David:
This is The BiggerPockets Podcast Show, live from Mexico.
My philosophy is that building wealth is a three-pillar system. There’s offense, there’s defense, and there’s investing. If you cannot save money, it doesn’t matter how much money you make, you’ll never be wealthy. You’ll just lose it. If you’re very good at saving money, but you cannot make money, you will be grinding your entire life and never being satisfied. If you’re one of those people that’s like, “I live off of $12,000 a year, but I make my own soap and I wear the same socks every day and I wash them with my hand,” you’re not getting the most out of yourself. Then if you’re good at making money, you’re good at saving money, you’ll die with the big savings account, but never have passive income, never have exponential growth, you have to build to invest the money.
What’s up everybody? This is David and Rob coming at you from Mexico where we are enjoying a wonderful getaway in Cabo. I believe this is… is it called Cabo because it’s Cabo San Lucas, or are those two different places?
Rob:
You know what?
David:
I’ve heard Los Cabos.
Rob:
I don’t know.
David:
[inaudible 00:00:53].
Rob:
I think it’s Cabo San Lucas. I think it’s just one area.
David:
I think there’s several Cabos. Maybe Cabo San Lucas refers to all the Cabos.
Rob:
Perhaps.
David:
Because somebody here has to know. It’s the most gorgeous place I’ve ever been. This is my favorite place in the world. Now, albeit I don’t travel a ton, but I love coming here. Kyla and I were actually talking about wishing that we could put events together at this place.
Rob:
This would be really cool. Yeah, there’s a lot of things. [foreign language 00:01:13].
David:
I see.
Rob:
[foreign language 00:01:16].
David:
[foreign language 00:01:21].
Rob:
[foreign language 00:01:22]. Very tasty, just like my face. That’s how that translates to.
David:
I always think of that, but like marvelous. You’re saying it’s very tasty?
Rob:
Well, I said the food is very [foreign language 00:01:33].
David:
I see. I was very [inaudible 00:01:34]. If you didn’t know, I speak a little bit of Spanish and Rob speaks a lot of Spanish and he’s been helping me with it while we’ve been here, but we’re having a blast. This is an awesome place and we thought that while we were here, we would record a show that basically digs into my origin story of how little baby David ended up with a big real estate David.
Rob:
This is a good one. This genuinely, if you have listened to the BiggerPocket show for many, many years, I don’t think the nuggets and everything, the origins or I don’t think we’ve talked about it in this podcast.
David:
We’ve never made me the focus.
Rob:
Yeah, this is really exciting. It was really exciting because the whole time I was just like, it’s very relatable. You’re a very relatable person. You need to tell us more about your origin story, man.
David:
Well, you did a good job pulling back the layers. It’s like Shrek. Ogres, “I don’t like onions.”
Rob:
And if you stick around until the very end of the episode, you’ll actually hear David pull off a Russian-Spanish accent.
David:
Yes, you will. I also learned while we here that Rob does not onions. Just like Josh Dorkin does not pickles. If you ever meet them in real life, don’t give Rob onions and don’t give Josh pickles.
Rob:
It’s so sad. It really is. I’m Mexican. It’s like a very staple food for us and my mom had to not cook with onion or she would lie about it when she made fun of us.
David:
A shame in your family for years. Don’t let our relatives know that Rob doesn’t like onion.
Rob:
Yeah. And then she would hide it from me. She’d be like, “No, there’s no onions in this.” I’m like, “Mom, I see the onions.” I haven’t talked to her in years because of it.
David:
Well, in spite of that, you conquered your fear of onions as you pulled back the layers of me and you got deep into how I got started in real estate, what I did before real estate, the philosophy that I take when I’m approaching real estate. You did a really good job.
Rob:
I’m a big fan of philosophical onions. Those I’ll chow down on all day. Well, okay, well, let’s get into it. But before we do today’s-
David:
Quicketh tippeth. Rob says, “Quicketh tippeth.” Now you have to say it in an old English accent. Today’s quick tip is, “Don’t try to figure out everything yourself.” If you read my book, Long Distance Real Estate Investing, I talk about my Core fFur. And part of the Core Four’s job is to use them to find other people in the Core Four, so if you work with a rock star agent or a really good property manager or contractor, odds are they know other rock stars that are really good. And you significantly increase the statistical likelihood you’re going to get a good person when you deal with a top producer who is a good person themselves. So, don’t try to do everything yourself. Look for the people that are in your world that are already good, and ask them who they can provide that will help you on your journey.
Rob:
That’s a great and quicketh tippeth, my boy.
David:
Thanks, pops. All right, let’s get to the show.
Rob:
Let’s do it. So, we are talking about David Greene today, right?
David:
All things green. It ain’t easy being green. That’s what Kermit the Frog once said.
Rob:
I’ve also heard that it ain’t easy being cheesy.
David:
That rhymes also.
Rob:
It’s Chester Cheetah.
David:
Chester Cheetah, yeah.
Rob:
I’ve heard a lot of your POV. I’ve heard a lot of your philosophies. I’ve heard about your journey in its entirety. You’re like, I’ll say your story to me is very much like Moana, where I’ve seen Moana 200 times with my daughter, but I’ve never actually seen Moana from start to finish.
David:
You’ve seen pieces.
Rob:
Yeah. I’ve never seen the entirety of Moana.
David:
But you don’t know how it all fit together.
Rob:
And I genuinely generally understand what Moana is about, but I don’t know the story, and that’s what this is for a lot of the listeners. We know David Greene, but we don’t know David Greene, Jr when he was starting out in the real estate world, so I wanted to dive into that today.
David:
Let’s do it. There’s no better time. We’ve been getting closer. We’re making memories. We’re sharing experiences while we’re in Mexico.
Rob:
How’d you feel about my analogy, by the way?
David:
Pretty good. It was very good.
Rob:
Thank you very much. I practiced that one in the mirror this morning.
David:
Ripped off on you.
Rob:
All right, so let’s jump into it. So, you have been investing for how long now?
David:
I bought my first property at the end of 2009. So, 12 years just about.
Rob:
Tell us, take us back to that moment. Where were you in your real estate? Where were you in your career? What were you doing? Were you wanting to do real estate full-time? Give us that painting. Paint that picture first.
David:
It’s so funny because we talk about real estate investing as you need to have a plan, a purpose, know exactly what you’re going to do, map it out, and then go execute it. It could not have been more different for me. I fell into real estate investing bassackwards. I had no intention of being an investor. I didn’t know what it meant. I was saving up money to buy a house because I knew at some point I was going to need to buy one. And this was between 2002 and 2008, where we had one of the biggest hottest real estate runs that we’ve ever experienced and it wasn’t related to quantitative easing. That hadn’t happened yet. It was just over-inflated bubble of an economy.
So, you couldn’t save up money fast enough to buy a house. It was very frustrating. And I didn’t want to buy a house during that period of time, but I knew I was going to need one. So, 2009 comes around. The market has pretty much crashed. A buddy of mine is in a bad situation because he’s got a place under contract in Lathrop, California, but he’s moving away to go to Bible College. He’s going to lose his earnest money deposit. So, he says like, Hey, this is a bummer. Can you pray for me?” And I’m like, “Well, let’s go look at the house. Just see what it looks like.”
He had it under contract at $215,000. It was a house that had been built three years earlier in 2006. It was big, probably like 2500, 2600 sq. ft. It just needed a vacuum run over the carpet. And I was like, “You know I might need to live in a house. Maybe I’ll buy it and I’ll just rent it out until I can live in it with my family.” That was my original plan.
Rob:
What were you doing at that time? What was your career?
David:
I’d been a deputy sheriff for maybe a year, maybe a little bit less than that. Before that, I had been a waiter while I was in college. And then I got out of college and I was a waiter for a year as I tried to get hired to be a cop. It takes a long time to actually have that happen. And then I finally got hired to be a deputy sheriff. I got through the police academy and then I had gone to work. And I’d been doing that for probably nine to 12 months when this opportunity came up.
Rob:
I’ve always wondered this, and I think a lot of people wonder this because we know that you were a cop. Would you consider yourself a cool cop? Were you a cool cop? Were you like the, “Oh, man, that cop, that’s a good… I like that guy. He’s funny?.”
David:
That is a complex question. If you were a person who was a good person that did a bad thing, I was a cool cop.
Rob:
Like running a stop sign?
