Posted on: May 03, 2022
WI 942 | Increasing Net Worth

 

Are you wondering how to achieve small wins while drastically increasing your net worth?

Well, our guest for today will walk you through that process. Derrick Towns, the newest member of the BRRRR Method Mastery program, will give us a case study on how he’s able to create an explosive stream of passive income in his two newest deals and what lessons did he learn along the way.

How To Compound Small Wins Into Big Pay Days With Derrick Towns

Episode Transcription

We know that finding discounted properties is the most proven path to financial freedom. Let’s face it, we all want financial freedom and security, but so few of us have been taught how to build long-term wealth while still earning an income. The truth is owning rental property is the best, most effective way to increase your income and build legacy wealth fast.

On the show, you will discover how to take control of your finances and make your money start working for you. I am here to show you how to build long-term wealth and cashflow while paying less in taxes through owning rental properties. Stop trading your time for money and get off of the transaction treadmill. Let’s get started. I will be speaking with Derrick Towns. He has been working with me and he is a BRRRR Method Mastery student. He is going to share his most recent win with us.

Derrick Towns, how is it going?

Dave, how’s it going?

I am so happy to have you on the show. You just had a win. Let’s hear about it but before we jump into that, tell us a little bit about yourself.

I am an investor here in St. Louis. I have been investing since 2018. I have a couple of rentals under my belt and I am wholesaling. I am doing about 1 to 2 deals a month.

You have 1 to 2 deals a month wholesaling, some rentals under your belt, and you are local to me here in my market. We have been working together. You were on one of the calls saying you got a BRRRR deal done. Let’s hear about this.

I have two properties, so I combined them into one. I got a commercial loan. I went to your BRRRR event and I learned a ton of good advice. One property was a single-family. It was my first rental property. I bought that in 2018. I bought it for $40,000 and I put 20% down and had a light rehab, maybe $5,000 or $6,000. That was my first property.

You bought that in 2018 and it was a rental then you put down 20%.

Don’t pick a property that needs a heavy rehab.

I believe is it about $8,000.

Was it a $40,000 purchase?

Yes,

You put down $8,000, got a loan for the difference, and it is rented which was its own deal.

In January 2020, I purchased a condo for $32,000. I put down 20% and that is $6,000. That one needed a little bit more rehab. I put about $15,000 into the rehab. All in total for both properties, rehab, and closing costs were about $40,000 roughly. I refinance both of them as a package deal and I walked away with $52,000.

You bought a rental and did it the traditional way. This is back in 2018. You went and you got long-term financing through a bank or a credit union and you put down 20%. On that first one, did you rehab it at all?

It was pretty decent. It needed a light rehab, just a new carpet and painting. The kitchen and bathrooms are good.

You put down 20% and then you put a little bit into it. You went to the bank for the purchase. You had some skin in the game on that first one. A couple of years later, you did that same thing again. You found another property, put down 20%, got an 80% loan from a local bank. You rehabbed it as well but you put a little bit more into it. You had 20% plus light rehab on the first one, 20% plus a little bit more rehab on the second one, so before you refinanced, how much did you have out-of-pocket? What was your skin in the game on those two rentals?

Out of pocket on both of them was somewhere around $40,000.

You bought, rehabbed, and got them both rented at different times. Were these properties both cash flowing?

WI 942 | Increasing Net Worth

Increasing Net Worth: If you don’t want to manage the property, get a local property manager to handle everything.

 

Yes. The first one I purchased for $40,000 rents for $800. The condo I purchased for $32,000 rents for $1,200.

You were doing good with the cashflows. You had skin in the game for about $40,000 and then you took this to a local bank and refinanced it. What was the result of the refinance?

I walked away with $52,000, which is my $40,000 back plus $12,000.

That is phenomenal. You had locked in a rate for how long?

They amateurize over 20 or 25 years with a balloon payment due in five years. I believe that the rate will renew after five years.

Five-year fixed-rate and then it will renew. You used one of the banks that I love using. I know how they operate. They will renew that loan after the fixed-rate and give you a new fixed-rate, but the beautiful thing is it does not necessarily balloon. It can but with this particular lender, it renews. The cool part is you will be fixed on that rate for five years, but then you will get a new rate for an additional five years.

When you do that one, you will be working on year six of the amortization table. It does not necessarily start all the way over. What a great case study. You bought these at different times and you bought them with a loan. Now that you know what you know from working with me, coming to the event, and being in the group, what would you do differently now?

From my first property, I would have got the property off-market because the first property was on market. I pretty much pay retail. I know $40,000 was cheap, but that was close to retail. That would be the first thing I would do. Second, I learned to not pick a property that needs a heavy rehab. That is my preference. I learned that on a previous deal. If it needs a mid-level rehab to light, that would probably be something good for me.

Another thing that I would highly recommend is to use private or hard money on the purchase and then use the banks on the refi, not so much on the purchase. What you did is still a win. You got yourself into two properties that were both cashflowing. Not only are you creating passive income, but you are also building wealth. Somebody else is paying these properties off. You are creating tax advantages by being able to use depreciation. I am sure that these properties have appreciated as well.

You had a ton of wins with the process that you did. The biggest and best win was you were able to refinance and get all of the money that you had put in back which was roughly $40,000 plus an additional $12,000. You got paid $12,000 to refinance these properties. Not only that, but you got all of your money back that you had in them. It is a phenomenal case study.

