Episode 178: Wholesaling VS BRRRR – Which is better to start with?

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: Hey guys, welcome back to the discount property investor podcast. I am your host David Dodge with my co-host, Mr. Mike Slane. Mike, how are we doing today sir?

Mike: We are doing good Dave; we’re doing really good man. It’s actually sunny out.

David: It’s hot.

Mike: It’s beautiful though.

David: Oh shit, it is hot, but it’s nice.

Mike: It’s been raining for- it feels like we live in the rainforest or something right now.

David: Yes, man it is hot.

Mike: Well, you know what they say those May showers bring the June flowers. I don’t know what’s going on with the weather.

David: It’s how I feel like it is this year man.

Mike: It’s freaking crazy, it’s raining so much. Our grass is growing like, this is- it’s late but whatever. So, it’s beautiful out today, I’m feeling good. I’m excited to be in here recording. I’m excited we’ve got some projects going again, businesses seem to be opening up, there’s more people out so life is good for me man. How is your world Dave?

David: Things are going good man. We’re running lots of appointments right now for wholesale. Things are going good, we’re doing marketing, you know, just like we normally would. We haven’t slowed down any bit on the marketing front, which is great.

Mike: Well, why would we?

David: Why would we? Yeah, and I’m excited man. We have a lot of positive relationships that we have built over the last six to eight weeks with people that have a lot of uncertainty, you know, their motivation was maybe medium to medium-high, it wasn’t like extreme which is where we know we want to be, you know, and we built a massive follow-up list over the last six, seven, eight weeks and now is when we’re starting to really hit that list with hey, you know stores are opening back up and hopefully your uncertainty is starting to settle. Let’s move forward with getting this house under contract and then the last- oh shoot man, in the last 3 or 4 days, I think we’ve gotten 4 contracts.

Mike: Awesome.

David: So, we’re doing really good. Yeah, we’re doing really good. So, some of our students are having some successes right now as well Mike, we got a couple projects or a couple properties go under contract just over the last 3-4 days too with the student front so yeah, things are starting to come back. I’m really feeling positive about the economy.

Mike: Dude, I’m excited- I hope the rest of the world is too, like I don’t know, I feel like there’s so much division in everything. I just hope that everyone is just like well, let’s go ahead and rebuild things a little bit better.

David: Yeah and I’m feeling really positive about it honestly, so this is good. So, today on this podcast episode guys, we are going to be talking about- go ahead.

Mike: We’re going to debate.

David: Debate.

Mike: We’re going to debate today. Well, we both agree probably on everything so it’s going to be harder to debate.

David: Well maybe, maybe not though but yeah let’s talk about it.

Mike: We’re going to debate what is better to start with. Is it better to start investing in real estate-?

David: Looks like our TV is crooked.

Mike: Using the BRRR method or should you start investing in real estate wholesaling? So, what’s the better way to start investing in real estate? Wholesaling or BRRR method?

David: Let’s debate. So, a lot of people don’t want to deal with motivated sellers and marketing.

Mike: Dave, let’s have you be, obviously, the wholesale guy. I’ll be the BRRR guy.

David: Okay. I like this style.

Mike: Let’s start with a quick definition of each and then let’s get into some reasons why.

David: Okay, I can get used to this.

Mike: So, Dave, what is wholesaling? Sum it up in two minutes or less. That’s your goal is 2 minutes.

David: Ooh it’s gonna be tough man, haha. Okay so wholesaling, sum it up in two minutes or less, wholesaling is marketing to motivated sellers, securing properties with a contract, and taking that contract, that paperwork and selling it to an investor of some sort and making a spread off of the sale. We trade convenience for a discount and solve problems. At the end of the day, we are just liquidity makers to real estate. We offer people the convenience of quick cash, as is and that’s it. And again, wholesaling is nothing more than buying a- putting a property under contract so securing it and then taking that contract and selling the contract. There are lot of ways to do that, we’re not going to get into that but the simplest way to describe it will be: to secure a property with the contract and just sell that contract for profit.