David:
Running a stop sign. Driving too fast. Like little violation type stuff that we all know we’re not supposed to do, but it’s convenient to do it sometimes. If you were a bad person, human trafficking, anything to do with hurting kids, stealing from people, something that would ruin someone else’s day or their life if you did it, I was not a very cool cop.
Rob:
Perfectly fair. Perfectly fair. So, you were cool when you had to be?
David:
Yeah, and I was cool to the people that were like, if you’re walking up to their car, you’re detaining them for some reason and you see the look on their face like they’re just already miserable. Like, “Oh, this is the worst thing. I’m so dumb. I wish I wouldn’t have done that.” There was no reason to jump on you and make it worse and give you the whole, “What are you doing speeding down my road?”
I’d always, when my partners would do that, I would just shake my head. “You were taking yourself way too seriously, man. We all do that.” But if you were stealing something, if you were hurting somebody else, if you were looking to rob someone, if you were a professional deceiver, I was laser focused on catching you.
Rob:
That makes sense. I just got pulled over by a cool cop two months ago. I was in a minivan.
David:
Do you want to share your story of how you get out of every ticket you’ve ever had?
Rob:
That’s right. So, I’ve been work shopping this line when I get pulled over, the cop walks up to the driver’s side.
David:
And he says, “Excuse me sir.”
Rob:
He says, “Excuse me.” I said-
David:
“Do you know why I pulled you over?”
Rob:
I say, “You a cop. You got to tell me if you’re a cop.”
David:
And then he goes…
Rob:
“Ha, ha. That’s funny.”
David:
… “That’s good. You got me.”
Rob:
And then he goes, “Are you Robuilt? I love your YouTube channel.” That’s how it plays out in my head. I haven’t actually done it. I was like a cop pulled me over and I was like, “Oh, yes, sir. What can I do for you, sir?” And he was like, “Your lights weren’t on.” And I was like, “Oh, okay.” And then he proceeded to go back into his car for 10 minutes and then he was like, comes back, I’m like, “All right. My story checks out. You can look at my back. There’s like a lot of Trader Joe’s bags with milk in there.”
David:
Do you know what cops are doing when they go away to their car and they come back 10 minutes later?
Rob:
I assume they’re checking to see if I have any warrants out. Yeah. Okay.
David:
Looking to see if you have warrants, if you’re on probation, if you’re on parole, if you’re wanted for anything. Yeah, there’s all kinds of reasons people could be wanted. There’s sometimes people just aren’t paying child support and they’d just been getting away with it for a long time. There’s bench warrant issued so that…
Rob:
Dang. Yeah.
David:
… their baby mom can’t get paid or something like that.
Rob:
I’d like to think he was watching a Robuilt YouTube video in this car, just checking out how to learn how to get into Airbnb.
David:
Trying to figure out how to leave a comment on YouTube.
Rob:
That’s right, yeah. Anyways, okay, let’s get back to it. So, you’re a cop and at this point your buddy is trying to get out of this house and you’re trying to… you’re basically saving him from his-
David:
Losing his earnest money.
Rob:
From losing his earnest money. And were any of your friends on the force in real estate or was this really just a total shot in the dark?
David:
I knew no one, man. I didn’t know enough to even know what I didn’t know. I didn’t know what cash flow meant. I didn’t know how to analyze a deal. I mean, I had a basic understanding of being able to tell what property taxes and insurance and mortgage was going to be. And my realtor said she thought it would rent for $1500 a month, maybe $2000, which that’s a very big difference. And I wasn’t even intelligent enough at that time to know there’s a difference between $1500 and $2000. Clearly, she’s not giving me good information if it’s a 25% difference in the rent spread that she’s talking about.
Rob:
That’s funny because that’s how it is, the short term rentals. It’s like they’re very-
David:
So, that wouldn’t jump out at you, right?
Rob:
No. It’s all the returns are always good, so it’s like, yeah, $1500, $2000, it’s like you want to be dialed in, but it’s not a big deal. But on a long-term rental, it’s like-
David:
Wildly inaccurate. It’s “I should have known.” And then she didn’t tell me that this property was an area that had higher property taxes because it was like special assessments where it were levied on this part of town. So, my property taxes, I estimated to be a certain amount. They were like triple what that actually was. There’s a lot of things that I did wrong because I didn’t know that that was a thing you were even supposed to look for. But that is very common when you’re getting into a new endeavor.
Rob:
So, what was the plan? You were going to come in and you said it needed to be vacuumed. Obviously, this means that it needed a light renovation?
David:
Vacuuming was the extent of the renovation. So, I came in.
Rob:
Literally just vacuumed.
David:
Brought a vacuum from my parents’ house where I was living to the house. Vacuumed it. I didn’t even spray 409 on the counters and cleaned them. It was that good of shape. It was like a stain on the carpet that wasn’t even that big of a deal. Threw it up on Craigslist with some pictures that I took with an electronic camera and then uploaded via like a USB cable into the computer because that’s the way that we used to have to do things. I don’t remember, I think I just put it up for $1500 for rent because that’s what the realtor had told me. It sat there for a while and didn’t rent for $1500. I dropped it to like $1200 and I got my first bite.
Rob:
All right. Did he assign the contract to you or what happened? You said he was under contract?
David:
Yeah, that’s a good point, so I’m getting ahead of myself. I called his agent and said, “Matt can’t buy this house. I think I’ll buy it instead.” And this was during a time, for context, where every house on a street, every three or four houses had a “For Sale” sign. It was foreclosures everywhere you could look. No one was fighting to buy real estate.
Rob:
Because this was 2009?
David:
Yes. So, I called them and the listing agent was also the one representing him, which was common, they would double end it. But they worked for the bank that owned the property. It was real estate owned because the bank had taken it, the title back from the person that stopped paying the mortgage.
And I said, “Do you think you could help me on the price?” And she’s like, “Yeah, let me see what I can do.” She called me back the next day and said, Hey, we could do $195,000.” And it was a good deal at $215,000. I was like, “Oh, my gosh. Okay, I guess I’m buying it. What do I do?”
She put me in touch with her lender. It was like a Wells Fargo lender, so it was going to be more expensive than everyone else. I didn’t know the difference. Went through the process of getting the loan. Gave them all the stuff they needed. It was a pain in the butt because they were always asking for documents. I rented a room in a different part of town where I was working as a deputy sheriff and all my paperwork was at my parents’ house, so I’d have to wait till the weekend when I could go home and get the paperwork and then find a fax machine somewhere to try to send it in. It was very-
Rob:
I feel like 2009, we’re using fax machine.
David:
There was an app on your phone called Jot Knot where you could take a picture with your phone and the app would convert it into a PDF and that was magic. When I could just take a picture of the document and then send it as a PDF, it would save me a day of time. I didn’t have to go to Kinko’s and scan it and that was amazing to me. And now, we don’t even think anything of that. You just send a picture and send it in and that’s what you have.
So, I got this loan and then close on the house and the realtor leaves a key and I put the house on Craigslist. And the first tenant who said they wanted a house, I just signed him up and I had found a lease online for free somewhere and that’s what I printed out and had them sign it.
Rob:
Did you do any tenant screening? Because you obviously didn’t know much, but did you at least know the fundamental concepts of like, “Yeah, I lease it to a tenant. I do a background screening. I like charge a first month’s rent for the deposit.” How much of this were you knocking out on your first deal?
David:
I had read in a Landlording for Dummy’s Book, you should do that. And then when it came time to do it, I had signed up for much of overtime and I was in. The city was called Antioch, where I was living. It was like an hour away from Manteca where my parents lived. I realized I don’t have time to go home and do any of this stuff, so I’m just going to roll the dice and trust that if I’m good to him, he’ll be good to me. That’s how ignorant I was about managing property.
Rob:
Now, are you being hyperbolic or did you actually read the yellow…
David:
Yes.
Rob:
… landlord.
David:
Yellow book at a Barnes and Noble that said Landlording for Dummies. And like they said you should do any of that. And I was like, that’s-
Rob:
I love this. That’s good. This is good. David Greene, the BRRRR king, the real estate co-host of the-
David:
Hey, wait till you hear how this worked out.
Rob:
All right, so you get into this deal, you’re like, “I’m going to trust this guy. He seems like a nice guy. I’m going to be good to him. I’m a cop, so he can’t be that bad to me.”
