to be talking about buying that house next.

David: That's right.

Mike: Alright guys, if you haven't joined us before, we are always talking about our free whoelsale course. We really like wholesaling rental properties, or wholesaling real estate, just because it's a great way for somebody to get started. Dave and I were kind of talking about. We said, you know what? I really focus more on our rental portfolio, and Dave focuses on our wholesale portfolio. Why don't we just sort of start talking about both? How somebody could get started in real estate doing the BRRRR method. So we said, alright, let's do that. So today we are going to talk about one of our properties we are doing the BRRRR strategy on. You have heard all of our episodes, our previous episodes. We publish quite a few on the BRRRR method which stands for Buy, Rehab, Rent, Refinance, and Repeat. You have seen a lot of those. Or hopefully you are familiar with that, or you can go back and listen to those and learn our take on the BRRRR strategy. The other option for BRRRR, again if this is going to be your first place to start instead of doing wholesaling, you can use private money to get started. So Dave, somebody without funds really could start with BRRRR, right?

David: Yeah absolutely they could, absolutely.

Mike: That is something that is kind of interesting and we kind of overlook it. Again, I think we would both agree that it makes sense to start in wholesaling because you learn your numbers a little bit better that way, a little bit faster, which again, it is experience through, or learning and getting experience through the experience of others, which is a good thing you can do through wholesaling. But like I said, you could start in the BRRRR method. Again, I am going to focus on a little bit more of that, I think we are both going to touch a little bit on those topics on how somebody could do that successfully.

So today we wanted to talk about one of our projects that is a little twist on the normal BRRRR method, because it is kind of interesting. So Dave, do you remember how we found the [00:03:31.10 - inaudible] lead? Do you remember this one?

David: Yeah I do, Nick.

Mike: There you go.

David: It was a referral lead from our own office.

Mike: Exactly, and the reason I waned Dave to bring that up before I mentioned it--.

David: I was going to look it up, then I was like, wait I know this, I know the answer to this.

Mike: I'm not trying to put you on the hot seat, I was talking about it.

David: I know the answer to this.

Mike: This cost us zero dollars. Now we pay our rent every month, we are in the office with a couple of other companies and we network. So this is basically a networking lead, came in from somebody who knew we were looking for properties in this area. So Nick here in the office, he referred to us, said, are you guys interested in this house? We said, yeah we will take a look at it. We started working with Nick who is an agent. This was a listing of his, basically a pocket listing. We went initially and said, yes we will do this, put it under contract. The property is interesting, it's unique. It's a four family property. So there are four units in one building, then there is a single family house on the same lot. It's on the same piece of land.

David: Same lot, two buildings, a single family and a four family.

Mike: Exactly, so it's very unique. You just don't come across that very often here in St Louis. So we said, yeah we are very interested, it's all rented out. We put it under contract at a number we thought made sense. We went through the property, because once we got it under contract he was then willing to let us interrupt the tenant's life. We went through the property and Dave, what did we say after we went through the property? Do you remember this part?

David: We said, you know-- we don't like it. I remember the feeling I had, it was like-- it's not that great.

Mike: We basically said, after--.

David: Let's talk about what we saw real quick. We walked through the four family first. All one bedroom units, right?

Mike: Two of them are two bedrooms on the bottom level.

David: That's right.

Mike: The uppers are one or studios.

David: Are you sure it's not a five unit?

Mike: I'm positive.

David: You would know obviously. There is two, two bedrooms, and two one bedrooms. The building is just really dated. It didn't look like it needed anything major right away, but it definitely look like it will need a lot at some point in the very near future. It's just dated. The units on the inside-- were not very clean. Everything was functional, but it just appeared like it was going to be a money pit, that was just my first impression, was money pit. That was the four family. There was a house on the lot as well. When we viewed the house it was occupied, it is currently vacant, but when we got it under contract it was occupied. Same scenario. The house is in better shape than the four family--.

Mike: The house was in a little better shape, I liked the house when we walked though.

David: A little better shape.

Mike: I didn't care for the four family.

David: The layout of the house was kind of strange though. You kind of had to walk through certain rooms to get to other rooms that we being used as bedrooms. All in all the whole thing was kinda of strange in our initial feeling of it was--.

Mike: Did not want it. So we are under contract and we said, don't really want it. My biggest concerns, again, like Dave said, money pit. You've got four kitchens in this four family, they were all tiny tiny kitchens, very very small but super old. Everything was outdated, all the appliances were old, all the cabinets are old looking, kind of beat up. Some of the more expensive items were taken care of; newer water heaters, newer HVAC's, newer electric panels, within the last ten years or so. Some things which were good, but then there was also the foundation was kind of weird. Again, it looked solid, it looked like it had been repaired, but it just looked off. There were a lot of these things which-- we just don't like it. So we went back to Nick and said, sorry Nick, we are basically out of this transaction unless we can get the price down to-- and we dropped it a lot. We dropped it like $10'000 a unit. We said, sorry we don't want it.

David: What was the original asking price?