Mike: Excellent. Okay. So, the BRRRR strategy, what is the BRRRR strategy? It is a method to acquire rental properties that utilizes little to none of your own money where it can utilize little to none of your own money. Allows you to acquire rental properties with almost nothing out-of-pocket. So how do you do that? You buy it and you can buy it multiple different ways, so how would you do it with no money if you’re just starting out? You would find a private investor or a hard money lender. They would lend money, you would buy a house. Then you would rehab the property, you would rent it out, you would refinance it so then you paid back that loan that you got to buy the property initial. You pay it all back, you get any money that you put into it back and then you repeat, you do it over. So, your value that you’re adding is you’re taking a crummy house and you’re fixing it up. So, you’re fixing up the neighborhood, you are providing a nice rental property for a family to live in. That’s your value-add there is making a crappy house pretty nice and getting a new rental on the market so that’s what the BRRRR method entails. So again, I think the value add is making a nice property for someone to live in and rent.

David: You’re acquiring a property with little to no money, that’s the thing. And you’re able to turn it over and do it over and over again.

Mike: Exactly. So, Dave and I have done that almost a hundred times together. We’re pretty well-versed in it and yeah, so that’s what BRRRR is. So now-

David: Let’s talk about pros and cons? What are you thinking?

Mike: Let’s talk about- let’s debate. Which one is better for a new investor to start in? And Dave and I, I feel like we’ve consistently said, we always think wholesaling the way to go.

David: I do.

Mike: And that’s why I wanted to talk about this.

David: Sure.

Mike: So, Dave, why would you say wholesaling properties is better to start with?

David: Okay so, I’m going to take the wholesaling side, you’re going to take the BRRRR side so let’s really make this a debate. You can’t BRRRR a property without getting a discount on it. Now, I shouldn’t say can’t, you can but it makes it very difficult meaning that you are going to have to add so much value with the rehab alone that you’re going to be able to basically get 20 to 25% equity in the property. If you have a discount when you’re buying it, it’s very easy to get there, right? Because you don’t have to add as much, so getting a discount on a property is really kind of the hidden- one of three or four things that are kind of hidden with the BRRRR strategy. So, I love the BRRRR strategy, I’m a huge proponent of it, it’s one of my favorite things out there, right?

Mike: It’s magic.

David: It’s magic. It’s real estate, it’s wealth creation magic.

Mike: It’s awesome.

David: However, you have to be able to buy the discounting. Now, can you get a property on the MLS of discount? Yeah. Can you get a property through a wholesaler discount? Yeah, but it’s not going to be the same discount you would get if you were direct to the seller. So, I’m a proponent of both so it’s hard for me to take a side but I would say start with wholesaling for sake of conversation and podcasting YouTube because it’s going to teach you how to find properties at a discount via marketing, to learn how to market and wholesaling is a means to an end for me, probably you too. BRRRR is the goal, but wholesaling is just a way to find the deals, and then we have a cool motto here at the office: Keep the best, sell the rest. So, all the leads that come in, you’re not just throwing away. If you’re just working on Burr, you’re going to be walking away from a lot of deals that you could make money on if you know, you’re negotiating with the seller, but you just can’t get it right, your close. Somebody else might find that to be overly valued and pay you for it, right?

Mike: So, here is where I would say you want to start with BRRRR.

David: Let’s hear it.

Mike: So, my argument is going to be Dave, wholesaling is overwhelmingly complicated for a new student. To go out and to start marketing for properties to spend thousands, tens of thousands of dollars. I’m being ridiculous, on marketing to not know what you’re doing, to have people calling you and not know that you’re able to buy it and close it and find a seller. It’s just too- there’s too many unknowns in wholesaling, whereas with BRRRR, all you have to do is go work with a hard money lender and hell, they’ll even find- they’ll even line you up with other wholesalers in deals a lot of times.

David: This is true, this is true.

Mike: I know that one of our partners here does that. So, it’s easier, that is my reason. It’s easier to get started with the BRRRR method.

David: Okay, I get that I get that. I see that point of view.

Mike: You also, in the current market Dave, would you say the market has been trending up?

David: Well, it has up until about six months ago.

Mike: Excluding the Corona.

David: 3 months ago. It’s- I wouldn’t say it’s even trending down but it’s just kind of still.

Mike: Stag.

David: It’s stag.

Mike: We don’t know right now, honestly.

David: Yeah, we don’t know. It’s too early but lightly down but not anything to be panicked about.

Mike: So, my point is, in a hot market, the biggest value that wholesalers add is liquidity, right? I would argue that it’s not that valuable in an up- in a market that’s trending upwards. You’ve got a lot of people that want to buy properties and a lot of people that want to get into real estate and invest when markets are going up. So, I think that the BRRRR investment strategy is easier because you can pay a little bit more, the wholesalers able to pay a little bit more.

David: Got it.

Mike: What say you?