David:
Yep. He knew that. And I actually was thinking in my own head, “Oh, he wouldn’t try to take advantage of me because I’m a cop. He’d be afraid of that.”
Rob:
So, what ended up happening?
David:
So, what ended up happening is he made his first three months of rent, payments and everything was fine and then on the fourth when he stopped paying. And I started to reach out. He had a new excuse every time. “Oh, I sent the check in the mail. I don’t know what happened. I’ll send another one. Oh, I don’t know. Yeah, I went and deposited it in your bank, in your account. I don’t know why it’s not there. Oh, I left it at your mom’s house. I put it under the welcome mat. I don’t know why that check is not there.”
It was like thing after thing after a thing and then four months later I’m like, “Dude, I’m going to have to evict you. I don’t know what to tell you.” At around that same time I got a… what was the… let me think about how this came to mind. I can’t remember the details of how it crossed my path, but I realized that the title company had sent… I know what it was. I remembered seeing my bills for property taxes were so much higher than I thought they would be because on the mortgage, they’re collecting it through escrow.
Rob:
And they’re basing it based on that year’s or the last owner’s taxes, too, right?
David:
And a special assessment. So, at first I thought it was just the special assessments. I expected them to be like $150. They were like $800.
Rob:
This month?
David:
Yeah.
Rob:
Whoa.
David:
Incredibly high. So, when I realized that’s not all special assessments, I called the bank and they said, “Okay, well, you have to go find out from the county why that’s the case.” I couldn’t figure out how to contact the county, so I ended up calling the title company to ask them what had happened. They’re like, “Oh, yeah, they’re not supposed to be that high. They’re collecting those based off of the house’s previous value of $565,000. Not what you bought it for at $195,000. We will fix that.”
A couple of months went by, it was fixed on paper, but they had told me they were going to send me a refund check. And I called to say, “Hey, where’s that refund check for all the money you collected at escrow when we closed?” And they were like, “Yeah, we sent it to you a long time ago.” And I was like, “Really?” Like, “Yeah, it shows it was cashed at this bank.” And so I went to the bank and they had a signature that was not mine and that check had been cashed.
It turns out that they sent the refund check to the investment property, not to my house and my tenant had cashed that check and been paying me rent for three months with my own money.
Rob:
So, you were paying rent?
David:
I was paying rent. My own rent of this house and getting lied to about where addition rent was going to be coming from. So, I realized that he had never paid rent. He had paid me rent with money he had cash from my check. He then got into a breakup situation with his baby mama and had told her he was paying the rent and he wasn’t paying the rent and she wasn’t paying the rent. So, when we tried to talk to her, she’s like, “Yeah, we’re paying the rent. I don’t know what to tell you.” And when I tried to talk to him, he didn’t talk to me at all. And I realized, “Oh, I’ve got an eviction on my hands now.”
Rob:
Wow. So, you stepped into real estate and on your first deal, you had an eviction come up.
David:
Eviction, being lied to, getting ripped off, having my money stolen from me, just like thing after thing after thing was going wrong here.
Rob:
It’s like even as a cop, there’s not really anything you can do because it’s like a civil matter, right?
David:
Yeah, and the rules for landlords, what I remember learning was there’s so many rules for how I’m allowed to go about getting this bad person out of my house, but there’s no rules that he can’t do this stuff.
Rob:
It’s so unfair, yeah.
David:
Serving the legal, getting the legal papers made was a pain in my butt. I had to pay all this money to do it. He didn’t have to pay for anything. And then serving the papers, I can’t actually serve him. I had to go find another person that was a neutral third party that would serve them. So, you got to go through all the people you know willing to do this. And then they had to go through weeks of trying to catch the baby mama to get her paper served, so that we could start the eviction process.
And then you got to wait for your day in court, which can take months to come. It was a very frustrating experience. I remember at that time I thought if the market had gone up, I would have sold that house and never invested in a real estate again.
Rob:
Man. Okay, so actually you said something that’s crazy. So, you bought it for $195,000. They said they were taxing you based on the previous real estate price of like $595,000?
David:
$565,000, yeah.
Rob:
Does that mean that that’s how much it crashed?
David:
Yeah. In ’06 when it was built and sold, it was sold for $565,000 as a brand new construction.
Rob:
Wow.
David:
Three years later I bought it for $195,000.
Rob:
Do you still have that house?
David:
Yeah.
Rob:
Do you know what it’s worth today?
David:
It’s probably like $525,000.
Rob:
It’s pretty close to that, the original.
David:
Yeah, it’s close to where it was.
Rob:
Wow. Man, that’s crazy So, you evict this tenant, you serve them and then you give up on real estate?
David:
Yeah, so what happened was I listed it for sale again and I was like, “Well, this time I’ll try to be a little…” or it was listed it for rent again. I showed it to a bunch of people. And then one of the people that I was really leaning towards was telling me how they had a property manager that told them they should come check out the house. And I said, “What is a property manager?” You think that the title would be self-descriptive, but I didn’t know.
Rob:
Yeah, I understand.
David:
And they said, “Oh, it’s this person that connects with the landlord for you and we pay them the check and then they pay it to the landlord and they take care of everything else.” And I was like, “Well, that sounds better than what I’m doing. Can I have their number?” So, I remember writing it down on a piece of paper because cell phones weren’t very common. And so, I called them and-
Rob:
It’s 2009, man.
David:
Yeah, I know.
Rob:
Not 1999.
David:
But it wasn’t like, I’m trying to remember it. You were still writing stuff down all the time. You weren’t just like, “Let me put your information in my phone type of a thing,” right?
Rob:
Yeah.
David:
There weren’t smartphones is what I should probably.
Rob:
I see. You didn’t have that.
David:
I had Nokia type phones. I had this flip phone with a keyboard that was super cool. Everyone thought I was James Bond when I would type with it.
Rob:
A Nokia?
David:
Yeah. And I called the person and he explained how it worked and he said, “I collect 8% of the rent, but I’ll do it for you for 7.” And I was like, “Okay.” This person was not a good property manager. It turned out he was addicted to drugs. His girlfriend was actually the one running the business. He was terrible, but he was still light years better than me being terrible. And I realized, “This is a thing I need to let other people do.”
It was so much better when I was collecting $1200 and I was giving him $100 of that or something like that. And I was keeping $1100 and my mortgage payment was probably like $850 or something. So, I was still making some money every single month and I had a person taking care of the problems. And it was my first experience with leverage and seeing how much better it is.
Rob:
Man, obviously, you’re still very active on the force and everything like that.
David:
Yeah.
Rob:
While you’re dealing with these landlord woes, I got to imagine was that relatively inconvenient for you? If you’re out in the field and you’re like yeah, I don’t know, I’m trying to catch a bad guy if you will, then you get a phone call that this is happening on your property? Or was it pretty separated from your day-to-day?
David:
Yeah. It’s not very often that you get a phone call from a landlord saying something’s going wrong when you’re not doing a short-term rental. It’s very infrequent. It’s usually an email like, “Hey, the fence is leaning over. What do you want to do? Do you want to fix it? Should I get a quote?” type of a thing.
What I do remember is that I was so worried about messing up at work, losing my job, not making the probationary period, as you should be when you’re a new employee, that how the property was doing was really not a priority in my life. I just didn’t want to have to deal with it. So, that-
Rob:
Break even was like-
David:
Happy to, yeah. I was like, “I should have never bought this house. I’m an idiot. If I could just break even, this is okay. I’m going to focus on working overtime. I’m going to focus on my career and I’m going to focus on being a better police officer, learning as much as I can. Earning the respect of my peers.” And the real estate thing is just like, “I don’t know what, I’ll figure that out later.”
Which was I think a healthier attitude to have because then when the things didn’t go like I expected, I did not internalize it and say, “I am the problem. I never should be doing this.” Which is very easy to do when you’re new.
Rob:
So, you get this property manager, you understand now, not just leveraging. It’s leveraging your time, right?
David:
Yeah.
Rob:
Well, what happens next? You get into your next property? Are you skittish about that thing?
David:
Super not intentional. My mom calls me and she’s like, “Hey, honey. There’s a house down the street and it’s really nice and it has a cute pool. And I just think you should take a look at it because wouldn’t it be nice if you live closer to home?” And I didn’t tell my mom, but I’m like, “Maybe now that I know how property management works, I’ll get another house.”
