647: Long Distance Real Estate Investing Using the BRRRR Method

August 7, 2022bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 647: LONG DISTANCE REAL ESTATE INVESTING USING THE BRRRR METHOD

He went from full-time cop to reluctant landlord to avid real estate investor to top producing real estate agent to best selling author to podcast host to real estate mogul – all within the last ten years. In today’s podcast, David Greene shares his amazing story of how he learned how to be a successful real estate investor by mastering unique long distance investing strategies while employing the BRRRR Method.

What You Will Learn

What is your “Core Four” and why they are so critical to long distance investing success?
How important a good property manager is to out-of-state investors
Why becoming a real estate agent gave him an advantage as a real estate investor
How using the “1% Rule” can help you determine where to invest
What are the 3 forms of distress where you can find the best deals?
How and why he helps other investors
Two powerful ways to get out-of-state property leads
The disadvantages of long distance real estate investing
The three things you need to have in place for a great investment property

About Our Guest

David Greene

David Greene is the co-host of the Bigger Pockets Podcast, author of “Long Distance Real Estate Investing: How To Buy, Rehab, and Manage Out Of State Rental Property” and “Buy, Rehab, Rent, Refinance, Repeat,” online blog contributor, Keller Williams Rookie of the Year, and a top producing real estate agent in Northern CA. As a former police officer who started investing in real estate in 2009, David has built a portfolio of over 35 single family homes, as well as shares in large apartment complexes, mortgage notes, and note funds. He is also the co-host of the BiggerPockets podcast.

More About David

Real estate is currently the primary focus of his life
- Real estate agent – selling houses to clients
- Real estate investor
- C0-host of BiggerPockets podcast
- Writer of real estate blogs
- Writer for Forbes
However, he originally had no interest in real estate
His interest in real estate started in 2008 when a friend from church who was buying a house, who decided he wanted to go to Bible college and was about to lose his earnest money deposit because he couldn’t buy the house
- David said, “Maybe I can find someone else to buy the house.”
- They went to look at the house that was located in Lathrop, California (between Stockton and Modesto)
  - Not in a bad area
  - House was 4 years old
  - $215,000
  - 2,500 sq feet
  - 4 bedrooms/3 baths
  - REO/foreclosure
  - Needed no work
- There were tons of other homes (foreclosures) for sale in the same area (and around the country) at the time
- David thought, “Gee, this would not be a bad place for me to buy a place, rent it out, and when I’m ready to start a family, I can move in myself.”
- David called his friend’s real estate agent (She had a deal with the local bank to sell all the banks foreclosed properties).
- 4 years ago the home sold new for $555,000
- David asked the agent if she could sell it at a better price and she said, if he could buy it right away, that she would sell it for $195,000!
- It was a crazy time in the country, real estate prices were dropping quickly, people were making offers and dropping out of them constantly
- David ended up buying the property

Becoming a Real Estate Investor

Had no idea what he was going to do with the home
Had wrong mindset
Wanted to do everything himself (a total cheapskate)
Found a book – “Landlord for Dummies” – at a bookstore. Tried to read it all in the bookstore because he was too cheap to buy it!
Listed the house on Craigslist
Found a tenant
Was very busy as a policeman so he didn’t run the tenant’s credit, check his references – had no idea what he was doing! Was very naive. Tenant signed a lease.
Tenant ended up being a disaster.
- Paid rent only first two months rent.
- Title company sent a $3,000 tax refund over payment check to David at the house.
- The tenant, instead of forwarding the check to David, ended-up cashing the check by forging David’s signature and using the money to pay the first two month’s rent with David’s own money
- David evicted the guy (with the help from a friend)
- He ended up owing David $7,500
- Horrible experience!
- David was ready to just sell the house but, at that time, no one was buying, so he…
Put the house back up for rent
- Had some people come by who were looking at a house next door
- They said their “property manager” send them to look at the house next door
- It was the first time David had heard of a property manager and they explained how a property manager works
- David called their property manager (PM) and asked him to handle his house
- The PM ended up renting the house to the people David had just met
David was amazed to see how knowledgeable a good PM is and how helpful they could be
He went from hating real estate investing to loving real estate investing!

Real Estate Investing Takes Off!