David: Okay, hey those are great points. I can’t really disagree with anything, they’re all valid so I got more good points to throw at you bruh.

Mike: Give it to me.

David: Okay.

Mike: I like it, this is fun.

David: Yeah, this is good. So, with the BRRRR strategy, you have to have your ducks in a row, so it’s difficult for a new person to not only negotiate on a property and let’s hope they get a slight discount but maybe not, but then they have to deal with fixing it up and a general contractor, right? And a lot of people get burned with general contractors, they don’t know what they’re doing. You know people make promises, they don’t know how to pay them, they don’t know how to negotiate with them, they don’t know how to write up a contract with them. It’s an added layer of complexity so I don’t want to throw too much at you Mike, but the point of-I think my argument, this go around- this-

Mike: Counterpoint.

David: This counterpoint.

Mike: We’re not seasoned debaters.

David: Is that the complexity is deep. So, I named one or two more real quick though, right? So, you have to deal with the contractors, and you have to get the property fixed up and get that entrepreneurial credit, which means you have to spend, you know, 15 to 20 grand typically on it. Next, you have to lease it out and if you’re not good with people or leasing, that may be a big problem. If you hire a property management company, that’s great, but you still have to manage them, there’s a lot of shitty property managers out there, more shitty ones than good ones, ten times more. And then the third point- that was number 2 so complexity by rehab, complexity by leasing and then number three, the most important one of all, is if you aren’t pre-qualified with a bank, all that work is going to leave you to a tight- between a rock and a tight place, right? You’re going to be stuck. So, if you’re listening and you want to do BRRRR, I highly encourage you to do it, counterintuitive to my point, but get your ducks in a row. So, I think the point was just that there’s a lot of complexity.

Mike: So Dave, I agree with you on complexity and you probably have the most powerful argument in that third point, which is the pre-qualification. Guys, if you are not pre-qualified to refinance the property, at the end of the BRRRR process.

David: It really should be RRRRB, hahaha.

Mike: Yeah, it is.

David: With the R there and there, two R’s for that.

Mike: We call it PBR in our book, so we said prequalify was the most important thing.

David: Right, there you go. PBRRRR, yup.

Mike: It’s PBRRRR, so that is probably the biggest nail in my coffin.

David: And it’s not a deal breaker.

Mike: By any means, it’s not. So again guys, you just have to have your ducks in a row. So, BRRRR is slightly complicated and there is a little bit more risk, I would say on the investor’s plate because you are actually putting money out there. You’re saying hey, I’m good for this money. You’re either- to a hard money lender or it’s all your cash invested into one, so that is an issue.

David: Yeah, it makes it a little challenging.

Mike: So there is complexity to it, but it doesn’t necessarily mean that wholesale is better. So, dealing with contractors Dave you mentioned that was a complexity as well as dealing with property managers who were leasing it out. Wholesalers have to deal with people too, wholesalers have to deal with complicated sellers and sellers’ problems.

David: One could argue it’s more complicated.

Mike: One could argue it’s more complicated. That is my point.

David: We need sound effects for that.

Mike: You got them?

[applause]

Both: Hahaha.

David: No, but you are right, you are absolutely right.

Mike: So, the complexity, I think that you are right, there’s more risk on the part of the BRRRR investor but if you are a more analytical minded, I think that BRRRR might align with your personality better than wholesale.

David: Alright, I get it.

Mike: That’s my point, so why is BRRRR better? My argument now would be that BRRRR is better because wholesaling is a job. If I wholesale 10 properties in a year, I may have, say I get $10,000 per wholesale. If I wholesale 10 properties in a year, and I make 100,000 dollars, guess what I have at the end of the year? Whatever I didn’t spend. If I BRRRR 10 properties and at the end of the year, I’ve acquired let’s just say $10,000 in equity in each of those properties, so not even a really high number and I’m cash flowing, let’s just call it 300 bucks a month, guess what I have at the end of the year? I’ve got $100,000 in equity and $3,000 a month for as long as I own those properties. What say you Dave?

David: It’s a good argument, okay, so you- what’s the point though for this comeback here?

Mike: Wholesaling’s a job.

David: It’s a job, okay.

Mike: Whereas the BRRRR is an investment.

David: Okay, don’t even argue. Alright, I cannot argue with those points. They are correct.

Mike: So, why is wholesale better though?