So, I go look at the house and this is again a foreclosure. It had been in contract. It had fallen out of contract twice already. I got a different real estate agent working on it. The pool had been completely empty, but it was a nice pebble-tech filled pool with a waterfall. The backyard was really nice. It had this deck in the backyard because it was a two-storey home, off the master suite. I liked the house. It was really nice and it was close to where she lived. And I wrote an offer. I think it was listed at like $230,000. But it had fallen out of contract a couple of times. I wrote an offer at $183,500 and they accepted it.
Rob:
On escrow?
David:
Yeah. And I was like, I didn’t know at that time if your first offer is accepted, you probably wrote too high of an up, right?
Rob:
Yeah.
David:
But I just thought, how do I turn that down if I could get it for $230,000. It’s worth more than the house I already bought at $195,000 and I can get it at $183,000. And it’s in a little bit of a better location. So, I ended up buying a second house at that time. Now, there was a refund that President Obama had come up with where if you bought a house during this time, you get this $8500 tax incentive, so I was getting that on top of it.
So, I bought the house. I got a different property manager company that was better. I still use them to this day that managed that property and it went way smoother. And I’m like, “Oh, I own two houses now.” The bad news is when I filed my taxes that year, I actually claimed it as an investment property like I should. And then I had to pay back the refund because it was only for primary residences.
Rob:
I see.
David:
You don’t know when you’re a new person how this stuff works. But the experience with that house was so much smoother than it was the first time because I had a better property manager that I thought, oh, real estate is not that bad.
Rob:
I think were you just saving up money as a cop? You were making enough money to just buy these houses?
David:
So, this is probably a better part of the story than just the buying of the homes. Because I think when people hear about a real estate investor or they hear about me as a real estate investor, the perception is they’re a brilliant genius when it comes to deploying capital and making the most out of their money and they analyze better than someone else. I don’t actually think that was my strength.
Where I had done well in life was I was very good at saving money. The whole time I was in college, I was working in restaurants and very focused on doing the best I could to make the most money possible. So, you’ll frequently hear me talk when we’re here at this resort about how impressed I am with the attitude of the staff. The person that was making my room this morning was so fast and so friendly and so happy and in such a good mood. You’ re like, “Are you on drugs? Is somebody holding you against your will and making you this happy? How are you so happy to be working?”
Rob:
It’s true. They are phenomenal.
David:
It’s amazing. But I think part of it has to do with this is a very good job to have in this area. It pays better than other jobs. It’s safer. They probably have some form of benefit. And their perspective is, “All I have to do is be nice to the guests and be good at my job. Making a room, cleaning a room, bringing up-”
Rob:
At this nice place.
David:
In a beautiful resort with the ocean view. It could be. So, they have a great approach. I looked at my job like that. “This is so much easier than basketball practice. There’s no pressure on me. This is so much easier than so many things I’ve done. I just have to think fast and move fast and give guests good service.” Being a waiter is the simplest. Now, this was at a nice steakhouse, so it wasn’t like I was at Denny’s. It was a little more challenging than a regular job. But my-
Rob:
You’re at a Sizzler.
David:
Yeah, exactly, yeah. At the TGI Fridays with all my flair. But I remember working harder and being very competitive with all the other staff. I wanted to be the best person at that restaurant. I wanted my boss to like me the most, so I wanted to be able to wait on more tables, give better service, make more money, work longer hours, work more of them. And I gamified that.
A lot of it’s in the book I’m writing for BiggerPockets right now called Pillars, where I tell this origin story of what I did. But what ended up happening, long-story short, is I had a goal of saving a minimum of $500 a week. This is back in like 2004 dollars, 2003. And then I got a better job at a better restaurant after I went through reconstructive surgery in my ankle and I could save even more. I was in college, but I was still working full time. I wasn’t like taking trips to Cancun and spending all my money. I never understood why 21-year-olds think they need a vacation so bad because most of their lives are not that hard.
Rob:
Their life isn’t.
David:
Yeah, that’s exactly right. You’re like mom and dad are paying for college and you don’t really have any responsibilities other than studying for a test. So, I would drive an hour to school, drive back, drive an hour to the best place I could find to work at a restaurant and I would save that money. And when I graduated college, I had my school paid for. No student loan. My car paid off cash and I had over $100,000 saved in the bank.
Rob:
Whoa. When you graduated college?
David:
Yeah, stepping out of college, and that wasn’t like trust fund baby. And also, I wasn’t like in an orphanage. I still had a pretty strong support system, but I made the most out of what was there. So, I came out of college with $100 grand and then I got a job as a deputy.
And I was like, “Well, what do I need to do on the weekends? I don’t have a family. I don’t have responsibilities. I could sit around at home or I could just fart around or I could go work overtime. And I could let some of the older guys that have families get some time off by picking up their shift for them. And so, that’s what I would do. And then I was making good money and saving money.
So, when opportunities came, which was the crash in 2009, 2010, 2011, or you see the house that was under contract for 230, you can get it for 183. I had enough money set aside that I could not only afford to buy it, but I didn’t have fears of “What if I go broke?” And there was more money that was always coming in. It was literally the management of money and the management of myself because that’s what money management is. It’s managing your own desires.
If you can’t control yourself, if you can’t delay gratification, you’ll never be good with money. Those two things are just tied together. And because I was able to do that, I had money to invest in real estate, which ended up growing and I ended up learning how that worked. But that’s why I was able to buy these houses that you’re talking about.
Rob:
That’s great. That is really good because a lot of people are like, “Whoa. Well, what if you don’t have money or it takes money to make money.” And it obviously it’s true in some capacities, but you were a broke college kid and you kept yourself broke by saving all your money. People don’t really ever put two and two together that making money is as important as saving money.
David:
Yes.
Rob:
You come out of college, you have 100 grand, then you’re working on the force, and then you’re working overtime. And now, you buy this first house and you get into your second house. What were the downpayments on these? Were they entry level 5% or were they like the 50%?
David:
No, they were like 25%.
Rob:
Wow, so you were really going. You were really putting a lot of your savings into real estate?
David:
Yeah. It feels it’s a lot of money when you’re that age and you’re dumping them. My first house $195,000 that would have been… what’s 25% of that? It’d be about $50,000, right?
Rob:
About 50.
David:
$50,000 down plus your closing costs. The next one went $183,000. It’s similar numbers to that. The third year my grandma passed away and the family was talking about selling the home. But because at that point my identity has started to rebuild self, “I’m a real estate investor,” not just “I’m a cop who owns a house.” I actually had the foresight to say, “Why don’t we get an appraisal and I’ll buy it from you guys for what an appraisal for. You can save the realtor fees.”
I wouldn’t have thought that way before my identity was shifted that way and I had the money. So then, I bought her property and then I used the property manager company. I had to rent that out. And now, I was this… this sounds weird because we interview people on the podcast so often that are 23 years old with 20 units.
Rob:
I know.
David:
Right?
Rob:
Yeah.
David:
Not the case before podcasts, before internet, before YouTube. There weren’t young kids that were owning a lot of houses. You’d hear these adults that would hear my story, “You have three homes? And you still rent a room from another cop for $500 a month, but you owned rentals.” I ended up having eight rentals before I ever bought a house.
Rob:
For yourself?
David:
Myself, yeah.
Rob:
Wow. So, were you renting at that time?
David:
Yeah, I was house hacking, but on the other end of it, where he owned the house and I would rent a room from him. I didn’t need a whole house. And I was like I’m a young guy. I’m working all the time. I need a bed to sleep in and a place to keep my stuff. I need a washer to wash my clothes and a kitchen to cook food. That was about all that I needed.
So, that’s how I lived. I rented rooms from other cops for a long time. And I got all the benefit of having a big nice house that, and we usually work different shifts, so we weren’t around each other very often. It was very comfortable, but I wasn’t spending $2,200 a month on rent, like the people who wanted their own apartment or wanted their own place.
Rob:
And the landlord or the cop or your buddy, they were probably like, “Man, I’m getting 800 bucks a month.”
David:
Yes, that’s true.
Rob:
And so, that’s my mortgage.
David:
He’s making 500 bucks a month for me. The first guy paid $300 a month for his room and he was just happy to have… he was lonely. He’s like, “Oh, I got a roommate. We get to hang out and talk. We would work out together. And it’s again, if your mortgage, if you bought a house during the downturn and your mortgage was like 1200 bucks, to get 300 bucks was like-
Rob:
It’s big.
