Posted on: April 12, 2022
WI 927 | Using Leverage

 

Do not discount leverage. Leverage should be your best friend in real estate investment. Using leverage in this business means utilizing other people’s money, abilities, and talents to increase profits and scale your way up. Now more than ever, investors are taking advantage of this tactic to build their real estate portfolios.

Fortunately, in today’s episode, our BRRRR master and Wholesaling Inc. coach David Dodge is here to share with us some tips on how to attain massive results using leverage.

Using Leverage to Achieve Explosive Results in Your Real Estate Business – Why Leverage is Your Best Friend

Do not discount leverage. Leverage should be your best friend in real estate investment. Using leverage in this business means utilizing other people’s money, abilities and talents to increase profits and scale your way up. Now more than ever,…

Episode Transcription

In this episode, we are going to talk about the power of leverage. We all want financial freedom and security. Although, few of us have been taught how to build long-term wealth while earning an income. I am here to teach you exactly how you can increase your income and build wealth fast. Rentals are a foolproof way of achieving these goals while also allowing you to pay fewer taxes, invest more of your hard-earned money, and ensure a financially secured future for you and your family.

Let’s learn how to work smarter, not harder, and how to take control of our finances and make our money work for us. If you are here now, you have likely accepted the fact that nobody can become rich and stay wealthy by working and trading time for money. It is time to shift your focus from short-term gains to long-term wealth creation. In this show, I will teach you how to build wealth and create cashflow, all while paying less in taxes. Let’s get started.

I am excited, we are going to be talking about the power of leverage, and there is so much power in using leverage to buy real estate. That is probably one of the main reasons why I love real estate. There are hundreds of reasons, but one of the main reasons is that we can use leverage, and there are many different types of leverage.

The first thing that comes to mind is bank loans. As a landlord, I need banks to be able to refinance my private and hard money lenders. The beautiful thing about bank loans is you can get a bank loan up to 100% of the value of the property. If you are using the BRRRR Method and you are buying rentals like I do, my goal is always to be all in to a property that is purchased, rehabbed, holding expenses, closing costs, hard money, or private money interest, taxes, insurance, whatever it may be, all of those things combined.

If I can be all in to a property at 80% of what it appraises for, and I can get an 80% loan, that means I’m going to have none of my own money invested in the deal. I’m going to acquire an asset with none of my own money. It is free. I’m getting free assets added to my portfolio each and every month. That is the power of leverage.

Shift your focus from short-term gains to long-term wealth creation.

When I’m buying these properties, and I’m using private or hard money lenders, that is also leverage. I’m leveraging these people, other people’s money, OPM, to buy these properties. I’m using leverage in the beginning when I’m buying, and I’m rehabbing other people’s money. I’m using leverage on the backend when I’m going to refinance these properties. Leverage is a massive part of my business. It is a massive tool that all of us real estate investors can utilize. I love it.

There are other types of leverage other than money leverage or financial leverage. When I am buying a property, and I’m using the BRRRR Method, hopefully you guys know at this point that is what I do and my niche. That is what I love. The BRRRR Method is my passion. I’m also leveraging other people to fix up these houses, make the repairs and renovate or rehab these properties.

I do not swing a hammer anymore. I used to when I first started, and the first property that I bought several years ago was a property that probably should have been torn down, but I said, “This is a low-risk way to get in.” I bought this property in Ferguson, Missouri, and I’m sure you guys have heard of Ferguson. It was in the news, not for good reasons, but it is a nice little neighborhood up there.

Ferguson is a good little community, and I bought a house up there. It was a two-bedroom, one-bath home, and it was a foreclosed home, bank-owned. Those are referred to as REOs, Real Estate Owned. It was a bank-owned property. I bought this property for $19,000. This is when I first got started several years ago, full-time that is. I spent the next seven months fixing this property up. I ended up spending about $30,000 on the rehab. That was even with me doing a lot of the work.

It was $30,000 worth of either materials or me paying contractors and friends to come work with me, help me, and teach me how to do these things. I do not regret doing that because it was a seven-month classroom. I got to understand electrical, plumbing, flooring, roofing, dry wall, tile, cabinets, light fixtures, plumbing fixtures, HVAC installs, hot water heaters, windows, and doors. We did all of this to this house.

WI 927 | Using Leverage

Using Leverage: You can leverage other people and contractors to do what you may not love doing.

 

I bought this house for $20,000. It was a $19,000 purchase. I put $30,000 into this property, and in the end, it was only worth about $50,000. It was not a home run, but I was not upset because I used this property to learn so much about rehabbing. The main thing that I learned is that I do not like rehabbing and doing it myself.

I love to rehab a property and make it look pretty and look new. Be able to get into appraising for more, have a higher value, higher ARV, and be able to collect the highest rent or the market rent because it is rehabbed and it is fresh. I do not like swinging a hammer or going into a Home Depot and Lowe’s, picking up materials, and having to show up on the job site and do the work.