David: Okay, I’ll tell you right now. So, wholesaling is a job, right. I agreed it is simple, but not easy. We say that lots of times in the book and on this podcast however, you do not have to have good credit to wholesale, and you do not have to have much money. So, here’s the cool thing about wholesaling, and it’s similar with BRRRR, it actually is. You are able to acquire the property with a contract, not really buying it but you are controlling it. That’s the word I’m looking for, you are able to control a property with a contract and sell it. You don’t have to buy that house, it’s just the contract. The cost isn’t in controlling, it’s in marketing so you will have an expense. When people say little to no money, well that’s true, if you get a referral and you had zero cost to market. You can acquire a property and/or wholesale it for no money, but if you are new to this game, you are going to have to spend time, you’re going to have to spend money to market to get the deal. Similarly, on the BRRRR side, you can get 100% financing through a private lender or a hard money lender some of the time, not all the time, if it’s a great deal, then they’ll probably do that for you. So, you can get into these both, however with the hard money or private lender on the BRRRR side, they will not lend you if you have a 350-credit score. You can buy marketing with any credit score, they don’t look at that when you spend money to send mailers or bandit signs or get on the radio. So, my point is it’s better to wholesale in the beginning because you may not even qualify to do BRRRR. So, start learning how to market to motivated sellers now, do not delay. Don’t sit around and wait for your credit to become 800 cuz its most likely not going to happen.

[Both laugh]

David: And we all know that action trumps everything, so start marketing to motivated sellers. It’s a means to an end, if you don’t want to be a wholesaler, don’t be a wholesaler, be a landlord, but you still should market to motivated sellers and then why wouldn’t you wholesale the deals that you don’t personally want to keep? So, I don’t know what my exact point is, but I guess it would be credit.

Mike: It’s hard to argue against the point if you don’t have one.

David: I know, that’s a trick, that’s a good point.

Mike: It’s a great tactic.

David: But one could say that if you don’t have good credit, that’s it you know, that you can’t do BRRRR and we both will agree that just because you can’t do something doesn’t mean that you shouldn’t take action elsewhere, right? So, if you aren’t pre-qualified or- you might not even be able to qualify for the hard money lender, let alone the refi so there’s again another layer of complexity.

Mike: So I’m gonna go ahead and jump in here, so it’s the pre-qualified and I’ve had that as an issue. People have reached out to me and I’ve helped them with that as well. So, it’s very easy to say oh, you’re not pre-qualified, let’s teach you how to wholesale because I’ll tell you what, Dave and I like that. We love wholesaling, and I don’t disagree with Dave. But what I would say is if your credit is not worthy, you can find a cosigner.

David: That’s true.

Mike: You can-

David: Damn!

Mike: You can be qualified to finance property

David: Oh shit.

Mike: Your bad credit is not holding you back from the BRRRR method.

David: Yes, I did that in college on my first three houses, I had co-signers. I borrowed the 20%. I did not-

Mike: So-

David: So, the funny thing is I started BRRRR like not me personally, but with it, right? I started with it unknowingly until ten years later, which is kind of funny. It was a slower process, the refi wasn’t a zero-sum game. It was a leave 20-30 grand in it that I had to pay back, but it was the same concept though. Repeat, you know.

Mike: Well, that’s like the new term house hacking Dave, I didn’t realize that’s what I did.

David: We all did that.

Mike: My first house, I house- hacked.

David: We both did, you did a 4 unit, I did with a 4 bedroom. Same thing, right?

Mike: Yeah, you just don’t know and these terms, they come out and they’re buzz words and it’s great. Yeah, so that was that was kind of fun, I like that. I don’t know if you have any other points or counterpoints and try to go back and forth.

David: You know, I think we’ve hit on most of the things really, I mean, there’s really no right answer and that’s kind of the point.

Mike: Well, there isn’t, and I think that it speaks to the fact that if your personality, and I think this is true, Dave is a little bit, he’s a little bit more outgoing than I am. I’m a little bit more quiet and a little bit more analytical, not to say Dave is not- or I’m smarter than Dave, Dave is very intelligent.

David: Sure, no, no not at all. Same thing, yeah yeah, just different type of personality.

Mike: Just different type of personality and I think that different types of investing speak to those people and whatever you- whatever suits you the most makes the most sense. Today’s point about wholesaling though, it is extremely important to have that in your business because Dave’s right, we’re going to come across deals that don’t make sense for us but why would you not try to wholesale it and make some money on it if you’ve got a great lead on a property?