David:
Yeah.
Rob:
Dude, my first house, even after I was 20… man, what was it? 2013, 2014, it was really not making a lot of money. I think I was making 40 grand and my wife and I just barely, barely squeaked into a home. I got enough money from my tax return, a couple of thousand, and then I had this guitar amp that I worked so hard. I was playing guitar gigs on sixth Street in Austin, Texas, and I saved up $5000 doing that. It was my dream guitar amp. And I remember being like, “All right, it’s time to get serious.”
I just remembered this couple of weeks ago. I was like, “How did I buy my first house?” And I sold the guitar amp and I got into this house and it was like $1100 bucks a month and my buddy was paying me $400 a month to live with this.
David:
That’s close to half of your mortgage.
Rob:
It was a game changer.
David:
More than a third of it.
Rob:
Yeah. I was just like, I cannot believe I’m making $400 on a room. House hacking is just such an enabler of wealth, I think.
David:
Well, I think the key is respecting money. And what I mean by that is it’s easy to think, I make this much money. I have to work. Money comes in. You spend it on the things you want. Not understanding you don’t actually have to work or you could work an easier job and make less money or a harder job and make more money. There’s a connection between the money that you’re earning and the amount and the quality of life that you may be struggling from.
Elon Musk has a quote that, “The amount of money you earn is in direct proportion of the quality of problems you solve.” If you solve complex, hard, stressful problems, you usually are going to make more money, but your quality of life is going to go down.
Rob:
Sure.
David:
We’d all rather not do hard things if we could help it. So, I had a clear understanding that money is related to me being tired because I worked overtime or not hanging out with my friends or pushing myself when I didn’t want to have to do something or just be in an environment I don’t like, so I didn’t want to waste it. It had an inherent meaning to me. And if I could figure out a way to save money by living with someone else or keeping my money in the bank, I saw that it was empowering.
Now, I did not know that planting these seeds in real estate would grow at the exponential rate they did and put me in a position of being a wealthy person. I had no idea this is how it was going to turn out, but I did understand that you need to respect money and if you’re throwing it around like it’s nothing, you’re not respecting your own time, your own energy, your own effort that you’re putting into life and the people that are supporting you. You’re never going to stop working and you’re never going to have a job that you like.
Now, we share the message on BP, “People, this is how it can work out. You should do this.” But I didn’t understand it was a journey of faith that I was taking. It worked out like this.
Rob:
Okay. That was your third house. It was someone in your family. There was-
David:
Grandmother passed away.
Rob:
Grandmother passed away. And at this point, things are clicking?
David:
Mm-hmm.
Rob:
And then you go into rehabs at this point or are you still just looking?
David:
I bought my first four-plex.
Rob:
So, you decided to multiply your problems times four?
David:
Yeah, yeah, I did. And it was such better cash flow that when I bought that four-plex, I didn’t know what ROI meant. I didn’t understand real estate math.
Rob:
Which means a return on investment.
David:
Thank you for that.
Rob:
Yeah.
David:
I’ve recently figured that out and now, I teach everybody something. I figured out 12 minutes ago. What I looked at, it was like when I did the math on it in my own, on my napkin or whatever, it’s like, “Oh, my God, I can make this money back in three years.”
Rob:
Because this was before cell phone, so we didn’t even have calculators.
David:
The calculators. Right.
Rob:
Yeah, like did on a napkin.
David:
Did it on a piece of paper.
Rob:
Then you fax it to yourself?
David:
And I was like, I didn’t know that was called return on investment, but it was like a 32% return on investment. And I just remember thinking, I’m going to get all this money back in only three years and I’m still going to have the property and the cash flow. This is cheating. How is no one else doing this? Even though I already owned three properties, they probably brought in a total of a thousand bucks a month or something.
That thing, I bought it, every unit was $700 a unit. There was four of them. I immediately bumped the rents up to $800 and it was cash flowing close to what all three of the other ones were.
Rob:
Wow.
David:
And it wasn’t the deal of the century. Yeah. It was listed at 250 or 260, and I bought it for 10 grand, less than that. My realtor that I bought it from, owned it. She had bought it as a foreclosure. I went in and I bought it from her. And I remember thinking, “I’m going to buy as many of these as I possibly can.” That’s when it really clicked and I got intentional about real estate. And this was 2013. And at that exact same time, the California market completely turned around. It took off. You couldn’t buy anything. And I was like, “No, my dream is getting away,” when I had started to figure it out.
Rob:
Dang. So, what was that like? Because I think you said you owned three and then you decided to get a four-plex. That’s a giant graduation, I feel like, to go from three homes to now doubling your portfolio. Were you super excited to get into that? Were you worried? Because this is where a lot of people get in their head where they’re like, “I don’t know if I’m ready to double up quite yet. I’m barely figuring out how to do.”
David:
No, man. It was easier to own that one than the other three.
Rob:
So, you felt that going into it?
David:
Yeah, I didn’t know that. I was just too ignorant to know it was a very big difference.
Rob:
I see. I see. So, you do it and then when you were mathing it out, you mathed it out before you made the offer and you’re like, “This makes a lot of sense.”
David:
Yeah.
Rob:
What comes next?
David:
So, after the four-plex, the market turns around in California. I can’t buy real estate anymore. I spent a year and a half, two years sulking. “I lost my chance. I can’t believe I didn’t figure this out until now. It’s too late to buy real estate. Nothing cash flows anymore.” I finally remember cash flow was just in time to realize I can’t do it.
And I’m watching this commercial and it was like they were advertising some finance thing that caught my attention. And then when the commercial ends, it was on Fox Business News, there’s a real estate agent talking to one of the talking heads of finance about the Arizona market. And her name was Tanya. And Tanya was a big shot agent that was like, “A lot of markets are correcting already.”
I’m like, “They sure are. Sister, preach it. This sucks.” “But the Arizona market really hasn’t yet.” I was like, “Huh?” “We still haven’t come out of our hole. We’ve got a lot of foreclosure inventory. Houses are selling. This is a great investor market.” And all these are key words that I’m listening to.
So, I look her up online. I find her phone number. I start calling her phone every couple of hours for a couple of days. I probably called that number 50 times. Because in my head, a big shot agent is like a celebrity. It’s very hard to get a hold of them. Like you’d think that I was a real estate agent, they’d want your business. She backed now that I am that one.
And I finally got a hold of her and I told her I own some property and I wanted to buy in Arizona. And she sent me some examples of properties and then I mathed them out and I was like, “Oh, the return on these is really good.” There’s somewhere between a 15 and 22% return on all these four-year-old houses. So, I flew to Arizona. I met with her. I got pre-approved with her lender.
I looked at a bunch of houses. I wrote offer after offer after offer. They were all very below asking price and nothing got accepted. And then after my third trip there, she sent me two homes that she had not shown me before, like they just hit the market. I wrote an offer on both. They both got accepted.
Rob:
Did they need any work or were they turnkey?
David:
No, they needed paint. And that was just because-
Rob:
It’s a little bit more than vacuuming the carpet.
David:
Yeah, ut not too much. That’s about it. The person who had lived there had just painted this one room green, this one blue, this one yellow, that type of thing. So, this needed to be painted. And I was like, “Well, which one should I buy? Screw it. I’ll just buy both of them.” And I remember I bought them each for $117,000. And then one of them appraised for 114. And I was like, “Oh, I got ripped off. I’m so dumb. I don’t know. I can’t believe I overpaid. I don’t shouldn’t be doing this. I don’t know that market.”
And so I just remember asking her, “Well, when I buy them in California, I need a property manager. Do you have one?” “Oh, yeah. We have one that works with our office.” “Okay. And I always need a contractor. Do you have one?” “Oh, yeah. We use this guy.” All right. And then she’d already introduced me to her lender and so, I just figured out, “Well, when I have one here, I use this person. I’ll just find one in Arizona.” And what do you know? The contractor of the property manager, the agent, they all happened to know the people that I needed.
Now, were they the best vendors ever? No. But I eventually found the best vendor by bouncing around from person to person until I had a couple of others. And then when I had a really good contractor, I got confident. I’m like, “Okay, I got these two houses rented out, the property manager company is managing them. Everything seems to be going okay.”
But the HOAs there are giving me headache, so I want to find something not in HOA. So now, I’m looking for houses with her again and I’m feeling better and I’m more aggressive. And I’m talking about real estate at work, and I’m intentionally working a lot of overtime to save more money because I want to put it into real estate now. I’m like doing it on purpose.