What I’m getting at is that you can leverage other people and contractors to go out. Some people love doing this stuff. I do not necessarily like swinging a hammer, but other people do. I can leverage them to get in and rehab a house for me, renovate, update, turn it over after a tenant moves out, whatever that might be. Leverage is a big part of real estate investing when it comes to leveraging people to help with rehab and repairs.

Another way that we can use leverage when it comes to real estate investing specifically when it comes to rental properties and being a landlord is that we can leverage property managers or property management companies. When I first started several years ago, I was a landlord. That is what I did. I started there.

I was doing my own leasing. I was renting out these properties and meeting the tenants. I think that everybody should probably start there because you will learn so much about being a landlord and about the leasing process. At this point, I’m trying to buy 5 or 10 rentals a month. I do not necessarily have a ton of time to be swinging a hammer and doing my rehabs or going out, meeting tenants, showing properties, and getting leases signed. I leveraged the power of my property managers.

Leverage should be your best friend when it comes to real estate investing.

I have three different property managers now. I have one for all my single-family properties. I have one for all my multifamily properties, and I also have one for Airbnb properties. I only have one Airbnb, but I do have one. I have a third-party manager that helps manage that. I’m leveraging multiple different people to manage my properties as well.

I’m also leveraging real estate agents from time to time to help me determine my ARVs. I’m leveraging banks and bank appraisers to tell the bank what the property is worth. I’m leveraging lots of people. I’m also a wholesaler and a fix and flipper. The name of the game when it comes to real estate is marketing. This is a marketing business before it is any other business.

What I like to do is I like to keep the best and wholesale the rest. This is the Wholesaling Inc show. That is what we do. We wholesale, but I love to cherry-pick the best of the best deals that my direct-to-seller marketing brings me and keep those as buy and hold rentals. I’m also leveraging the marketing efforts that are going out the door. I now have the ability to cherry-pick the best of the best to keep in my own portfolio.

Do you know what else I love to leverage? Virtual assistants. Now, I have four virtual assistants, but I have three other VAs that cold call for me. I have seven virtual assistants, and these people are amazing. They are part of my team, they’re my friends. I even look at them like my family in a way because I’m able to leverage their time when it comes to cold calling, answering phones, following up with my sellers, setting appointments for me and my partner, and making offers. A lot of it is answering phones and being nice, building rapport, and following up.

The follow-up process when it comes to real estate is some of the most often overlooked activities that us investors do. Marketing is great because it gets the leads in the door. If you are not following up with those leads, you are throwing money in the trashcan. Follow-up is incredibly important. Leveraging other people on my team, like my virtual assistants, is another way that we are able to use leverage in this business.

WI 927 | Using Leverage

Using Leverage: Leverage multiple different people to manage your properties.

 

I also have a bookkeeper on my team, and I have a transaction closing coordinator. Some people like to refer to those people as transaction coordinators. I have always called her a closing coordinator. It is the same thing at the end of the day. I’m able to leverage the bookkeeper’s time. I’m not doing the books all day. Somebody else is helping with that.

I also get to leverage my closing coordinator to help get the deals pushed through at the title company. The transaction coordinator also helps manage my private and hard money lenders and makes sure that they get paid on the first of every month like clockwork. My transaction coordinator helps manage my local banks and credit unions when it comes time to do a refinance.

Without leverage, I probably have 10 or 12 properties, to be honest with you guys. That is where I would be, but I have over 85 properties at this point in time. The reason is because I embrace financial leverage with hard and private money lenders and financial leverage with my banks and my contractors. Leveraging their skills and their time to get in there and make these properties look pretty. I leveraged my three different property managers to make sure that the properties aren’t vacant, occupied or rented, and the tenants were paying rent on time. If they do not pay their rent, they are going to hear from a property manager, and that is leverage.

Last but not least, I’m leveraging my team of virtual assistants, my team that does the bookkeeping or the transaction coordination. I mentioned this earlier, but we also love leveraging real estate agents because the real estate agents may sometimes bring us a tenant. They may sometimes bring us a buyer, or at the very least, they can help us determine what a property’s ARV might be, or what a good offer on it might be as of now.

Do not discount leverage. Leverage should be your best friend when it comes to real estate investing. If you are starting out, you are new, and you are looking to do your first deal, you can leverage third-party individuals or companies to help you spread the word and get your marketing out the door. I have cold callers, and I leveraged their time. They tee up leads for my team and I to go run those appointments or to make offers. There are many different ways that you can use leverage in your real estate investing business. I probably left off five different additional types of leverage that we can all use every single day in this business.

Thanks for reading. This conversation continues over on WholesalingInc.com. Go over there and check it out. If you want to work with me, I would love to communicate with you, hop on a call, and talk about how we can help you. You can book a call over at WholesalingInc.com. Get out there. Take advantage of leverage. Not only are you capable of it, but you are worthy of it.

 

Important Links

 

About David Dodge

Real Estate Investor & Coach . 700+ Houses Flipped. 90 + Rentals | Learn more about Real Estate at David Dodge Show | Podcast host at Discount Property Investor.

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