Ep 195: How to Find Your First Investment Property with David Lecko

Typically got your inspection period and in during that time, then they would market that property, find a buyer for it, and the buyer would pay more than what you have it under contract for. And that's what you make as a wholesaler. It's called a finder's fee.

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larsen. If you haven't yet, get a copy of our book for free for free at our website, NextLevelIncome.com that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, we have David Lekko. David is the founder and CEO of DealMachine, the highest rated mobile app to help real estate investors find off market deals. He's also a real estate investor based in Austin, Texas. David created DealMachine in 2017 when he was new to real estate investing himself. He knew from reading that the best way to find off market deals was to go driving for dollars and send direct mail. And he's going to talk about his story as he did that and built his $2 million rental portfolio. He built that shortly after acquiring his first rental portfolio and then he helped grow that with the Deal Machine app. David also co hosts the Deal Machine Real estate investing podcast, which helps listeners start their journey to financial freedom through real estate. When he's not leading Deal Machine or out driving for dollars, you might find David surfing, doing laps on the racetrack or hanging out with his cats, George and Winston. David, welcome to the show.

Thank you so much. Good to be here.

Yeah, man, it's great to have you. I'm excited to talk about your business, what you've done with, with DealMachine. I've been checking out your app online and look, we have a lot of listeners, David, that they want to be passive investors. They want to figure out, hey, how can I be, you know, in a part of an owner in a, a big apartment complex and that sort of thing. But for years I've gotten these questions like Chris, how did you get started? You know, how did you make not your first million, but how'd you make your first thousand or ten thousand dollars to help give you income so you actually had something to invest. And I'm really excited to talk about wholesaling today with you because this is one thing that I heard a lot about when I was first getting involved in real estate. But tell us a little bit about your journey, David. Tell us how you got. How you got to this point, and we can, we can go all the way through until today when you're working with your machine.

Yeah. So I was working at a company that was working me 60 hours per week and weird hours of the night. In fact, I would sleep with my computer under my pillow because if a tech support call came in, I just needed to pull that computer out, solve it. It was the easiest way for me to solve that was sleeping with my computer under my pillow. And the final straw for me at that job was at my best friend's wedding. I made it through the ceremony and was about to dive into my salad during the reception when my phone rang. And I was a tech support call for that job. So I actually ended up going out to my car, and it was just ringing four or five times by the time I found a quiet spot and opened the phone. And then I had my computer in my car. So I had pushed my steering wheel in, recline that seat back, and then open the computer and get on the phone call to see what was going on. And 15 minutes later I got a, you know, got the call handled and went back. And my best friend's wife's like, where'd you go? And I was like, well, I had this work call I had to go to, and she said, they need to hire someone else like you. You can't be living your like this. And my first reaction was like, I'm somebody who values getting as much experience now so that later capitalize on that and hopefully retire by the time I'm 40. But I was a couple years into this job and I thought about what she said. And that's when I realized I've been at this job for two years. I think I've learned everything that I could learn. And if I'm going to work this hard, I'm going to work for myself. It's going to be for me. So one thing I noticed was the person who owned that company, he actually had five rental properties. And I asked him. I've been contributing my Roth ira. I've been maxing it out since I did my internships in college. Why do you have rental properties when you could investing into the stock market like that? And he said something that changed my life forever. He said, if, if you want to retire by the time you're 40, the stock market can go up and down. And at that time, the stocks had been down quite a bit. He said the Rental properties will cash flow every single month as long as you write and manage them well. So I went searching on a path for information about this new type of investment. I had never considered that that would provide the much easier ability to retire. And I figured, well, if I can cash flow $500 of property, then I only need about 15 properties before I actually hire. So became a very clear goal and I never contributed to my Roth IRA ever again. And I started working on finding that first real estate deal. But it wasn't, it wasn't as easy as I thought. You know, I started looking about what.

Year was this, David?

This was in 2016.

Okay. Yeah, so that was. This is a great time to be buying property, but still not, still not super easy.

