Josh Cantwell: So, hey guys, welcome back to Accelerated Real Estate Investor with Josh Cantwell. I’m your host and I’m really looking forward to having this discussion today with David Dodge. David is an excellent real estate investor coach, focused today on the BRRRR Method based out of Saint Louis, Missouri. He’s done hundreds and hundreds of residential deals. He teaches investors specifically how to find discounted real estate deals. We all know, you make money when you buy properties, you realize the profits when you sell or cash flow. David has a fantastic podcast about finding discounted properties, so we’re super excited to have him on the show.

[INTERVIEW]

Josh Cantwell: David, welcome to Accelerated Investor.

David Dodge: Hey, Josh, thank you so much for having me, man. Really excited to be here today.

Josh Cantwell: Yeah, absolutely, man. So, why don’t you just tell our audience real quick about something that you’re up to today? Like something that you’re working on right now, that you’re really excited about, and what’s kind of going on in your world in today’s market?

David Dodge: Yeah, absolutely. So, I would say the biggest thing I’m working on right now is a BRRRR Method deal on a small 23-unit apartment complex that we just bought a couple of months back. We’ve done a ton, a ton, a ton of single families and we’re starting to pivot into smaller multis. We’re not doing any type of syndication at this point yet, but I’m sure in the future we will.

But this was just a small deal that we bought. It’s 23 units. And we used hard money to buy it, and about 60% to 70% of hard money as well on top of the purchase to rehab it. We have a little bit of our own money invested in it, probably about $150,000 of our own money invested in it. So, of course, BRRRR, buy, rehab, rent, and then the next step would be in the next maybe month or two will be to take it to a bank and refinance out that hard money, hopefully, refinance out all of our investment that we’re using to rehab that building. And the goal would be to acquire the asset with very little, ideally no money out of pocket in the end.

Josh Cantwell: Right. Love it, love it, love it. So, you’ve done lots of residential stuff. I mean, you’re an expert at it. You coach other people. Now, though, the BRRRR Method long-term cash flow is really the goal. Help me understand, David, what are you seeing in today’s market? Obviously, people are talking about, hey, interest rates are going to go up, and inventory is down. There’s way more demand than there is available supply. What are you seeing because you’re obviously, actively building your BRRRR portfolio through single-family and multifamily properties? How are you navigating the market? And what are you seeing?

David Dodge: That’s a great question. So, what we are seeing is low inventory. I’m sure everybody else is typically seeing that as well. The government’s printing money like crazy. So, we’re going to be dealing with higher interest rates and inflation, which has pros and cons. I’m not really looking forward to the higher interest rates, but I am looking forward to the appreciation of the assets that I own currently. So, there are, of course, pros and cons to that.

But we’re having low inventory. A scarce amount of inventory definitely isn’t helping find discounted properties. So, our focus is always to buy deals, it’s always to try to capture at least 10% to 15% equity on the buy, ideally 20% to 30%, but in today’s market, that’s becoming a little bit more difficult. So, it’s just one of these things where I am not going away. And if the market conditions change, if the banking environment changes, then we’re just going to pivot and just do what we can to continue going.

So, my main focus is buy and hold, and we have about 60 single-family homes and we have another 30-apartment units, that 23-unit that we’re working on is part of that 30. So, we have about 90 units. We’re not definitely in the thousands like you by any means, but we do love the buy-and-hold game and we do a couple of fixing flips on the side. And then, of course, we will wholesale the properties or the leads that come in that don’t really fit our buyback. So, we have our hands on a couple of different strategies, but BRRRR Method is my absolute favorite, Josh.

Josh Cantwell: Yeah, no doubt. So, you mentioned inflation. Inflation generally is going to help with the asset value going up and the rent going up.

David Dodge: It also makes it easier to pay back the existing loans, and that’s somewhat due to the increase in rent, but if the dollar has a reduced purchasing power, then you’re going to typically need to make more dollars to be able to buy the same goods. And some of the loans that we’re doing right now on some of our single families, their 30-year fixed to an LLC. And it’s amazing because, maybe not this year, maybe not next year, but over a five or ten-year period, it’s going to be easier to pay back those loans. So, yeah, 100%.