Seeing how a good PM can really make a difference inspired David to buy more rental properties
He bought a rental house or two every year in California up until 2013
Got too expensive in California around 2013 (Currently has 5-6 homes in California)
Started buying in Arizona
Started building the foundation and a system for buying out-of-state or long distance investing
Arizona got too expensive
Started buying in Florida
Started to see patterns develop in his long distance investing – what worked and what didn’t
- Every time he went to a new market, he looked for certain things
- He found that if he got the first things done right, the next things would just fall into place
- He started to set up systems
- The systems prompted him to start writing the “Long Distance Real Estate Investing“
He saw that it was the perfect “Golden Era” time to invest
- Cheap houses
- Strong rental demand
- Low interest rates

“Gone Crazy Turbo Mode” – Building His Rental Portfolio

He was single and could afford to take risks and pour everything into his real estate investing
He decided to work as many as hours as possible – 100 plus hours a week – as a policeman
- 7 days a week
- 18-20 hours a day
- Sleeping in his car for 3 hours
- Getting up and working another shift
He wanted to make as much money as possible, to buy as many houses as possible, to take advantage of this “Golden Era” real estate cycle
In 2016, he realized that he couldn’t maintain that lifestyle any longer
- It was unhealthy
- Gained a lot of weight
- Relationships suffered
- Did nothing but work and buy houses
Joined a group called “GoBundance,” a wealth building accountability/mastermind group
- The guys in the group were saying he was too smart to be a cop and that he needed to be selling real estate
- He got his real estate license
- Stopped working the crazy hours
Ultimately, ended up taking a leave of absence from the police department

Becoming a Real Estate Agent

Since he was not working as a cop, he decided to use his available time to be a real estate agent
The knowledge he acquired as an investor gave him a big advantage over other agents
Became 100% focused on the business of becoming a “top producing” real estate agent (he works for Keller Williams)
He became focused on:
- What matters?
- How do you find business?
- How do you do a good job?
- How to out-negotiate the competition?
- How to help his clients understand what they’re getting into?
- The physiological stuff
Investing is very cerebral
- You get the numbers to work – it’s very simple
Being an agent is more complicated
- The financial/numbers side, and
- The emotional side – much more difficult to control

The Synergy

He now is in a beautiful position where there is great synergy between being a real estate agent and a real estate investor
He generates income as a real estate agent that he uses to invest in more rental properties
Everyone knows him as “The Real Estate Guy” because of all the houses he is buying – that attracts more business to him as a real estate agent
In a virtuous cycle – Both sides feed each other
He has found a nice niche as “The Real Estate Guy”
- Started co-hosting the BiggerPockets podcast
- Wrote his book on “Long Distance Real Estate Investing“
- Another book coming out in May on the BRRRR method
  - Great strategy for people who don’t have a lot of money
  - Great way to get your money back quickly on an investment
  - Great way for people who have a “nest egg” leverage their nest egg for maximum advantage
Loves being a real estate agent
- Thought he would hate it because he hates sales
- Found out that you’re not really “in sales” as a real estate agent
  - You’re not like a used car sales man waiting for someone to come on the lot so you can convince them to buy something
  - You’re more like a “sports agent” who represents a client to get them a better contract/deal
- His clients know he can find them good deals because he does it for himself all the time
But his passion is being a real estate investor
He has slowed down on buying houses currently so he can stabilize his real estate agent business

Selling to Other Investors

He doesn’t sell a lot of properties to real estate investors for a number of reasons:
- California is a bad market for investors
- Investors are looking for a house that no one else wants or has seen
- When you’re working with clients, since everything is online, they have see everything, so it’s difficult to present properties that no one has seen
- As an investor, it’s hard to find good deals on the MLS
Connecting Investors to Good Agents Out-of-State
- He does work with investors by connecting them with good agents in other states that will help them find long distance investment opportunities.
- He now knows and networks with the top agents in the country. These agents will help you:
  - Build your long distance team (The Core Four – deal-finder, property manager, lender, contractor/rehab guy )
  - Help you do your work, run numbers
- When the market corrects and there is another recession, he thinks he will work with more investors

The Tough Part of Being an Agent

Not as easy as it looks
It is extremely hard and competitive to find new clients
Not like HDTV
In reality, your time is spent…
- 10% – showing homes and negotiating contracts
- 90% – Finding new clients, convincing them to go with you, presenting properties they don’t end up buying
You have to want to have a love for EVERYTHING real estate
You’ll learn a ton about real estate
However, there’s a lot to being a successful agent
It’s a big challenge
You’re not just competing with other agents.
You’re competing with Zillow, Redfin, who are convincing people not to use agents (other than their’s) because it’s cheaper going with them. However, the agents they have are not the best agents