Finally, she stops accepting my calls. She stops responding to my emails. She goes dark. I call her broker. I can’t talk to you. What is up with this? I find out six months later, she had been arrested for helping the cartels launder money through real estate.
Rob:
Whoa.
David:
And the judge issued a gag order that she was not allowed to speak about real estate in condition of being let out of jail. And I found a video of her walking into court in orange jumpsuit and chains. I’m like, “That’s my person that’s hooking me up in Arizona. What am I going to do? I don’t have her.” So, I called the property manager. He is like, “Oh, yeah. We heard about that.” I was like, “What am I going to do?” He’s like, “I could connect you with another agent.” I was like, “Oh, I guess that-”
Rob:
Yeah, I guess that does make sense. There are thousands of them in Arizona, but-
David:
And that just goes to show when you’re a newbie, it is so common to freak out emotionally over these things that are not a big deal, but they feel like it when you haven’t done it before.
Rob:
All right. This is crazy, man. It’s really good. So, you see this TV commercial and there’s someone that’s like, “Do you need to buy a home? We buy ugly homes. I’m the best realtor in Arizona.”
David:
Yep.
Rob:
“Call me.” Boom, boom, boom. And it actually worked. You’re like, “Whoa, this is crazy. She’s on TV. She’s a celebrity. I got to call her.” And then she actually ends up being good.
David:
Yeah.
Rob:
And then she’s obviously so good that she catches the cartels.
David:
She goes for the cartels, yes
Rob:
That’s right. And then you need to buy more properties and she’s gone. So now, faced with this difficult decision, you have to find another realtor of crazy talk. At this time, you find another realtor.
David:
So, I find the other realtor by late at night working graveyard one night, looking up Arizona houses. I find a website that seems to have more homes for sale. This was called IDX. There was a technology that was new at the time where realtors could have their own website and they could stream what was available in the MLS through their site. This is before Zillow took off, so you didn’t go find a portal to look at homes as much as you would find a website of a realtor and you’d look for homes through their website and then they could see what you were looking at. It was like a sales funnel type thing.
For whatever reason, his name was Joshua Smith that his site just seemed to have a stronger price of rent ratio and nice houses. So, I reached out to Joshua Smith. He ended up being one of the top realtors in the country at that time. And then he connected me with Billy. And Billy ended up becoming my guy and his team, became my go-to Arizona agent. And then Billy helped me buy probably five or six houses in Arizona over the next three years.
Rob:
Billy from realtor that I? Wow.
David:
That’s good old Billy.
Rob:
He’s been around for a while.
David:
He was there. He was A one from Day 1, man. Billy connected me with better contractors. And now, I would look for houses that were really small, like a 1200 sq. ft. house in a neighborhood full of 2000 sq. ft. homes. And his contractor could add extensions to make them bigger. And back then it was like, I mean, literally, you could add a wing of a house for $35,000. Stuff that would cost you a $100,000 today.
Rob:
But wasn’t that crazy though to buy a house in Arizona when you lived in California? Because obviously people have done long distance investing throughout history. But I feel like it’s a way more popular thing now as technology applications.
David:
And that was a book that I wrote.
Rob:
That’s right. That’s what started it all.
David:
So, part of the problem, Rob, was I was too ignorant to know it was risky.
Rob:
I see.
David:
No one was telling me it was a bad idea until I told them I was doing it, and then everyone would say, “That’s a bad idea.”
Rob:
Got it.
David:
And I wasn’t arrogant. I was like, “Oh, my God. I can’t believe I’m doing this. It’s a bad idea.” But I just kept thinking nothing that they’re saying is going wrong. None of that happens. I haven’t been ripped off by a contractor because I just make him send me a video of the work he did before I send him the next drive. I’ve never sent a contractor the whole price for the whole construction that I don’t know right off the bat.
And I always ask my agent who he uses, and my agent is one of the top performing people in the state. He’s not going to give me a bum. He’s probably used these people before. And just all the things that people were telling me could go wrong, weren’t going wrong. And it was hard for me to believe that out-of-state investing was terrible and I wasn’t finding the cheapest market that I could.
I really believed in the fundamentals of Arizona at that time. It was still near the bottom after a big crash and people still needed a place to stay and rents were slowly going up and values were going up. And so, I kept doing it, but what I did have to do was build systems. I could not rely on myself to go fix the problem that was happening. I had to find the person to go do it, which was eventually what made it into Long Distance Real Estate Investing, the first book I wrote is, this is how you build systems and checks and balances to make sure that you’re not getting ripped off in real estate.
Rob:
Did you stop at Arizona or did you continue to buy around the country?
David:
I bought until Arizona was too expensive to make sense to cash flow. Same thing as California. I realized the pattern that coastal markets like the West Coast and the East Coast tend to fly up the highest and then they tend to crash the hardest. And then it’s like this ripple effect that moves inland from there in the middle of the country, nothing ever happens. It just stays static. Stuck in time, like Captain American in suspended animation forever. A couple states in, you got Arizona. Then that market gets too high and you kept moving in.
So, I had the same problem and this time I would talk to people and say, “I can’t buy houses anymore.” I got, what, I had four properties in California and then end up with five or six or seven in Arizona. And I met a guy through Go Buns that said, “My buddy is the VP of something at this bank in Florida. Let me talk to him.” And he came and said, “Hey, they’ll give you a line of credit for a million dollars to buy properties in Florida.” And I was like, “Well, I’ve done it in California. I did it in Arizona. I’m going to go do it in Florida. What do I need? Well, I need these four guys. If I got an agent, a lender, a contractor, and a property manager, my core four, I can figure it out.” And that’s what I did.
I bounced around. I found a couple of agents. I bounced around and found a couple contractors. I found two I liked. The bank in Florida was financing it. The property manager, I bounced around until I had one I liked. And that’s when I really started scale and grow a bigger portfolio.
Rob:
At what point does the BRRRR strategy start hitting with your portfolio?
David:
At this time in Florida. So, I realized at that point I could buy if I busted my butt and worked every day of the week, I could buy maybe three properties in a year. Because I-
Rob:
You’re working overtime, making extra money that-
David:
And just having no life. You’re just working every single day to do that. And I just thought, “I can’t do this forever.” And we didn’t have what was called the BRRRR, but something clicked where I rehabbed a house and it was worth so much more than what I had paid for it. And it wasn’t like a hard money loan. I had just bought it in a normal way. And then after the rehab, my realtor was like, “Dude, you’ve got like $100,000 in equity.”
And I was sitting at work one day and I remember thinking, something clicked in my head. Instead of trying to get money from the police department to go put in houses, what if I took the money out of the stuff I already have and put it into more houses? So, I refinanced that one house. We didn’t call it BRRRR, but I realized if I could add value to every house I bought, I could keep pulling money out and buying more. And that’s healthy because it forces me to buy better houses and add value to houses as opposed to being tempted to buy that turnkey property that’s already perfect and that adds value to it.
Rob:
And it pays those premium, too, right?
David:
Yep.
Rob:
For everybody at home, can you just walk us through the idea of a BRRRR? What is the actual step-by-step process there? Because I know we talk about it a lot, but there are probably a lot of people that are like, “I’ve heard it. I’m too scared to ask at this point because I don’t want to be judged.”
David:
Yeah, it’s an acronym, so the B is buy. My approach to BRRRR, which was the second book I wrote, is that you want to excel at five stages. It’s the only book you’ve ever read.
Rob:
It’s the only book you’ve ever read.
David:
No shit.
Rob:
In real estate. I’ve read other books. I also, I’ve told you I’m a big fan if you give a mouse a cookie.
David:
There’s five stages, so buy and I focus on buying right. How do I buy beneath market value? And how do I buy something that has a potential to add value to it? And how do I buy in an area that I think is going to appreciate more than average? Then you’re going to rehab. How do I a master the rehab? How do I add as much value to the house as I can, increase the rent, increase the value, increase the square footage, increase the appraised value.
Then I’m going to rent it out to somebody else. The n I’m going to refinance it where I’m going to pull the money out. And that’s where you find out if you did a good job buying it right and adding value through the rehab.
Rob:
The bank will refinance it to you because, even regardless of what your debt to income ratio is, they’re applying the rent that you get from a lease, they’re giving you like 75% of that value towards your DTI.