Yeah, I, it actually took me a little bit. I didn't get my first one until 2017 or 18. But I did start looking at Zillow and Indianapolis, which is a pretty good market. Everything that was listed by an agent. I could see what the estimated mortgage payment was on Zillow and then I could see what it went for using this tool called Rentometer. That is the only way I knew what it would possibly rent for. And none of those were going to rent for more than what the mortgage payment was. So I was scratching my head and I actually went back to my boss and I said, how did you find these properties that cash flow? And he didn't mean to be discouraging, but I felt totally discouraged when he said, you know, I bought these in 2008 after that crashed, the. These were low, and I'm not really sure you could find properties like this anymore. But I'm the type of person, Chris, who doesn't like to take no for an answer. I hate being told no. So really that, you know, discouragement changed into like a fire under my butt. And I, I ended up reading Rich Dad, Poor Dad. I ended up finding these meetups, and at the meetups, people were doing deals all the time. So that told me I've got to find a new way. And they weren't looking on the market. They were doing marketing to certain types of homes, asking if they want to sell their house and if they did, you know, they were run down so they could buy them at a discount and potentially fix them up and have a great cashing rental property that they didn't have. They had way less money in total, but it was actually worth allowing it to cash flow. So I went on a journey like that for about six months, and that's when I got my first Call back. That turned into a deal. And it was a. It's a crazy house. It was like 600 square feet. It had tarp on the roof. He had the bathtub running so it wouldn't freeze. It was three layers of wood paneling because it was that old and had been three layers. It was like rewood panel multiple times. That's right.

Yeah.

Yeah. So, you know, not having a ton of cash, but it was in a rough neighborhood. So I was able to buy it for $4,000 and he accepted my offer.

K. Wow.

Yes. And then I got five no interest credit cards totaling about $55,000 used. I found a contractor that would take that and I ended up, you know, renovating that and then renting it out for, at the time, a thousand bucks per month. And that was my very first deal.

Yeah, not bad. I love it, man. There's. There's several things here. So, you know, you mentioned reading Rich Dad, Poor dad, and one thing that Robert Kiyosaki talks about, which, which I love, is he says, don't take a job for what it pays you Take a job for what it teaches you. What all. Basically what he's saying is how much, how much more it will make you in the future, how much more valuable it will make you. And I love that philosophy that you had because you were saying, hey, I want to get as much experience as possible. And I think that resonates with a lot of listeners. I spent 12 years of my own on call in the medical device space, and I got a lot of those nights at 3am standing in a. Under the fluorescent lights in the OR. And yeah, I was like, there's no way I can do this and have a family for the rest of my life. And I love how you figured out a way out of that, as did I. But the other thing you mentioned was you stopped contributing to your Roth ira. And I've said this before on the show, but let's run through some quick math, David, because I think you made a great choice because you can't eat your stock market investments in your ira, right? You can, you can eat off passive income that's coming off your properties, right? That's what we say. Hey, you need passive income to really be financially independent. But if you contribute to a, a qualified plan, you're basically making a bet on two things. So if you invest, quote, unquote, invest through a qualified plan, whether you invest today and not pay taxes and pay taxes in the future, or whether you invest today, pay taxes, and then don't pay taxes in the future, it's equivalent. There's no difference in that if the returns and the tax rates are the same. So an individual, if you're listening out there and you're putting money into a qualified plan, you're betting that your tax rate's going to go down in the future, which means one of two things. Either you're going to make less money, which I don't know about you, David, but I don't want to make less money in the future, or two, we think the government's going to lower tax rates and we got to increase taxes about 50% today to balance the budget. So I love, I love that piece of advice that you had, David. You didn't really say it as advice, but you know, if you're trying to develop passive income, look at where you can pull some of that income, you know, such as contributions to, to a plan. Now. So you, you found that deal. How, how did you find, you said, where did you find that deal? Exactly, David? That, that $4,000 deal, it was on.

Rembrandt street in Indianapolis.

Oh, but I mean, like, who you found it, was it from a broker or was it.

No, that's a good question. I don't think I mentioned that. So all the stuff that was listed by agents, it was in the cash flow.

What type of agent wants to buy, wants to sell a $4,000 house, right?

Well, that is also true, but the way everyone in my real estate meetup in Indianapolis was able to find great deals was they were marketing to certain types of homes that were not listed for sale but that they felt would end up needing to sell and for a discount if that were to happen.