Mike: Dave, I can't even remember.

David: What did we buy it for, do you know that?

Mike: I can't even remember, man.

David: I will look it up.

Mike: I think we're at-- and this one got a little bit more confusing, we won't go into all the details on that on the podcast. Long story short, we bought the property. We-- asked and the seller said no I can't do that, I need this amount of money. We said, okay fine, we will just part ways, sign mutual release and move onto the next one. So a month or so goes by and the seller talks to Nick and they are trying to sell it to somebody else.

David: Our AV price was 155. But they were asking like 210 I thought, or 190. The ask price, right?

Mike: Let's go with that.

David: Go ahead.

Mike: 190 or so, we said we need 155, he said go away.

David: We basically said 155 take it or leave it. If you can find somebody else to pay you more by all means go with that person.

Mike: Again, and no hard feelings, and again, we were under contract for maybe three to five days. We were not locking this property up and messing around. We were ready to buy it, subject to our walk through the property and we said, this is not what we signed up for. So we asked for a reduce price. Seller said, no. Some time goes by and the seller comes back because it turns out now he is motivated. I guess he had a 10-31 or some sort of exchange he had to do. Our number looked good to him, he said, if you guys can do that and do it by the end of the year let's do it. We said, sign us up. We were happy at a $40'000 price reduction. That allowed--.

David: He had to bring 30 grand to the table I thought, right?

Mike: I don't know.

David: Doesn't matter.

Mike: Long story short, we were very happy at that price to buy it. What is unique about this one is-- we have got fully occupied unit, or we thought we had a fully occupied unit. So how do you do the BRRRR strategy on a fully occupied portfolio? It's not easy, and it's not the most common thing. So this one, the single family, they ended up moving out. That was really the one we were more interested in fixing up and selling. Here's the problem; it's on the same lot. So what do you do? Well this one took a while. Dave, we had to go to the city and by the city I mean-- in St Louis we have a bunch of municipalities. So it's like the sub division, and this was in [00:10:24.15 - inaudible]. We had to go to them and ask them, hey how do we divide this lot? What are your rules for doing this. So we worked with the planning and zoning committee over there. They said, okay if you do this this and this you will be able to then have someone else come and tell us how they can divide the lot. So we did all that. We had to tear down part of the garage. So in between these two properties, we didn't even mention this, Dave, there was a three car garage. One, two, three wide garage. It was a two and a one that kind of stacked onto it. If you tear down the one car garage on the left, boom, you can get that taken care of.

David: When we went to the zoning commission and said, hey want to split the lots. We have one lot with two properties on it. We need to split the lots. They have this thing called set backs in their code. The set backs essentially say you have to X amount of feet on the front, back and sides-- of the structure of the property line. In this scenario, there was a two car garage that was basically attached to the four family. Somebody built an additional one car garage on the side of that. However, the set backs were not within code. What Mike was saying, we had to tear down the one car garage in order for the set backs to be within the code, therefore we could get the lot split. We did tear the garage down, we hired a survey company to come out and survey it to scope, which we gave them, and we are now in the process of taking that to the city and getting it split, which really just means they are giving us a new tax ID number. They are basically going to split the taxes between two buildings on one lot--.

Mike: So we had to tear down a garage so we could split the lots on paper. Kind of crazy but had to happen so we did it. What's really neat though, the tenants moved out of the single family, and that one had a lot of rent, so it was kind of like, oh shoot, we have these smaller units that are paying a little bit of money, but the house had a lot of rent. But that gives us the opportunity to rehab that unit, and sell that unit. What's really exciting about this one is the numbers. This is where it gets fun and we want to get into the numbers. We are going to be able to fix up that single family, and most likely Dave, what is going to happen? We are going to be able to probably pay off our loan.

David: Get real close.

Mike: Get really close to paying off the loan.

David: Get real close. We paid 155 for all of it. So one parcel with two buildings, a four family and a single family. We are rehabbing the single family. So we are going to keep our budget around 30 maybe. We are going to hopefully sell that for between 160-180. So once we sell that off, we will be able to pay back our lender, which we borrowed from a private lender to purchase in the first place. Even if we don't get lal that money back we will essentially acquire a four family for close to zero, maybe ten or twenty grand or whatever we don't get the sale of the other one. Essentially it is going to be a really good deal. We went there and we were like, not looking so good. But then, when we found out that we could split it and sell them off individually, it got really interesting.

Mike: Exactly it's much more interesting. Again, hopefully you kind of perked up a little. We were able to acquire this four family probably for next to nothing in actual dollars. Again, this is a six month process that it is going to take us to buy, split, rehab.

David: We will be paying interest to our lender. But in the end, and that's really what the BRRRR strategy is. People say zero invested in the real estate. That's not necessarily true, you have to fund it or get somebody to lend you the money to fund it. But, when you refi, and that's the end game, right? You can essentially get into deals for none of your own money. We have done that 45-50 times in the last year.

Mike: Exactly.