Josh Cantwell: No doubt. And David, in a market like now, where really the expectation of getting these bigger discounts, that expectation has gotten thinner, like you said, maybe a 10% to 15% discount versus 30% or 35% five years ago, how much are you thinking about, well, I might not be getting the discount upfront, but my future value because I’m going to buy and hold, my future value because we’re seeing appreciations of 10%, 15%, 20% in many, many markets, I’m going to make it up on the back end, I just maybe have to hold a little longer which plays into your BRRRR Method. I can lock in the financing today, which is still historically very cheap. It really comes down to kind of be in a little bit of a magician to figure out what is that future value going to be? What’s that future rent going to be? How are you navigating that in your own mind when you’re calculating your deals?

David Dodge: That’s a great question. I don’t like to speculate on where things are going too far out. I know that in the immediate future, we’re going to see interest rates increase. So, I look at all of that appreciation on the back end is kind of like icing on the cake. I know from looking at the past and charts and just historically speaking that properties are typically going to increase, typically somewhere between 4% and 6.5% year over year.

So, again, to me, the appreciation is really more of an icing on the cake. When it comes to the BRRRR Method, I want to leave as little money in the property as possible. So, I am actively looking for essentially a 20% equity capture in the end, not necessarily on the purchase. We typically don’t go to banks for purchases. And I know with the syndication, that’s kind of the model. We’ve done that in the past, of course, but typically, we use our banks, our credit unions, even some of these larger national hard money lenders that are offering 30-year fixed now, typically more so for the refi.

So, we’re borrowing private and hard money to buy. We’re borrowing private and hard money to rehab. Ideally, we don’t use a dollar of our own money. Now, obviously, sometimes we have to, but ideally, we don’t use any of our own money, get it rehabbed, get it rented, which makes it an asset. And then from there, we’re going to refinance. And if we can be all in, all-all, so purchase rehab, closing costs, holding costs, interest to the lenders at or below 80%. And the bank’s going to give us 80% of what a property appraises is for that allows us to acquire the asset with no money in the end.

But even if we have to leave a little money in, Josh, like I think our average right now is about 1,200 bucks that we move into a single-family home. After a couple of months of cash flow where we don’t have any money in that investment, and the internal rate of return is infinite if you think about it. So, hopefully, I answered that question.

Josh Cantwell: Yeah, for sure. Now, that you’re scaling into apartments, you’ve got this first one that you bought, tell us about that because a lot of our audience that is a really good residential investor like you are, like an expert resi investor, intermediate to advanced, but they’re interested in scaling into apartments. You’ve now successfully done that with a couple of deals. What were those first couple of deals like? Was there any kind of intimidation on your part? How did you find the deal? Has it been an easy pivot or a hard pivot? I think a lot of people want to know, how do I make the pivot? So, what were your thoughts?

David Dodge: Yeah, it’s a fantastic question. So, again, I’m not going after 200-unit, 700-unit-type plays. I’ve done a BRRRR deal on a 10-unit, and we actually ended up selling it a couple of years later just because it just made sense. And then I’m currently working on a 23-unit. I have a couple of twos and fours in the mix here too, but for the most part, our brand is Discount Property Investor. So, we just cannot pay retail, it just icks me. And maybe as time goes on and there’s more value add and force appreciation-type plays, we’ll be open to that.

But right now, I got to get a deal on a property, and a 23-unit is not that much different than a single-family in a way, I mean, it’s obviously more units, but it’s still just one property, it’s still just one transaction. So, making the pivot for us was like we want to scale, but do we really want to own 600 single-family homes, like that is just a lot, right? Love having the 60 that I have. And I’d imagine my partner and I will continue to buy singles and scale that up to maybe 100 or even 150, but we don’t want 600, we don’t want 1,500.

So, in order to get the door count up, it just makes sense. But, the thing is, again, because we’re not going after these massive ones, at least today, it’s really not that much different. It’s the traditional marketing method of direct-to-seller marketing, which consists of primarily our own networking sphere. We do some direct mail, we drive for dollars and create lists. We have some VAs and some team members that will help us with some cold calling and some cold texting. I’ve done all the different types of marketing that you can think of other than television. I haven’t done that one yet, but we’ve done billboards, we’ve done radio, we’ve done bandit signs.

