It is possible… you could increase your income to $75K a month if you follow the strategy David crafted.
Who is David? David Lecko is the Founder and CEO of Deal Machine, an amazing software that helps real estate investors get connected with off-market deals.
But today, he isn’t been talking about that software, he’s delving into this past and how he came to his current REI success. From his first time looking for deals to how he finally found the formula that worked for him to make his current life, he is telling us his story.
Take a listen!
You want to start off your 2024 by building passive income.
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TRANSCRIPTS:
Speaker 1 (00:00):
Hello, my fellow Ripples. This is Chris Miles, your cashflow expert and anti Financianal advisor.
Speaker 2 (00:07):
Chris Miles was able to retire twice by the time he was 39 years old, but he’s not content to just enjoy his own financial freedom and peace of mind. Chris wants you to have your own ripple effect so you can live free today. He’s not the financial advisor you expected. He’s the anti Financianal advisor you deserve. He’s jumping behind the mic right now, ready to make waves. Here’s Chris Miles.
Speaker 1 (00:37):
Welcome to this show. That’s for you. Those that worked so hard for your money and you’re now ready for your money to start working harder for you today. You want that freedom and cashflow now, not 30 or 40 years from now if you’re lucky, but you want it today so you can live that life that you love with those you love while they still love you. But guys, more importantly, it’s not just about getting rich, about living a rich life because as you are blessed financially, you now have a greater capacity to bless the lives of those around you. Thank you for tuning in, guys. I so appreciate you guys that you’ve been binging and sharing this podcast. You’ve already pushed us number top 1% worldwide of shows out there, and that’s out of millions, tens of millions of podcasts. Thank you so much for making this a part of your day and allow me to create that ripple effect through you.
(01:18)
If you haven’t done so now, please go and check out our YouTube channel. You might be on YouTube right now, but if you haven’t subscribed to the Money Ripples page, do so because we always have great stuff. David and I just before we got on, we’re talking about Ashton Kutcher, right? How does he make his millions go? Be sure to subscribe to it if you find a favorite video like it and share it with somebody else. Appreciate that so much. Speaking of which I just want to mention here, I’ve got David Leco here with us now. If you’ve been binging on this podcast long enough, you probably saw just a few years back, we actually had him on with Deal Machine talking about driving for dollars and I mean even at the time of hiring Uber drivers and things like that to get them to do stuff for you still, he’s part of Deal Machine, but man, he said, you know what? I’ve got some stuff that I think even your passive investors might like, and so we wanted to invite David Leco back on to say, well, what is it you can do with very little money out of pocket, but still get your cashflow up to $75,000 a month? Sounds kind of too good to be true, doesn’t it? Well, let’s find out if that’s the case. David, welcome back.
Speaker 3 (02:16):
Hey, thank you so much, Chris. It’s great to be here with the anti Financianal advisor. I’m just a counterculture type of guy, so when I was graduating college, a bunch of my friends wanted to be financial advisors and hit me up for buying all this traditional stuff. I just knew that I wanted to do something different, so you definitely resonate with me.
Speaker 1 (02:34):
Well, I love it, man. Yeah, what can we say when we hear the Steve Jobs Apple promotion? We’re like, oh, that’s us. We’re the rebels. So that’s what we like to do. A hundred percent. Well, tell us a little bit about your journey too. I know obviously you have deal machine and tell us a little bit about what Deal Machine does before we really get diving into this.
Speaker 3 (02:52):
Yeah, so on HGTV, you always see the stars like Tarek El Mussa turning this really rundown house into a truly beautiful home. You might not wonder where he gets those houses though. Typically those rundown houses aren’t listed for sale by realtors because they’d rather sell a pretty house they could charge top dollar for and somebody could qualify with a loan to get. So you’re like, where does TAR get these houses? And the answer is he finds these rundown houses through middlemen called wholesalers, and the way they find these rundown houses is they use a tool like Deal Machine to discover where these rundown houses are that are owned by people that may need to sell those quickly for a cash offer and would be very happy to provide a discount to that person. And deal machine is not only for discovery, but it’s for outreach to market to those types of property owners so they can get ’em under contract at a discount and pass ’em off to TARC and get a finder’s fee. So it’s called wholesaling Real Estate Deal Machine’s a tool that helps either wholesalers or somebody who’s just looking for a really great deal. I was when I started out in 2017 and I couldn’t find a cash flowing rental property on the market, so I had to do what’s called going off market, and that’s why I ended up creating deal machines. Just help me find these great cash flowing rental properties. So in a nutshell, that’s what Deal Machine does discovery and outreach for great real estate deals.