David: We have a portfolio of about 65 ish properties right now. 50 of those we did the right way, we put a whole lot in. In the beginning we have to leave some money in.

Mike: We do, occasionally we will get money back. Just depends on how good you buy it.

David: That's right.

Mike: And how low your numbers are. But what's fun about this one guys, we might be able to pay off the loan in its entirety. So we would be able to have this property or hold in free and clear. Now chances are we are not going to do that. One of the things--.

David: Depends what we sell it for, the single family.

Mike: And chances are we are not going to do that because we prefer-- or at least I believe we do, equity stripping. We would rather have leans on our properties, and have that money in our hand today.

David: The other option is we sell both buildings.

Mike: We've talked about that too.

David: We don't even know what we're going to do yet. Because really we are waiting on selling the single family to see where the price comes in at. If we have to leave 30-40 grand in, that is an option, or we just  sell that building. If we can get that property for zero, then we will do what Mike says-- it really just depends. We have a couple of options at this point which is awesome, very cool.

Mike: Long story short, probably would have been a decent deal at that original 190, which was probably a little bit off of retail to begin with. Probably would have been a decent deal, and that is strictly analyzing it from a five unit, or from five individual units rental properties. But it turns into an awesome real when we were able to split the lots. That is what got really interesting for us. Especially when the seller came back at a reduced price. It is a very interesting little BRRRR we were able to do.

David: It's pretty cool. Typically on the BRRRR--.

Mike: We're not quite finished with it yet. It's pretty fun.

David: Typically under BRRRR you are buying, you are rehabbing, you are renting, you are refinancing, you are repeating. That's what the BRRRR is. If you are not familiar with BRRRR, all it is, is a simple strategy to acquire a lot of assets very rapidly. That is the simplest definition that I have come up with to date. In this scenario we are buying properties that are rented. So we are not necessarily rehabbing all of the property. We did tear down a garage, and we are going to rehabbing the single family home, but we won't actually be rehabbing any of the individual units in the four family because we don't need to. We are essentially using the BRRRR on rented properties. Not all of them are rented, but the package that we bought, even though it was one parcel, it had some rented. I believe they vacated the single family before we closed. If not right after.

Mike: It was right around there.

David: Typically on your BRRRR's you need to buy them vacant. So you can immediately start to rehab them. But, when you deal with some creative deals like this one, you don't necessarily have to rehab every unit, that's the cool thing. It got a little bit more juicy when we found out we could split the lot. Tell them how we learned we could split the lot. This is the coolest part.

Mike: This is the kicker too. The seller of the property was aware of it. The seller knew, had thought about it, really wanted to split the lot. He actually did about 80% of the leg work for us, and provided us all that information. So the seller had already gone to the city, found out what they needed and said, here is what you need to do if you guys every wanted to split the lot. I guess he never did it because of the obstacle. The problem was tearing down that garage. It is not an easy thing to do, and it cost us-- what was it? About four of five thousand dollars. Again, having a structural engineer, people come out and look at it, all this stuff. But again, we were able to do it and again, most leg work was done. We just had to go up to the city, get the permits and get everything, and actually take action on it. So that's kind of a fun BRRRR story. We might be able to acquire a rental-- or a four family for next to nothing because of this. Not zero out of pocket like a typical BRRRR, actually zero dollars into it which makes it very interesting.

David: Very interesting, this is going to be a really cool deal. We will have to do another episode when we finish to give everyone an update on how we ended up exiting the deal, which scenario we ended up choosing. At this point-- go ahead.

Mike: No go for it.

David: At this point, we have a private lender we use to purchase the entire parcel which again, just one parcel, two properties. We are rehabbing the single family and we tore down the garage. So we could then split the lots. That part is basically done, rehab is almost complete. So where we are at right now is waiting on the city or the county.

Mike: We are, we have got the city's meeting coming up here in a couple of days. Dave and I are going to attend, and we will see how that goes. We have to meet with the planning and zoning board, shouldn't be any obstacles with that because we have been working with them the whole time. Yeah, again we have to go to do that and get the mayor to sign off on it.

David: Yeah absolutely. Once we split that, get the mayor to sign off on it, we will have two tax ID numbers instead of one, which allows us to sell off the single family and keep the four family. At that point like we talked about, we will either sell that property off, or we will refinance it, assuming that-- well it doesn't really matter, we will kind of figure that out as we go.

Mike: This is BRRRR with a twist.

David: BRRRR with a twist, yeah. So then we will refinance that one, or sell it. The goal would be to in it for little to none. But again, we are going to strip some of that equity, use it to buy more properties or just capital operations funding. But all in all BRRRR with a twist, I love it.

Mike: What allowed us to do that is buying at a discount. You have to buy at a discount. Discount Property Investor is our name because we truly believe if you are not buying at a discount, you are not able to do all these fun things with the properties.

David: That's right. Alright guys, thanks for listening. We will do another episode about this particular deal here in a couple of weeks when we get the lot split and the first one sold off and fill you guys in on what we decided to do. BRRRR with a twist. I like it. Thanks guys.