David:
They’re also looking at a new appraisal, so when you bought it probably… at the time these houses, I would buy them for around $60,000. So, I could pay cash for these or I could get a hard money loan. Then I would put around 30 grand into fixing it up, which went a lot further back then than today.
Rob:
Sure, sure.
David:
I’ve got $90,000 in a property. But now, the appraisal that when I bought it for maybe it was worth 60 because that’s what I paid. Now, that it’s been fixed up, it’s worth 120.
Rob:
Then you take how much from that?
David:
About 75%, which works out to be about the 90 that I was all in. So, you’re not always going to be getting your exact 100% of your money out. Sometimes, you get a little bit more, in this case, that’s about $84,000 as you saw. In some cases, you get a little bit less, but it’s close to the amount of money that you’re putting into the property, so it is 90.
Rob:
Yeah, it was 90.
David:
So, in that case, I’m pulling about all the money I put in. Maybe you leave a couple of thousand in there, but man, you don’t have to work much overtime to make a couple of a thousand. It is worth-
Rob:
And it’s a lot cheaper than just doing a down payment on a home, right?
David:
And you get equity built in. I have $30,000 of equity in that property I’ve added to my net worth. So, if I could do that three times a month, I’m adding $90,000 to my net worth every month, but not needing to earn more capital to go dump into more real estate.
Rob:
But how did you do that because you had three houses and then you got to your four-plex and you’re scaling up. But your idea was, “I want to work a lot and I’m going to do three houses a year.” But now, you’re talking about three houses a month.
David:
Yeah.
Rob:
What was that jumping point? Because this, I imagine there wasn’t a ton of education. I mean, obviously, it was possible to do this, but the BRRRR acronym did it particularly exist is what you said? Or like okay, so you were just like, “Oh, I understand this concept in the ether. I’m just going to keep doing it.”
David:
Yes. I just, I saw the pattern in how the thing worked, and I looked at how do I apply this pattern more efficiently without asking someone to teach me exactly what to do step-by-step. So, when I realized, “Well, I only have 30 grand in the bank and I’m going to need 60 to buy the house cash and I’m going to need 30 to put into it, I need more money. Well, if I wait two years, I can save that money up. But then how much money are you going to lose waiting two years?”
So, what I did was I looked. I went to my Arizona portfolio and I found my house where the rent had increased the least, but the value had increased the most. So, the ROE, the Return On Equity was the lowest on that property. I sold it. I probably made 40 grand in equity, plus I got my original down payment back out of it, which was 40 or 50. So now, I’m looking at $80,000 or $90,000 in cash, plus the 30 I had saved up. And I’m capitalized to where now I can go buy a house cash for 60. Use my own cash to fix it up for 30, get to 90. I get the appraisal. The bank that’s going to give me the line of credit gives me 75% of that 120. so I pull out the 90 I put in. I have that 90 against my million dollar line of credit that they’re going to let me borrow the money, so I’ve used up $90,000 out of the million and I can go buy the next house.
And then, so I had enough money that I could do that on maybe two houses at a time, but I kept working, I kept saving. And then I put some HELOCs on some of the other houses I had, so now, I’ve got capital like little bits from everywhere, some money from HELOCs, some money from savings, some money from more work, some money from rents that are coming in, some money from the refinances on my previous ones. And all of that created this really big snowball that got me up to three to five houses a month that I could buy, fix up, and then rehab, pull the money out and buy more.
Rob:
Wow. So, in your story, you just needed to figure out how to fund the first one or two?
David:
That’s the snowball. You get it pulling. And then each house progressively pays for the next one for you.
Rob:
Man.
David:
You can screw it up by buying a bad deal and losing money or losing equity and that shrinks your snowball. But as long as that doesn’t happen, it grows on its own as it rolls.
Rob:
Did you have any of those screw ups in that time?
David:
I had a handful that appraised for less than I thought, but they were balanced out by ones that appraised for more than I thought. I didn’t have any big, big misses.
Rob:
But you still did it really and money was just tied up in the house. Over time, it appreciates. And did that end up canceling out any bad appraisals you got?
David:
Well, I think that the good appraisals canceled out the bad appraisals. I think that the appreciation ended up giving me more money if I wanted to pull out from equity to buy new houses or more houses. The problem was that line of credit went from $1 million to $500,000. The bank changed their mind. They just got nervous about thinking the market was too high. This is funny, in like 2016. They were like, “It’s getting too frothy in there.”
Rob:
It’s getting started. Yeah.
David:
Yeah. So they said, “We can only let you borrow $500,000.” So, I hit a limit of how much I could refinance on this, out of this bank. So, then I would have to take that loan. I would go refinance that with a blanket mortgage of a commercial lender. That eases up my $500,000 limit. Now, I can start my process again and fill up another $500,000 on the bank’s line of credit.
Rob:
What’s the most amount of houses that you flipped in a month, you think?
David:
I rehabbed and pulled money at a five and I probably did that four or five times.
Rob:
Dang, while you were working a full-time job?
David:
Yeah.
Rob:
Were you ever like, “Hey, I got to go. I got a random tip in this neighborhood, I’m going to go check it out. Lots of crime going around.” And then you would just go check out of flip or anything?
David:
Well, no, because they were all out of state.
Rob:
[inaudible 00:53:20]. Yeah. Okay.
David:
Yeah. But that’s where the systems that I put together came from. I realized if the information is presented to me in the right way. It does not take long to look at it, especially if you know have a crystal clear criteria. If you know what you’re looking for, I could just train the agents. I could get a text that would say, “123 Main Street, ARV 120, rehab $40,000. Neighborhood B+ location, and then we can write an offer 80.” And I could look at that and say, “80 plus 45 is 125. ARV is 120. Why’d you even send me that?”
That I’d literally send a thumbs down emoji. I wouldn’t even say anything. And then at the end of the week when I wasn’t working, I would talk to the agent and be like, “Why are you doing that?” “Well, I got so excited. It’s in a great neighborhood.” “I don’t care. The neighborhood’s one criteria. It has to have these other ones. Stop sending me something like that or I’m not going to reply.”
Then she started to figure out, “All right, he’s looking for this number and this number equal this number, and if I get close to it, he’ll write the offer.” Or I might reply back either a thumbs up or a thumbs down or I might say when she had said 80, I’d say, “Offer at 55.”
Rob:
Did she have to provide the rehab budget as well? Because that’s like a big responsibility.
David:
She would spitball. I would write the offer and it would be accepted or not accepted. She’d negotiate it and once, it was accepted, I would then send the property to the contractor and say, “Go walk it. Tell me if you think it’s going to be within this range.” So, I would not take their word for it, but-
Rob:
It’s a starting point.
David:
That’s exactly right. Too many people try to analyze an entire deal before they ever had an offer and there’s no reason to do that.
Rob:
Really? So, you feel like just spitballing is fine on the rehab and then you’re in escrow, then you send your contractor [inaudible 00:55:05]?
David:
Yes, that’s where you verify. You do the same thing with property manager on the rents. You do the same thing with the contractor with the rehab. You send a home inspector to the house and I would try to time it, so the home inspector and the contractor were there at the same time, so that they could be talking to each other. The contractor could point things out to the home inspector. The home inspector could point things out to the contractor.
And they could come back and be like, “Hey, what you asked for is going to be this much, but you’re also going to have to do this.” And then I can take all that information and go back to my agent and say, “Reduce the price by whatever to make it work based off of these numbers.”
Rob:
That’s smart. I do that in short-term rentals, too, where I analyze a deal, but I’m not going to spend like 15 hours analyzing it. Because there’s a high likelihood that I’m not going to get that offer accepted. We know that, especially in the past few years. So, it loosely pencils out.
I put the offer in, they accept it, then I’m really running the cod. I’m doing all these analytics. I’m really making sure that it all pencils out. We do the inspections. We get our repair requests and everything like that, and then we close on the property. A lot of people are so scared to even get into escrow because they feel like they don’t want to spend 15 hours or 15 days [inaudible 00:56:10].
David:
They think asking the person on a date is committing to marriage.
Rob:
Yeah, you can walk. There are so many opportunities to walk away from.
David:
100%.
Rob:
We’re not saying, “Do it.” Don’t be dumb about it.