The Advantages of Being an Agent

You’ll learn a lot about real estate that you can use in your investing
Helps him when he communicates with agents out-of-state (whom he uses on his own deals)
Can separate “contenders” from “pretenders”
Building skills to help his clients find people they will need (good contractors, agents, property managers) helps him when he needs these people for his own investments

How to Know When it’s Better to Invest Out-of-State

If it’s too expensive to invest in your own state, you should start looking in other states
When you see home prices going up faster than rents, that’s a red flag to look elsewhere
He uses the 1% rule to determine if something is a good deal
The 1% rule says that if a house will rent for 1% of the purchase price, it’s likely to cash flow
He looks at what areas around the country meet the 1% rule
Hot markets are difficult to invest in because home prices are increasing so rapidly
Part of being a smart investor is finding the market where you can get a good return on your money and then getting your capital out of the deal so that when your “preferred market” makes sense to buy in again, you can

Knowing Where to Invest Out-of-State

Look for states where the 1% rule will apply
Coastal markets (the West Coast and the East Coast) experience the highest fluctuation in price
As you move into the center of the US (the “fly over” states – the Midwest and the South), you will likely find less fluctuation and more stabilization
For example, a $90,000 home in Indiana, that sold in 2010 for $82,000, is a good example of very little fluctuation – these are good places to buy
In a recession, when prices are down, buying in the coastal markets is best. You’ll get a lot of appreciation later on
In a market when prices are up, the Midwest and the South are best
Don’t try to find the next “Hot Market” – just look for a market where BRRRR will work! You don’t have to worry about appreciation!

How to Buy

If you buy with the BRRRR method, you can get your money back on your investments so you can keep acquiring properties and/or buy in coastal markets when the recession hits
If you are starting out, you can also buy your first rental property as part of a “house-hack”
- You can buy your investment home/duplex/triplex/fourplex, live in part and rent out the other part(s)
- You can get more favorable terms:
  - 3% down mortgage rates
  - You can get “down payment grants” and buy a home for NOTHING DOWN

The BRRRR Method

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat (David just wrote a book of the BRRRR Method that comes out in May)
Here’s the premise:
- If you buy a home for $100,000
- It needs $20,000 worth of work
- And you put $25,000 down
- You’ll be spending $45,000
- You’ll have a cash flowing property, however, it will take a long time to save another $45,000
- That is what was killing him as a police officer and why he was working all those hours
With the BRRRR Method…
- You buy a home that is in such bad shape that it won’t even qualify for a loan
- Pay $60,000 for the home with cash or a hard money loan
- Put $30,000 into rehab
- So, you’ve spent $90,000
- It’s now worth $120,000
- The bank let’s you borrow 75% on the appraised value, so your loan will be for $90,000
- You get your full investment back and you can go do the same thing again (the last R- Repeat)!

Becoming a True Investor

When you buy a new rental property, yes, your net worth can go up, you have equity, and you will get cash flow, but you will eventually run out of money
If you run out of money, you may have to figure out:
- How to buy properties with no money down
- How to raise more money
- Borrow
- Partner
- Syndicate
Using the BRRRR Method, you become a “true” real estate investor because you make money when you buy
Acquiring assets is the most important part of real estate investing
If you don’t have the capital to acquire assets, you are missing out on the most important aspect of real estate investing and building your own wealth
Instead of using the value of the property when you first buy it, you’re using the value of the property AFTER you’ve fixed it up and when it’s WORTH MORE! This allows you to retain more of your capital

