Podcast Summary: The David Greene Show — Deal Analysis | 7 Figure Property (Episode 19)

Release Date: November 14, 2024

Introduction: Meet the Expert Flipper

In Episode 19 of Real Talk Real Estate with David Greene, host David Greene welcomes Dawson Krittle, a seasoned home flipper from California who has successfully expanded his business into various real estate ventures. The episode centers around a detailed analysis of a real-life property deal Dawson recently executed, offering listeners an invaluable glimpse into the complexities and strategies involved in high-stakes real estate investing.

Finding the Deal: Direct Marketing Success

Dawson shares the origins of his latest deal, emphasizing the effectiveness of his direct-to-seller marketing strategy.

"I do a lot of direct to seller marketing and the seller received one of our mailers, went on our website and gave us a ring." [00:40]

Dawson’s approach includes professionally managed websites and ongoing SEO efforts, highlighting the importance of a strong online presence in attracting motivated sellers. This particular deal stemmed from a seller whose mother-in-law needed to relocate, revealing Dawson’s knack for identifying and acting on high-motivation leads.

Understanding Foundation Issues: Navigating Structural Challenges

A significant portion of the discussion delves into the foundation problems Dawson encountered with the property. Dawson explains,

"This is a pretty flat lot. Most of it was just water damage... I knew that we would probably have to jack up the walls, jack up the roof, and then lay a new foundation underneath, which is probably 20, $30,000 for that." [02:31]

He distinguishes between slab and raised foundations, detailing the costs and repair techniques associated with each. Dawson reassures listeners that not all foundation issues are insurmountable, breaking down potential repair costs ranging from $5,000 to $150,000 based on the severity and type of cracks encountered.

Deal Financials: From Purchase to Renovation

Dawson outlines the financials of the deal meticulously:

• Purchase Price: $1,000,000
• Foundation Repair: ~$70,000
• Overall Renovation: ~$85,000
• Total Investment: ~$150,000
• After Repair Value (ARV): $2.2 million

"We were able to create a win-win situation where we bought it... We gave them a million dollars for the house. They got a lot of money for it. But, yeah, we also got a pretty dang good deal on it." [07:39]

Despite never having visited the property in person, Dawson's due diligence and swift action ensured a profitable outcome. He leverages tools like Zillow and personal spreadsheets to assess comparable sales and determine ARV, ensuring confidence in his investment decisions.

Tax Implications: Flipping vs. Holding

A critical segment of the conversation focuses on the tax consequences of flipping the property versus holding it as a rental:

"If we sell it, are you going to have short term capital gains taxes?" [12:34]

Dawson categorizes the income from flipping as ordinary income, which can significantly impact profits due to higher tax rates compared to long-term capital gains. David Greene advises on the benefits of holding the property longer to take advantage of lower tax rates, potential depreciation benefits, and market appreciation.

Strategies to Maximize Capital: The BRRRR Method and Beyond

Dawson contemplates applying the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy to his current property. He is concerned about the ability to extract full equity through refinancing without incurring substantial tax liabilities.

David Greene counters by outlining the extensive equity Dawson has already built:

"You bought equity, you forced equity... that's equal around a million and some change, 940." [16:21]

Greene emphasizes the long-term financial benefits of retaining the property, such as market appreciation and cash flow from multiple rental units. He suggests converting the garage into a separate studio to enhance rental income and further leveraging the property’s potential.

Navigating Regulatory Changes: SB9 Lot Split Laws

Dawson mentions considering the SB9 lot split laws in California, which allow for minor lot splits and additional housing units.

"So one thing that I'm considering doing is doing the SB9 law where you can do, essentially do a mini lot split because there is that room on the side of the house to essentially put another driveway." [32:51]

David Greene highlights the strategic advantages of utilizing these laws to maximize property value without incurring prohibitive costs, reinforcing the benefits of long-term investment strategies over immediate flipping.

Final Recommendations: Hold and Grow

David Greene strongly advises Dawson to retain the property, emphasizing the substantial equity and future appreciation potential:

"From an equity standpoint, this is a hard. You should keep this thing. You don't need to get rid of it right now." [18:45]

He outlines multiple avenues for increasing profitability, including:

1. Market Appreciation: Capitalizing on the property's location in a high-demand, tech-centric area.
2. Forced Cash Flow: Enhancing rental income through additional units.
3. Depreciation Benefits: Utilizing depreciation to shelter income taxes, especially if Dawson qualifies as a real estate professional.
4. Long-Term Investment Growth: Allowing time for the property to appreciate significantly, potentially reaching valuations of $5-7 million.

Greene concludes by reassuring Dawson of the property's strong market position and the long-term financial benefits of holding and optimizing the asset.

Conclusion: Empowered Decision-Making for Real Estate Success

The episode wraps up with Dawson expressing appreciation for the comprehensive analysis, acknowledging newfound strategies and perspectives that will inform his future investments.

"Yeah, I'm glad I asked you about that. That's a, that's an interesting perspective that I didn't have before we did this call." [34:32]

David Greene reinforces the value of strategic thinking and long-term planning in real estate investing, encouraging listeners to consider both immediate gains and sustained growth for maximum wealth accumulation.

Key Takeaways:

• Direct Marketing Effectiveness: Building a robust online presence and targeted marketing can attract highly motivated sellers.
• Foundation Knowledge: Understanding structural issues is crucial for accurate budgeting and repair strategies.
• Financial Planning: Detailed financial analysis ensures profitable investment decisions, balancing purchase price, renovation costs, and ARV.
• Tax Strategies: Long-term holding offers significant tax advantages over flipping, enhancing overall returns.
• Regulatory Navigation: Leveraging local laws like California’s SB9 can unlock additional value and rental income.
• Strategic Holding: Retaining properties in high-growth areas yields greater equity and long-term financial benefits compared to short-term flipping.

Notable Quotes:

• “We were able to create a win-win situation where we bought it. I mean, we still gave them a million dollars for the house. They got a lot of money for it. But, yeah, we also got a pretty dang good deal on it.” – Dawson [07:39]

• “If you keep using hard money loans and you keep making money flipping houses and wholesaling, you can build up this capital.” – David Greene [15:42]

• “In my mind, I'd only tell you to sell this thing with the crazy taxes you have to pay. If there was no other way to get cash.” – David Greene [22:00]

Connect with Dawson:

For those interested in Dawson Krittle’s real estate ventures, he can be followed on Instagram @DawsonCrittle. Dawson engages in deals across Louisiana, Illinois, Florida, and beyond, offering potential partnerships for motivated sellers.

Follow David Greene:

Stay updated with expert real estate insights by following David Greene on Instagram @davidgreen24.

This summary captures the essential elements discussed in Episode 19, offering listeners a comprehensive overview of the strategies and considerations involved in high-value real estate deals.