David: There’s this thing about wholesaling where it’s like you work really really hard and then you like get lucky, but I don’t even believe in luck right? It’s just experiencing. Now, we get deals handed to us that we say okay, this could be a great rental, but maybe our cash flow this month is tight and we can literally make one or two phone calls to get 5 or 10 extra thousand in the door so it’s like shielding that from all of our listeners and viewers, like you know what I’m saying telling them to not get to that point would be such a-

Mike: Disservice.

David: A disservice, thank you. You know what I’m saying? Now, you ain’t going to get there tomorrow if you’re starting today, sorry it’s not going to happen. It takes time, experience is what gets you there, right? But I think the main thing is like regardless of what you decide to go with start picking up a book, you know, listen to the podcast like this, do things to learn more about both and if you can’t get pre-qualified and/or qualified, you know for the hard money and/or the bank financing, you know, don’t just sit on the sidelines, start calling people, make- start building relationships to get there.

Mike: That said, exactly. That was what I was going to say. Let’s put that foundation in place.

David: Yeah, start now. A no isn’t no, it’s not yet, especially with the bank. I love this point. I just did chapter 20 the other day and it was talking just all about this. No isn’t no, it’s not yet with the bank so use the bank as your coach, like literally a free financial coach. They don’t even teach you this shit in high school.

Mike: They don’t teach you this anywhere.

David: Right. But you can walk into a bank and say hey I need a loan and they’re going to say nope or they’re going to say yeah, it’s going to be one of the two, but when they say no, they’re not gonna be like get out, I need to ask you to leave. No, they’re going to say here’s why, so use that information, pick the brains of the banker.

Mike: Right, if they don’t tell you why, ask why and go back and say what can I do to get this loan approved?

David: And you know what? There’s like these federal guidelines that basically can’t- you cannot get denied a loan if you meet them, so it’s not like they’re like we don’t like that you’re short or that you are, you know, brown or black or white or yellow.

Mike: Short, fat and pasty. Yeah, doesn’t matter.

David: None of that matters. Female, male, IQ- None of it matters. What matters is that you meet the minimum guidelines and then they literally have to lend to you.

Mike: Pretty much.

David: I mean, it’s the law, right? So, with that being said use the bankers as your coaches, figure out exactly what you need to do, is it debt to income ratio that needs to be fixed? Is it bad credit? Is it late bills? Is it too much credit? Whatever, I’m probably leaving 30 things out, whatever it might be, figure out what they need to see on your paperwork that you’re going to submit to them and fix it, work on it.

Mike: Yeah it’s easy guys.

David: Simple.

Mike: Again, just get your credit fixed so you can go get houses. I mean, the wholesaling is a means to an end. It’s a great job. We love it, it’s a great way to make some big paychecks but our end game is rental properties.

David: That’s right.

Mike: Is the passive income.

David: That’s right so if you guys want to learn how to do either, we highly encourage you to learn both really.

Mike: We’ve got what we consider pretty good courses on both, I think we mentioned at the beginning of the podcast, the intro right? Is the freewholesalecourse.com.

David: To learn how to wholesale.

Mike: We’ve mentioned that all the time we probably need to start adding in the freelandlordcourse.com. We created that one as well.

David: We need to add the things right here Mike to pop up.

Mike: Ooh, I love it.

David: That’s a good idea. Alright.

Mike: Yeah, cuz we’ve had so much good feedback on the free wholesale course, we made the free landlord course. Put a ton of nuggets in there to-

David: We’re working on building on them all. I was going to add a video that I just did yesterday to the cash buyer section of the free course, so I’m constantly tweaking videos making more and more. I mean, it’s essentially, both of these in my opinion are the best courses that are free anywhere online for these topics, wholesaling and landlording.

Mike: Actually, I think we were one of the firsts to really assemble free courses. I think that’s how we got the domains, but we were the first to assemble free courses on these things.

David: Started that 5 years ago.

Mike: So, again guys, we appreciate all the feedback we’ve had on the existing courses. We’d love for you guys to go check them out when you have a chance.

David: freewholesalecourse.com, freelandlordcourse.com. That was a fun debate, let’s do that again.

Mike: Yeah, I liked that one, that was fun.

David: That was good. Alright guys, signing off.

Thanks for listening to the discount property investor podcast. If you enjoyed this episode, please like, share, and subscribe to help us reach a wider audience to jump-start your real estate investing career, visit freewholesalecourse.com- the most complete free course on wholesaling real estate ever. We would also appreciate it if you left us a review on iTunes or Stitcher. Thank you in advance for your support and remember you make your money when you buy, you get paid when you sell. Now let’s go build some wealth.