Speaker 1 (04:18):
Love it, man. Well, and one thing I love about, I mean wholesaling, there’s no doubt it’s a business, it requires effort, but the one thing that’s just awesome about it is that it really doesn’t require a lot of capital upfront requires a lot as you get it going and growing, but it doesn’t require a lot of capital to get started. And like you said, becoming that middleman is one way that you can get into the real estate game without having to essentially have hundreds of thousands of dollars to be in the real estate game.
Speaker 3 (04:45):
And so that’s exactly the situation I was in. I was making like $50,000 a year working like 80 hours a week, and I noticed that the guy I worked for works a lot less than I did, and he had these five rental properties and I was like, why’d you do that? Instead of I was investing all my money I knew at an early age time was on my side, I wanted to stock as much money away as possible. I, I’m living with three roommates, I’m not eating out. I’m driving a 2002 Honda Accord that needs a new paint job. I’m just saving as much as possible. And he’s like, well, the stocks can go up and down, which is what I had seen my 401k do. But he’s like, if you buy a rental property correctly and you manage it well, it’ll always kick off money every single month. And that’s what allows you to escape the rat race and retire early. So that was my goal was to retire by 40 and I really liked the sound of that. So I set off looking for rental properties, but I was a little discouraged feeling, he said, I bought mine in 2009. There was a lot of great deals back then. I’m not sure you could find a deal like that now. And I went to look for these properties that were listed for sale and nothing with cashflow.
(05:55)
The rental payment I calculated might be like 1200 bucks, but the mortgage taxes and insurance might be 1200 bucks. So that wasn’t going to get me closer to retirement. It was actually not going to make me any money at all month to month. So I was feeling pretty discouraged. Then I found a real estate meetup and I went and I found a lot of people were doing deals pretty much right now and that really encouraged me. They said, I need to do something called driving for dollars. Go look for a rundown property. And that way you find somebody that’s got a rundown house. If something else happens in their life where they need to sell it, they can’t sell it with a realtor, so they’d prefer to give you the house at a discount just to get rid of it. So I went looking, they told me I need to find about a hundred rundown houses.
(06:37)
So I drive around in about two months time I had made a list of about 40 on a piece of paper and I was having a lot of fun, Chris just driving around after work. It was like something to look forward to get me out of that job that I was working 80 hours a week at. And it really became my purpose and gave me a lot of satisfaction, something to look forward to. But after about two months, my heart sank through my car floor when I drove by this house that I knew I had on my list and somebody was working on it and I was like, man, that’s my house. I wrote that down, who’s working on this house? And I went home, I looked up who owned the property, which you can do on any county’s website, and somebody just bought it and it was for a price lower than what I would’ve offered.
(07:23)
So I knew this could have been a great real estate deal for me. I was kicking myself because I had written down all these addresses over two months, but I didn’t actually reach out. I didn’t knock on anyone’s door, I didn’t send a letter and my goal was to send a letter, but I just didn’t do any of that. That was work. And looking at the houses was a lot of fun. I was feeling pretty discouraged, but I came up with this idea to help me with my lack of follow through and it was like, well, let me take the basic development skills software wise and make this really basic widget on my phone that let me pin a house, look up the address and then send a piece of mail to the owner. And I pretty much put that together in a weekend just for myself and just had it on my phone.
(08:07)
So I started using that Chris, so that way instead of writing it down, I could pin it, look up the address and then have a piece of mail sent out right away. So that’s how I spent the next weekend. That little widget later end up turning into deal machine, but that’s not really the story that I want to tell now. I wanted to talk about the whole reason and the whole purpose I made this widget was to get my rental properties going that would give me cashflow. And about seven months later from the day I started, and this would’ve been early 2017 now, was I got a call from somebody. He said, I’d like to sell my house. And I asked for his address and I really didn’t know what else to say. I just said, well, can I meet you at 6:00 PM? And he said, yeah.
(08:50)
And I hung up the phone. So I went down there and it was the small house with a blue tarp on the roof. It was 600 square feet, it was tiny and it was on a huge yard, but set back way too far compared to a normal house in the alleyway. So it just was a weird house that stood out from the rest, not only because it was run down, but because it was just set back and so small. I didn’t know what else to tell ’em. I was like, why do you want to sell it? And I’m going to take some pictures. Why don’t we just chat while I’m going through your place? And so I ended up buying this house. I was going to offer 10,000, but before I sent the offer, I just remembered somebody telling me if your first deal, you don’t feel like you’re going to offend the seller because your price is so low, you’re probably not offering low enough because things can always happen that end up costing more.