How to Find a Good BRRRR Property

You’re looking for 3 forms of distress (something wrong with it)
- Market Distress (i.e. 2008-2010 recession)
- Personal Distress*- Divorce, medical bills, unexpected debt, has a home that they don’t want anymore and they need to get rid of it
- Property Distress* – A property in such bad shape that it poses a problem to whoever owns it
- * best thing to target for BRRRR
- TIP! You can find these properties on the MLS
  - Look for properties that have a high “days on market” number (90-150 days to sell) on the MLS
    - This is best because, if you can find a house in a market (where homes are already not selling), and you can find a house that no one wants to buy in that market, you can usually get a great deal
Other ways to find motivated sellers:
- Direct mail
- Google SEO search optimization
- Books on the ground
- Driving for dollars
Huntsville, Alabama is too hot to find these deals
You need to find a market where not a lot of people are buying, a property that’s in really bad shape and where your money will go far
Look in secondary and tertiary markets as opposed to major MSAs
David has access to the top agents in any market he wants and those agents help him in his search. He asks them:
- TIP! TWO WAYS TO GET PROPERTY LEADS IN A MARKET OF INTEREST:
- Get Under-Market Listings From a Referred Agent
  - First, find the “average price point” for that market
  - Then, ask the agent to get you a list of properties that are listed at 60% or less of the average sales price in that market
- Major Broker Referral
  - Find a a big major brokerage in the area (KW, Century 21, Remax)
  - Call and ask for their office manager or “team leader” – the person running the office
  - Tell that person, “I’m looking at buying distressed housing in your area. Who is your best agent that can help me with this?”
  - Next, you talk to the person they refer you to and say, “This is what I’m looking for. Do you think you can help me find it?”
  - If they say “Yes,” say, “I’m also going to need a property manager, local lender and a good contractor/rehab guy (that’s your Core Four – with your deal-finder).”
Three Things You Want in a Great Property
- Before you can buy the property, you must have your Core Four in place (deal-finder, property manager, local lender and a good contractor/rehab guy), then, the property must…
  1. Under-market value
    1. 75% of ARV (After Repair Value)
  2. Must cash flow
  3. Not in a bad neighborhood

Disadvantages of Long Distance Real Estate Investing

You must rely on other people
- You need to be a good judge of character
- Must be a stickler for rules
People can take advantage of you (i.e. you send a contractor payment up front and never hear from that person again)
- How to prevent this from happening (from his book):
  - Never send contractors the full amount of money
  - Contract
  - Itemized scope of work
  - Only send the first draw
  - Have agent or property manager check on work to verify it’s getting done the way you want before you send more money
  - You need to set up systems that will INSURE it will work!
Forces you to act like a business person

Biggest Mistake

Listening to Unfounded Fears
- In 2009, single guy with no responsibilities, lived below his means, thought he was OK “taking risks”
- In reality, there was very little at risk – he listened to fear that wasn’t supported by facts
- Missed a great opportunity – it was the perfect time to buy real estate
- Thought he was just being safe but it really ended up costing him a lot of money
- He should have bought three houses a year instead of one house a year
Other Mistakes
- Bought homes from wholesaler, David did not do his due diligence, ended up costing him
- Relying on inexperienced staff (cost him a new roof)
- Bought houses in bulk, didn’t do due diligence on all houses, it cost him $5,000

Biggest Success

Focusing more on equity than cash flow
Hopefully, using that equity later on to acquire apartments to generate great cash flow
Getting his investment money back right away (the BRRRR Method)
Seeing real estate as a “get rich slow” game – he wants to hold on to his properties for a very long time

Advice for Older Dawgs Interested in Real Estate Investing

Pay very close attention to your ROI
- If you’re on a shorter time span, you need to get a bigger bag for your bucks
- If you’re paying $45,000 down for a house, you better be getting a lot of cash flow
Learn and use the BRRRR strategy to make your money last – buy lots of properties using the BRRRR strategy
Postpone retirement or find another job after retirement, preferably something associated with something you love doing (i.e. real estate agent, loan office, hard money lender)

Current Business Goals

To be the top real estate agent in the Bay Area of Northern California
Provide continual free help to people interested in real estate investing

Rap-It-Up

Favorite real estate book: The Book on Rental Property Investing by Brandon Turner
Favorite business book: So Good They Can’t Ignore You by Cal Newport
Most valuable web site for success (other than your own): BiggerPockets.com
Favorite app: Mortgage Calculator Plus
Favorite quote: “I do not fear the man who knows 10,000 kicks, I fear the man who has practiced one kick 10,000 times” – Bruce Lee
If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business? Would use the money to get a place for a meeting, schedule as many people as I could to come to the meeting, share free contact (on things he’s good at), get their emails and contact info, systematically contact hem and ask them each what he could do for them (“What do you need help with?”). As he sincerely helps them, he knows it would come back to him somehow.

How to Reach David

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