You can use the BRRRR Method not only to acquire assets but to do it using none of your own money.

They still cashflow every month.

Are they cashflowing any more or less after this refinance?

It is a little bit less, but I believe it is only about $120.

You got all your money back, though. I would take that all day. You are still cashflowing and own the properties. They are both rented and again, all these other advantages with depreciation and appreciation, and somebody else is paying these properties off. What a great story. What are you doing next?

I want to do it all over again.

This next time around, we are going to get you into a private or a hard money loan, so you do not have to use any of your own money. That is what we are going to be working on with you on these next ones. Did you do the rehab yourself? Did you manage it? Tell me about that process.

On the first property which needed that light rehab, I feel like I learned the hard way. I was the one in there trying to paint and do what it needed, but never again. On the second property, which is the condo, I did not do anything so I managed to rehab.

That one was a little bit heavier than the first one, but you hired people to do that.

I have a relationship with a local contractor, so he did everything. I pretty much had to manage him. For me, I do not want to participate in rehab. I am not good at it so I would rather manage it. That is what I learned from my first property.

Tell me about the leasing and the renting process. Did you lease these directly to the tenants? Did you have a property manager? What does that look like?

WI 942 | Increasing Net Worth

Increasing Net Worth: When you bundle loans together, you can save a little bit of money on your closing costs and different expenses when you’re working with the lenders because you’re getting one loan instead of two loans.

 

I did not want to manage the property, so I have a local property manager. He is pretty good. He is giving me a good rate, 8% of the rent, so they handle everything. Maintenance calls, collecting rents, and everything.

This is a slow BRRRR, but it is in fact a BRRRR. You bought two properties and did light to medium rehabs on both of these. You had your property manager help you with the leasing and the managing of it. There are multiple things I like about this case study, but the two things that stick out were number one, you got all your money back plus $12,000. That is a huge win. The other thing that I like about this is you bundle them together.

A lot of banks have a $50,000 minimum on a loan and you bundled these together, which you may have gotten individually if you wanted to. When you bundle this together, you can save a little bit of money on your closing costs and different expenses when you are working with the lenders because you are getting one loan instead of two loans, even though there might be multiple assets within that loan.

Derrick, thank you so much for coming on and sharing this amazing win. A BRRRR Method Mastery student here has an awesome success story. He used the BRRRR method, not only to acquire two assets, but he did it with none of his own money in the end and walked away with $12,000. We know now moving forward that it is possible.

We can do this and scale it and we can do it with none of our own money the next go around. We are going to borrow from a private or hard money lender. We are going to get that rehab done, get it rented, and not let that take multiple years. Not that it did with you, but the refinance was pushed off.

I did not know it was possible back then, so what I learned from you is it is possible as long as you have that equity, you can BRRRR out of it. Now that it is a combine in a commercial loan, how does it work if, down the line, I want to sell one of them?

We did that. We had six properties in a package that we bought from an investor. One of the properties is in a neighborhood that we do not love and we decided once it went vacant and it turned over, we did not want to own that property anymore. We had six properties bundled into one loan like you are asking. What we do is we go to the bank and we say, “We are going to sell this one property off, can we get what’s referred to as a partial release?”

They are not going to release all of our debt or liability on that loan, but they will allow you to release 1 or 2 or whatever that number is from the loan. We go to them and we say, “What are you wanting in terms of a payoff for this one asset?” Down the road with the two that you did, if you decide that you want to sell one of those, you can do that without having to close that entire loan out. You got to talk to your lender and say, “I am looking to sell this one. Can I get a partial release?” They should not tell you no. They should always tell you yes. “Can I get the partial release and then what does that number need to be?

You are doing amazing. You are wholesaling deals, a full-time real estate investor, buying rentals, and using the BRRRR method. You have such a great story because not only did you do this with none of your own money in the end, but you got paid to refinance. Here is the coolest part and hopefully you know this, but you may not, that extra $12,000 that you were able to get on top of all of your money back, that is not income. It is a debt which means that it is tax-free money. How awesome is that?

Derrick, thank you so much for coming on. Guys, you can do this too. I hope you enjoyed this and found a ton of value in this episode. If you are interested in creating wealth through rental properties using the BRRRR method and achieving financial freedom in your life, go check out WholesalingInc.com/Rentals.

Check out what the program is all about and schedule a call with my team. On the call, we are going to discuss your real estate investing goals and how BRRRR Method Mastery can help you get there. I would love to help you get started on your way to generating passive income and creating legacy wealth with rentals. Every single one of you is capable of success and more importantly, you are worthy of it. Thanks for reading.

 

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About David Dodge

David Dodge is a real estate coach, author, and investor with over 17 years of experience. David specializes in using the BRRRR Method to acquire Rental Properties with NONE of his own money and has taught others how to generate passive income using his systems. He’s also the co-author of the book “The Brrrr Method” and currently has over 90 properties in his rental portfolio with a goal to grow to over 200 properties in the next 24-36 months.David Dodge is a real estate coach, author, and investor with over 17 years of experience. David specializes in using the BRRRR Method to acquire Rental Properties with NONE of his own money and has taught others how to generate passive income using his systems. He’s also the co-author of the book “The Brrrr Method” and currently has over 90 properties in his rental portfolio with a goal to grow to over 200 properties in the next 24-36 months.

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