One of the things that we don’t typically do, and again, we may down the road, but we don’t typically buy properties on market. And again, as we scale up, that may be the only option. But as of today and over the last seven, eight years that I’ve been full time in real estate, I like to go direct to seller, I like to go direct to seller for various reasons. The main reason, though, is that I’m able to get a much bigger discount by going direct to seller. There are no agents or brokers that are going to need to get paid. And if I can build rapport and create a good relationship with a seller and offer them convenience, that’s really all real estate investors do, in my opinion, at the highest level is we trade convenience for discounts. That’s it.

Josh Cantwell: Love that.

David Dodge: And it’s easier for me to find somebody that’s going through some sort of distress problem, like death, divorce, disease, the three D’s, that makes up a good percentage of what we’re dealing with. But it could also be tighter landlords or it could be pre-foreclosure or it could be delinquent taxes or whatever the case is. But again, direct-to-seller marketing is typically how we find the deals that we’re buying at this point.

Josh Cantwell: Got it. Love it.

David Dodge: I don’t know if I answered your question or not.

Josh Cantwell: You did. So, I’m thinking about my audience, people that are already doing apartments and I love the trade convenience for discounts. I’ve never heard it said that way before. I love that. And I was thinking about my own deals for a second and the last couple that we bought. The one we just bought yesterday was on the market, and we were battling with other buyers and a big private equity fund to get that one.

But the deals we got before that were off-market, those went much easier, much smoother. We bought them at a lower base, a better deal, and it was bought by a broker, but it was a pocket listing. So, they’re still “off-market.” It wasn’t in front of 30 buyers at one time. And so, that really is always the case. It doesn’t matter if you’re buying single-family, multifamily, big apartments. And the question is, are you going to do it yourself, go direct to seller, or in my case since we focus on the brokers, and the brokers are doing it because they’re nurturing relationships with these apartment owners for sometimes three, five, ten years?

David Dodge: Yeah, a long time to get that listing.

Josh Cantwell: I feel that the apartment will be ready to sell. It’s amazing, David, just in the last couple, maybe two or three weeks, I’ve gotten a bunch of cold texts about houses that I own that people are asking for. How is that strategy? I’m asking because I’ve gotten several in my inbox, people mentioning, “Hey, I’ve got cash, I’m looking to add to my portfolio. I know it’s kind of a cold text.” I’m interested in replying to it, so it’s obviously working. How is your experience from that?

David Dodge: Yeah, skip tracing is something that has really blown up over the last couple of years. And skip tracing is just basically, you get a property address and you reverse engineer out who the owner of it is. It could be a single-family home, it could be an apartment complex. And then how do I contact them? So, skip tracing is basically just getting phone numbers and emails or maybe even other addresses that you could have used to contact and send emails to those individuals or cold calling those individuals has been around for decades. Texting is relatively newer, not necessarily brand new because texting has been around since cell phones were created.

But what we’ve seen over the last couple of years is texting has really taken off. And you can one-off text somebody from your cell phone or you can sign up for services that will allow you to kind of do it, not necessarily in bulk. It’s still individually, but you can scale it up to where you’re not just doing it from your cell phone. You can go get a list of property owners that have some sort of level of distressed, vacant, absentee-owned, high equity, whatever the case may be. And you can skip trace all those people in bulk and then you can send a lot of text messages to them. So, that’s definitely one of the ways that we go about marketing to find sellers. And we’ve probably bought, I’m guessing here, about 60 to 100 houses from contacting people via text message.

So, people can avoid a phone call and they can obviously avoid a text message, but when you send them a text message and the text message that we sent are pretty simple, they’re just basically like, “Hey, I’m looking for Josh. I believe Josh is the owner of this property over at 123 Main Street and I’m interested in buying more properties in the area. If you have interest in selling, respond to this message or give me a call.” I mean, basically, just like sending a postcard to him, but it’s delivered instantly.

And what we’ve seen is the response rates are very high. We’re typically getting deliverability rates above 90% and we’re getting response rates sometimes in the 30% to 50% range. Now, the responses aren’t always happy and oh, yes, we’ll sell, and oh yes, we’ll sell it at a big deal, that big discount. Sometimes they are, no, I’m not interested, or take me off the list. And of course, we’re going to respect those individuals.

But I don’t know about you, Josh, my preferred method of communication is text. I don’t typically answer numbers from people that I don’t have on my phone. If they leave a voicemail, I may or may not call them back, but if I get a text, I see it. I may not respond to it, but I see it. So, what we’ve seen over the last couple of years is that strategy in itself is very effective.