David:
Don’t date people that you know you’re not going to marry. But if you’re not sure, go on the date to get to know them, That’s how real estate works,
Rob:
Man, okay. I feel like this could be a five-part series. This is crazy. Have you ever talked about all of this on the pod before?
David:
No, not with someone as skilled and naturally talented interviewer as you.
Rob:
This was great.
David:
This is Barbara Walters.
Rob:
Honestly, I didn’t know any of this. I knew like… no, I don’t think I knew any of this. This is all very surprising.
David:
Really cool. Did you know I spoke Spanish before we came to Mexico?
Rob:
No, [foreign language 00:56:48].
David:
[foreign language 00:56:58].
Rob:
[foreign language 00:57:10].
David:
Rob was saying that I sound like a Russian trying to speak Spanish.
Rob:
You do. You have a bit of a… this is not my board accent. Just a little Ironman 2 reference.
David:
[foreign language 00:57:25].
Rob:
That’s good. It’s really hard to mat accent some…
David:
Put two together?
Rob:
… different languages. I’ve tried it. That doesn’t ever work out. But this is really cool because I think a lot of people see, they see how successful you’ve been, how successful you are. You’re the host of the Real Estate podcast here at BiggerPockets, so we assume that you’ve been that way forever. But really, your origin story here is very much what a lot of people probably experienced. Like, “Hey, I bought this. I was scared. I did this. I messed up. I scaled up here. I was jumping into this because I didn’t know any better.”
David:
100%.
Rob:
And then here you are, you’re a pro, because all the things that went wrong is what made you an expert. Not all the things that went right.
David:
And I would add, my success did not come just from focusing on investing in real estate. That was a piece that came later in the puzzle. It is just as important that you pursue excellence at the job you have, that you discipline yourself to live between your means. That you respect yourself, your time and your money when you’re getting into something. And then once you’ve made money and saved money, that you really learn how to invest it wisely so you don’t lose it.
I think people skip to the very end where they want the big home run win of getting the great investment property and they haven’t really built the foundation of saving up money or working a job and pushing to try to make more money. You had so many experiences that I’ve talked to you. Writing copy for other people. Dealing with a boss that you didn’t like, so that you could learn how marketing worked. And now, as a person who runs the program, you do writing copy, understanding sales funnels and marketing. It’s a huge component to being successful.
Even with your real estate, you don’t use real estate as a way to avoid doing the hard work. You use the hard work you’ve built through real estate and you can’t separate them. There’s too many gurus in the space that are not honest with the people that are listening saying, “You don’t have to know anything about life, money, resources, wisdom, delayed gratification. You can just skip it all and just take this pill of real estate and make a bunch of money.” And people will get their hearts broken when they find out it doesn’t work that way.
Rob:
Definitely. I think it’s so great. I love putting all the bad stuff out there. All my YouTube videos are effectively me crying about how my short-term rental business is always popping up with… well, you’ll hear about this more in our Scottsdale episode that will never air, but-
David:
This is when I forgot to hit record, obviously and just talked.
Rob:
That’s right. But I love putting it out there because I want people to be prepared. But I also think that the message here is that you figure it out. If you’re willing to figure it out, you will figure it out. And some people just aren’t, and then they get out of real estate. It’s like-
David:
But they get out of everything. Those are people that just bounce from thing to thing to thing. They end up falling for multi-level marketing. They end up falling for scams. They end up ripping off the people in their lives because they’re vulnerable, because they’re looking for a way to make money that isn’t hard.
Rob:
Yeah, yeah. You got to stick with it, man. Anything requires time, you are going to suck at something. Everything that you start, you’re going to suck, and then one day, you’re going to be like, “I’m okay at this.” And then one day you’re going to be like, “I’m pretty good at this.” And then one day, you’re going to be so good that everyone is like, “Whoa, how are you so good at this?” And you’re like, “Because I sucked for 10 years.”
David:
That’s it. And it’s disingenuous to portray yourself on social media or anywhere else as, “It’s easy, just do this. Just do these four steps and you, too, could have all of this amazing stuff that I have.”
Rob:
I always say this, I think real estate is not hard, but it is hard work.
David:
Yeah, that’s a good to put it.
Rob:
Conceptually, we understand the concepts here. Rehab a house, it appraises. You take the money out. That part isn’t hard, but what’s hard is actually doing it, the hard work. You have to actually put a lot of time and effort into it. So, before we end, I thought we could do our famous four. I don’t remember the questions. They’re not in front of me, but I got some good ones.
David:
All right.
Rob:
All right.
Speaker 3:
Famous four.
Rob:
This is the part of the episode where we ask our investors things about themselves. And question number one, favorite movie that’s not Interstellar?
David:
Favorite movie that’s not Interstellar, I would say is a… I can’t pick one, but I’d throw in the Batman Trilogy, the Matrix Trilogy, Inception or Gladiator.
Rob:
Fantastic. Question number two, favorite brand of shoes.
David:
Puma.
Rob:
All right. Question number three, what is your skincare routine?
David:
I don’t have a skincare routine. Tony Robinson has been telling me over and over and over that I would be much more successful in life if I would actually get one down. My whole body is basically the consistency of the weanest on the back of your elbow. And it’s something that probably does need to change now that I’m in the spotlight more, but I’ve yet to-
Rob:
I have not heard that terms of Friends Season 5. Last question here, where can people learn more about you if they want to follow you on the socials?
David:
Yeah, they should look up David Green 24 on whatever their favorite social media is. And you should check out the website, I have it. It talks a lot about the different things that I’ll be doing, where I’ll be speaking, what events I’ll be having, where you can join a webinar. I do YouTube live every Friday night where we bring people in. Sometimes, we have guests. Sometimes, we just take questions directly from people.
The book that I’m writing for BiggerPockets, you can’t buy it yet because it’s being written, but it’s going to be called Pillars or something like that. I really think that will change people’s lives. It details a lot of the stuff we talked about today, like my story and the stuff I learned at all these different phases of my life. We mostly talked about investing, but there’s whole phases of what I learned working in restaurants or working as a cop or when I went through trying my best at basketball and failing. And not having my career work out that applied to different areas of life.
And my philosophy is that building wealth is a three pillar system. There’s offense, there’s defense, and there investing. If you cannot save money, it doesn’t matter how much money you make, you’ll never be wealthy. You’ll just lose it. If you’re very good at saving money, but you cannot make money, you will be grinding your entire life and never being satisfied.
If you’re one of those people that’s like, “I live off of $12,000 a year, but I make my own soap and I wear the same socks every day and I wash them by hand,” you’re not getting the most out of yourself. And then if you’re good at making money, you’re good at saving money, you’ll die with the big savings account, but never have passive income, never have exponential growth, you have to build to invest the money.
And I’m passionate about encouraging people to deal with the hard things in their life that stop them from in saving money or stop them from making more money. You got to be good at all of it. And when you are real estate investing, it becomes much more natural.
Rob:
Well, I’m excited to read my second book. I’ve got it slated. I got it slated for-
David:
It’d be dedicated to you.
Rob:
Well, you can find me at Robuilt on YouTube, Robuilt on Instagram. And I’m throwing my first ever convention Host Con in Houston, Texas, January 8th through 10th. If you want to learn more about that, go to hostcon.com. I’m excited. I’m putting everything I have into this and it’s going to be pretty epic. So, find me on YouTube on Instagram and I’ll be talking about that.
David:
Maybe I’ll do one of those. I’ll call it the Greene Screen or something.
Rob:
That’s screen is Greene. I don’t know. I don’t know.
David:
We’ll have to think.
Rob:
Yeah, we’ll think about it. The Greene, man, I don’t know why are you’re doing this to me right now? You know I like to riff on this stuff. All right. Please, do it. Invite me.
David:
Yeah.
Rob:
I’ll get to your head.
David:
Yeah. And you can speak to mine and-
Rob:
Fantastic.
David:
You did such a good job interviewing me today. I have to, now.
Rob:
Awesome. Now, I want to do more of these. We need to fly out once a month to do these in-person ones, but okay. Well with that… oh, don’t forget to leave a five-star review and leave us a comment on YouTube. If you like this type of style interview where it’s just us bro-ing out, chatting about our real estate journeys and trying to teach us something and make it relatable and approachable, then let us know in the comments down below, in a five-star review on Apple Podcasts.
David:
Yeah. We’ll wrap this up. Thank you very much. You did a great job. This is David Greene for Rob, Barbara Walters, epi solo, signing off.
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