(09:42)
I ended up offering him $4,782 and the way I came up with that was I looked at recent sales, which were all twice the size by the way. There was no house that was 600 square feet and I calculated perfect condition after repair value. I don’t know if it was 70,000 or whatever, and then I cut it in half, it was half the square footage and then subtracted the cost to renovate this place, which I had no idea, but I had a ballpark, I think I estimated like 50,000 or something like that. And I was like, and that’s the exact figure that I came up with to buy your house. So he didn’t respond for like 24 hours. My stomach was turning because I was like, oh man, maybe I should have just offered more just to get the first deal done. But luckily he just accepted it.
(10:28)
I bought it. I had $4,000 in cash and I ended up with this deal doing the Brr strategy. Are you familiar with the Brr strategy? Yeah. Okay, cool. So the initial 4,000 was from cash and then it needed everything, new kitchen, new bathrooms, like new roof, everything, you name it. I didn’t have that money, so I got four no interest credit cards. And then I fixed it up for like $65,000. I’m all in like 70,000 and then it’s worth one 20 fixed up. So you get a rental property loan on a property like that, you typically have to put 25% down. Well, I had more than 25% equity. So basically I could get all that money back in my pocket and have a cash flowing rental property that rented for 1200 a month. So that was how I got my very first rental property. And this strategy is so important for somebody who wants passive income because as long as you can find a great deal, then you could actually go and do this again and again and again and build up your rental portfolio without running out of money to buy properties.
(11:34)
And so that was the first one that told me how it was possible. And I ended up doing it several other times each with a different twists. But that was how it all started. And if I look back at my previous year’s rental performance, I’ve acquired five this year, so I wouldn’t include those right now, but my portfolio of nine properties ended up generating $200,000 in gross revenue and about 70,000 net in my pocket after paying the mortgage taxes and insurance on each one of those properties. That’s the milestone. That’s it. That’s what you want. That’s escaping the rat race, right? 70,000 is more than what I made at my job when I started this. And so that was the benchmark and how it all worked out for me to become financially free.
Speaker 1 (12:22):
Not to mention you’re not working 80 hours a week doing that either. Yeah,
Speaker 3 (12:26):
I mean I was working, yeah, I wouldn’t say hustle’s not a part of the equation. I was doing this after work to start off with, but certainly in the last, that was seven years ago because now it’s 2023.
Speaker 1 (12:47):
That’s huge. All from 4,700 bucks just to start, right? Correct.
Speaker 3 (12:52):
Yeah, correct.
Speaker 1 (12:53):
That’s awesome. Now, let me ask you this. That was seven years ago. Now I know people are going to say, yeah, but that won’t work today. What would you say today? How are you using deal machine right now to get that competitive edge? To find the best deals?
Speaker 3 (13:08):
You can’t time the market. You’ve got to find deals in the current market. And I felt very discouraged when my boss told me, you probably can’t find really great real estate deals like this. Now I found these in 2009. That’s very discouraging. If I would’ve stopped there, I would’ve never found a deal. But look, I did it in 2017 and you can do it right now. I’ve acquired five properties and this has worked for me even with the 7% interest rates, man. So it all hinges on how good of a deal can you find and the best way to do that rather than on market. And my experience is typically going off market marketing to these distress property owners. So you can build in that equity cushion like I was able to create with this first deal.
Speaker 1 (13:54):
And how fast does it take you when you’re using your software for this? How fast can you really determine with costs what you think it might be with renovation costs and everything else? How fast do you think you could know the numbers pretty safely?
Speaker 3 (14:08):
Well, you can use a simple model. This is what I use for calculating the renovation costs because you’ll never get it perfectly because there’s always something you discover when you tear open the wall. So the way to deal with that is to create a margin of safety or a profit margin, usually 20 to 30% of the entire deal. But when I’m estimating rehab costs, if it just needs carpet and paint, it’s $15 per square foot. If it also needs kitchens and baths, then it’s $35 per square foot and if it needs the roof new mechanicals, everything, then it’s $50 per square foot. So that’s how I would ballpark it. And then I would also leave myself that 20, 30% margin of safety and see could I bur out of this deal, meaning could I be all in with the purchase and the rehab and still have over 25% equity in what this house should be worth, which you calculate by running comps with similar homes that have sold that are in perfect condition in that area. And if I feel that I can do that, I’ll definitely buy the house. That’s how I calculate what I would need to offer on the house.