Josh Cantwell: I love it. I mean, I definitely feel like if I got a postcard, I’d toss it out. If I get a phone message, like you said, listen to it, maybe trash it. But the texts are sitting right there because I’m in my text all the time, texting investors, texting my staff, texting my wife, texting my friends, whatever. That just is sitting there right in the inbox, it’s very hard to avoid.

David Dodge: Very hard to avoid, yeah.

Josh Cantwell: I don’t know many single-family properties left. I’ve sold most of them off, but I do have a couple and I’m interested in replying to see if they’ll buy them. So, we’ll see. That’s fantastic stuff. So, David, I’m interested to hear about your start, like when you got going, you’ve obviously been very successful. You’re in the St Louis, Missouri market and do some stuff outside of that market from time to time with your members and students, but you’ve really hunkered down. You’ve got almost 100 units that you built now and you’re going to scale up. But everybody starts somewhere, it’s not always pretty. Tell us about your start.

David Dodge: So, my start is a little similar to yours in a way. I started at the age of 20 and I was in college and I bought a rental property. I went and found an agent, and we looked on the MLS and found a property that was for sale and made an offer, got the offer accepted. And then I was like, “Uh-oh, now, how am I going to pay for this thing?” So, I walked into the bank, and the bank said, “Hey, we’ll give you 80%.” And I didn’t have the other 20% so I borrowed it from friends and family and acquaintances and paid them off over the next year or two. But I did house hacking just like you, so I bought a four-bedroom house and I rented out three of the other bedrooms, lived for about 100 bucks a month, and I did that three times in college.

So, by the time I had exited college, I had three rentals and I bought all three of them as a house hacking play. I moved from one to the next. And I was buying these as primary residences because I was living in them for a year. And then I just would move out and just rent out all the bedrooms instead of keeping one for myself and just did that.

So, basically, I started with house hacking, and over the next seven years, so basically for the first 10 years of my investing career, I was passive. I was either in school or working for a sales and marketing job or company and/or operating my own small businesses doing some sort of sales and marketing. So, to not bore the audience here, long story short, first 10 years, very passive, put down 20% on every property I bought, and I was able to acquire 12 rental properties, all single-families over the first 10 years.

And about seven, eight years ago, going on eight years, I went full time at the age of 30. I’m 37, going to be 38 here soon. And I learned about direct-to-seller marketing. I learned about sending postcards to people and cold calling and door knocking. And basically, what I learned is that I don’t need to find an agent and go look on the MLS and pay full retail for a property. Instead, I can find people that have problems. Maybe it’s the house that’s the problem. Maybe it’s something else that’s the problem. And oftentimes, it’s both. They have this problem house and they have this problem in their life. And it’s like, alright, cool, I can buy this property from you and I can help you solve other problems in your life.

So, again, it goes back to me being able to provide convenience to people. And that’s what I do, I look for problems and I provide convenience, but here’s the thing, I don’t ask for discounts, Josh, I demand them. I’d say, “Hey, if I’m going to help you with this problem, you’ve got to give me a deal on this property.” Like that’s what I want, and what you want is to solve a problem. So, in order to create a winning scenario or a win-win, we both need to feel like we’re getting value. So, by me buying the property and offering convenience, that’s me providing value and them saying, “Hey, the property is worth 150, we’ll sell to you for 110, 120.” That, to me, is them providing value to me. So, again, it goes back to convenience in exchange for a discount. So, yeah, I went full time, about seven, going on eight years ago. Since then, my partner and I, we’ve done about 700 wholesale deals, done about 200 BRRRR deals.

And to kind of wrap this up, at this point, my main focus is BRRRR. I love being able to acquire rental properties with little to no money. I love helping other people learn about this strategy and teaching and mentoring and coaching them and basically showing them that rental properties and real estate can create passive income or cash flow, which allows you to make money while you sleep, which is pretty rare. You can’t really typically do that at your day job and that the cash flow will inevitably create financial freedom.

But financial freedom isn’t typically the goal, most people think it is. And we talked about this before the episode started here, but typically, the goal is time freedom. But how do you accomplish time freedom? How do you do that? And the best way to do it is, is to not have to go trade your time for money. So, financial freedom is really the first step, which then leads to having time freedom which allows you to go do whatever you want to do whenever you want to do it.

Josh Cantwell: Right. Love it. David, now that you accomplished that, 700 wholesale deals is amazing, 200 BRRRR deals are amazing. Scaling into apartments is amazing. There are probably some things you would do differently or things that you did right that you don’t want to forget. What would you tell your younger former self? What would you tell our audience? What are the things you got right? What are the things that you would repeat and keep doing? And what are some mistakes that you made along the way that you would tell our audience, “Hey, let’s avoid those”?

David Dodge: Yeah, definitely. So, what did I get right? I got right by starting early even though I look back saying, “Hey, I did it wrong for 10 years.” Like, start, you guys have probably heard the same. Don’t wait to buy real estate. Buy real estate and wait. And I am so grateful that I did, even though I was doing it, I like to refer to it as the wrong way by actually having to put money down. So, that was one of the things that I’m very blessed and grateful that I did when I was so young. And I still own some of the properties that I bought in my early 20s. And they have massive amounts of equity and they spin off great cash flow. So, all that’s really, really good.

One of the things that I would say that I did wrong, when I first started at the age of 30 full time, I’d already been investing for 10 years at that point, but it was very slow, was I got caught up in the shiny object of wholesaling. And I had basically spent three to three and a half years of doing nothing but that. So, I lost track of why I got into real estate, which was I wanted to make money while I sleep. I wanted this passive income, this cash flow. And I didn’t buy a rental for the next three, three and a half years.

So, one piece of advice is figure out what your goal is and then stick to that. Don’t let these shiny objects pull you away from that. So, there’s one thing I did right, one thing I kind of didn’t do right. And then there was a third question that you had there, too. What was that?

Josh Cantwell: Well, I would just say, well, let me hunker down what you just said, what you did do right and you eventually married up the two strategies.

David Dodge: I did, yes.

Josh Cantwell: You married up the two strategies. So, as Joseph McClendon, Tony Robbins’ partner, would say, there are no winners and losers. There are only winners and learners. You learned where you bought those properties early, started young, and those BRRRR properties have worked out well. Then you got to know wholesaling, did that for three, three and a half years, but didn’t keep anything.

Today, you’re doing both. You’re wholesaling for kind of quick cash, wholesaling for cash now, and then investing the profits into the BRRRR Method, the cash flow deals. I encourage people, whether they’re in an e-commerce business, whether they’re a highly compensated doctor, whether they own a business, they’re in sales, whatever they do, they have whatever they do to make fees or make upfront money that pays the bills. And then invest the difference, invest the leftover profit into real estate for cash flow. Like if you’re in real estate full time, then you can wholesale for cash, that’s kind of like the W-2 job, if you will, to try to make a comparison, and then take the profits and put them into real estate long term, whether you invest in a syndication, you’re a passive investor, you buy rentals of your own, whatever that is because you kind of need the upfront money to pay the bills today. And I think what David did right is he did one, then he did the other, then he married the two up, and now he’s continuing to grow it. There is no right or wrong.

David Dodge: Yeah, the lesson that I learned, Josh, was– I wasn’t doing the BRRRR Method on those first. So, at the end of 10 years, I had 12 rentals. And then looking back, I’m grateful that I was able to do that and that I didn’t stop, but I was buying properties at what they appraised for. So, no matter what, banks are going to lend 80% of what it appraises for and/or what your purchase is. And if those two things, the purchase and the appraisal are the same number or very close, you’re going to have to have 20% down.

So, I look back, like, hey, that was great, but I did it wrong because I was putting down 20%. So, I learned a bunch of lessons and a bunch of skills by wholesaling full time for several years, but the main lesson or the main skill I learned was buying deals. I mean, that’s it. It was that simple. So, then whenever I woke up one day and I was like, man, I’m on this transaction treadmill, it’s good, but it’s not great. And I’m like, after I do a deal, I’m constantly circling back to the fact that I got to continue marketing and find that next deal. So, I was like, “You know what? I started with rentals. I got completely blinded by these shiny objects of wholesaling. Let’s bring it back.”