Speaker 1 (15:17):
And how has that worked?
Speaker 3 (15:18):
Well, I just bought five this year is what I’m saying. So I’ve got my portfolio built up to 15 properties now. And so the numbers I gave you before was when I was at nine. Oh and Chris, the one thing that I didn’t actually tell you was yes, I cash flowed over $500 per door on each of these homes. The average value of the homes is like 150 to 200,000 perfect condition. This is Indianapolis Great cashflow market. Is that in that timeframe of holding them for like six years, I actually not only had that 70,000 cashflow net per year, but they appreciated nearly over a million dollars. And so it was really truly something I did not expect. And when they say a lot of people say, Hey, when you’re evaluating a rental property, you should make sure it meets the 1% rule, meaning that the rent should be 1% of the total purchase price.
(16:13)
So if it’s a hundred thousand dollars home, then it should rent for $1,000 a month. And with my first deal, I was 70 all in, it was worth one 20 and I was able to rent it for 1200 a month. So it met the 1% rule, plus I wasn’t even all in one 20. So it was good. The thing that I was going to mention is as time goes on in these cashflow markets like commonly in the Midwest, the value of the real estate itself actually kind of goes up and so does the rent. So you’re able to charge more as time goes on. And so these deals that meet the 1% rule are already good deals to start with, but you hold those for seven years, not only does the value of the property go up, but your rents have gone up too and they become sweeter and sweeter deals as time goes on. Now, eventually you do have to do some maintenance, but if you’ve done the B strategy, it means everything’s pretty much brand new anyway. So it’s going to be virtually maintenance free for 10 years.
Speaker 1 (17:09):
And just imagine if you would’ve just had your money sitting in the stock market earning, it would’ve been you would’ve made about 65 to 70% maybe if you were lucky, depending on what you’re invested in over the last six years. I mean, that’s
Speaker 3 (17:21):
A big differe. I mean they always say the average is eight, right? But I haven’t done the calculation of the last seven years. That’s really interesting. I should do that. But one thing I did want to check out, or I use this software called sessa, it’s free, helps you calculate your investment rate of return. My cash on cash return for my investments is about 21%. And so that includes the appreciation and the rental income. But that seemed pretty awesome to me. I like that percentage. You can do a lot when you increase your percentage like that.
Speaker 1 (17:50):
That’s incredible, David. That’s an awesome story for sure. And I know there’s a lot of people here saying like, oh, I’m in this situation. I’m overworked. I need out, I need to find something else. And this might be the things they need. What’s the best way for them to follow you or be able to learn more about what you guys offer with Deal Machine? Yeah,
Speaker 3 (18:06):
If they want to find their first deal, it took me seven months, but the Deal Machine, real Estate Investing podcast, episode 65 gives them a framework to get their first deal in seven days. So episode 65 is what I would check out of the Deal Machine podcast.
Speaker 1 (18:21):
Sweet. We’ll put it in the show notes, man.
Speaker 3 (18:23):
Thank you man.
Speaker 1 (18:24):
Awesome. Thank you so much for being here, man. Everybody else, definitely check out episode number 65. This resonates you, it all, and you’re thinking, Hey, how do I actually get this to work for me? That was the key thing I was hoping he would bring up was that speed, right? That’s what got him, missed the opportunity before he missed it because he wasn’t fast enough. He was doing all this research, dragging his feet. Oh man, if you have the speed, you have the right systems and tools in place, that’s where you get that competitive edge to get the best deals no matter what the market is. So guys, check that out. We’ll put it in the show notes here for you guys. Go and make it a wonderful prosperous week and we’ll see you later with this
Speaker 3 (19:00):
Deal doing the Burr strategy. Are you familiar with the birth strategy? Yeah. And then it needed everything. New kitchen, new bathrooms, new roof, everything, you name it. I didn’t have that money, so I got four no interest credit cards. And then I fixed it up for like $65,000. I’m all in like 70,000. You get a rental property loan on a property like that, you typically have to put 25% down. Well, I had more than 25% equity, so basically I could get all that money back in my pocket and have a cash flowing rental property that rented for 1200 a month.