So, now, I had this new skill of finding deals. And the BRRRR Method is such an amazing strategy because now, instead of putting down 20%, I can earn my 20%. I mentioned this before, but instead of going to the bank and asking for a loan, I’m getting loans from private and hard money lenders to buy the property. So, the property is purchased, and it’s owned by me or my entity, but I now have a private or hard money debt on it. Then I’ll fix the property up and force appreciation.

Ideally, I’m getting a 15% or 20% equity capture on the buy, which is helpful. And then I’ll gain a little bit more equity by forcing appreciation and fixing those properties up. I’ll get them rented. And then what I’m doing differently now is, is what the BRRRR Method allows me to do is it allows me to go get a refinance, but now, I’m still getting a loan at 80% of what it appraises for, but I’m not paying that. I’m not all in at that same number. I’m all in at 70%, 75%, or 80% of what it appraises at. And the bank says, “Hey, we’re going to give you an 80% loan on the appraisal.”

So, there’s still 20%. I’m just not having to put it down. I’m able to earn that 20%. And then when we go to refinance, we pay back all of the lenders and their interests and all the holding and closing costs. And what it does is it allows me to acquire the asset just like I did in the beginning, but I am using this strategy, this method to gain that 20% versus having to go borrow it or save it and put it down.

Josh Cantwell: Yeah, I love it even though you said it was something you did wrong, the shiny object. You only said that because you’re like, I didn’t keep them all. But what you did right was you really learned the skill of buying properties at a discount.

David Dodge: Yeah, I learned the skills of marketing and direct to seller and negotiating and running comps and determining repairs, and all of those lessons and things that I learned helped me tremendously. And really, also, it was a great confidence booster. You go do a couple of wholesale deals and you’re like, man, this isn’t that hard. At the end of the day, I can do this.

And I tell this to all my students, Josh, if you pay retail for a property, your short-term exits are going to be tough because you don’t have any equity or any wealth that’s been created out of the gate. But if you buy a property at a 20% or 30% or 50% discount, you can wholesale that really easy. You can fix it up and flip it for a profit really easy. In fact, you can make a bunch of mistakes if you get a good deal on it and still make a profit.

And if you want to acquire it as a rental and use the BRRRR Method, you can do so with little to ideally no money in the deal in the end. So, by buying discounted properties, you have a lot of exit strategies, and I’m not typically one that likes to pivot, but sometimes you got to pivot. And even if you do have to pivot, you’re typically still going to be okay, you’re going to be safe. When I first started, when I’d calculate a deal, I would look at it, like how much money can I make?

And now, I have a whole different approach. It’s how bad can I screw this up and still break even and/or make a profit? And if you get a good deal, you can screw it up 10 different ways and still make a profit. So, buying deals, again, it was the main lesson that I learned there.

Josh Cantwell: I love it. Yeah, we call that stressing the deal, but I love how you just said, I just figure out how many ways I can screw it up before it doesn’t make money. It’s stressing the deal. I love it. David, you have a fantastic podcast, the Discount Property Investor podcast. I’m sure my audience is going to want to engage in that to learn many different strategies to find and acquire discounted properties, both residential and commercial. Where else can our audience go to engage with you and learn more about you?

David Dodge: Yeah. So, the BRRRR Method again is my passion. That’s where I like to spend the majority of my time these days when it comes to investing. We still do a couple of fix and flips, we still do a couple of wholesales, but typically, the marketing and the efforts go into finding rental properties that we can buy and hold. And as you and I both mentioned, I’m starting to scale up into more multis, small multis but multis at that. So, I love coaching, mentoring, and helping people with the BRRRR Method specifically.

So I have a program, it’s called BRRRR Method Mastery. That’s BRRRR with 4 R’s, Method Mastery dot com, so BRRRRMethodMastery.com, where people can learn more about me. They can learn more about this amazing strategy. And if they want to book a call with myself or my team, they can do so there as well.

Josh Cantwell: Fantastic stuff, David. Guys, check it out. BRRRRMethodMastery.com. Love it. David, listen, thanks for carving out some time. I know you’re super busy. You have a super successful podcast. You guys check that out. Check out his program, book a call. And David, thanks again for carving out some time for us today on Accelerated Investor.

David Dodge: Hey, Josh, thanks for having me, man. It’s been a pleasure. And hopefully, I provided some value to the audience here today.

Josh Cantwell: You bet you did. Thanks so much.