So, so they were sending direct mail, for instance, to these owners and saying, hey, do you want to sell your house?

Yeah, so I, I drove around looking for rundown properties and then I sent mail to this owner once a month that said, is this your property? If you're interested in selling, I can close quickly and with Ash, and if so, give me a call or text and have a great day. So I sent that six times. He replied on the sixth time.

Awesome. Awesome. Yeah. And look, my wife and I, we used to build spec homes. We did the same thing. And my wife, just a couple years ago, this was 10 years ago, she was sending these postcards to people with lots of know adjacent to their homes. And I, I think it's, I think it's phenomenal the way it worked. So that was your first deal. Now you, as I mentioned in the intro David, you built a, a multi million dollar portfolio. You know, were they all like that? Is that how you found all your deals or how did you accumulate, you know, how about your next deal and your deals after that? What type of strategy did you use for those?

Yeah, so I acquired nine rentals over the next two years, and I did not have a lot of money. So the was doing it was finding a really, really great deal. And I had a friend provide all the money and put his name on the mortgage. Then my name was 50% owner of the property. So I had no money in the deal. Because I'm the one who found such a great deal. It was advantageous for him to be providing the down payment and the mortgage and exclusively his name and still give me 50% ownership. So that's how I did it. And several of these deals we used what was called the Burr strategy. So that gives you infinite returns, it lets you recycle your money because the money you'd normally put as a down payment, you actually create in equity. So you find the rundown house, you buy it, you fix it up, you refinance it. It's worth over 25% more than all the money you have in it. So when you get the refinance, you get free 25% payment, essentially. And then you get all the cash back out to do like more deals with. So that's how I've gotten the deals.

So Burr is, as you were saying, buy, renovate, refinance, repeat. And that's what as a burst.

Yeah, yeah. Then there's one more R you miss. It just stands for rent, but yeah, that's right.

Three hours. There we go. Or I threw repeat in there, I guess. So there could be four hours if you want to do.

Oh, I think there are four Rs. Buy, rent, renovate, refinance, repeat.

There we go. Love it, man. Love it. Yeah. So I think a lot of people are familiar with that. And so, and that's great. So if, if you're listening, you're like, I don't want to work as hard as David does, but I got some money. You could partner with somebody like you did, like you, David. And I think, you know, there's always. That's what's great. You were saying, like there's all these, there's no deals to be had yet. I go to this meeting and, and everybody's doing deals. But you don't have to do everything. You can divide and conquer the things. Now was, was this like a high income earner? Did he have money in his self directed ira. Where was your partner getting his cash?

Yeah, so we were friends from our internship at AT&T. He worked in Chicago as a stock trader. So he was essentially a big W2 earner. Yeah, actually for, yeah, for a hedge fund. You know, he was maybe doing options trading for something like that. So he had a lot of W2 income.

Yeah. Beautiful, beautiful. So, you know, I think, you know, these local meetups or Korea meetings are, are great for people just starting out. There's a ton of education out there. I met a lot of contacts that I'm still friends with 25 years later from those meetings that I was going to in, in college. And I'll never forget, you know, one of the, one of the mentors that I had. He, he was an African American gentleman and he took me into inner city Baltimore one time with him to, to negotiate a deal. You talk about sticking out like a sore thumb. That, that was me. But man, it was so cool to get to learn and understand from the people in this group. Now you're getting, you built, you built this portfolio. When did it occur to you to find a better way because you said I don't like taking no for an answer. When did it occur you to find a better way to put a tool that now is deal machine into place to help make this process more efficient? Are you a high income business owner or professional earning 2,300,000 or even more a year but still feel like you're living paycheck to paycheck? Are you comfortable working till you're 65 or 70 to retire higher or do you want to achieve financial independence and live life on your own terms? You could join myself and Matt4 and learn how we both became financially dependent in our early 30s. We will teach you how to make, keep and grow your money. Teaching you strategies to maximize your earnings, keep your income that you've earned through tax strategy and legal structures and ultimately teach you how to grow it by determining your personal investing strategy as well as teach you how to analyze investments so you can grow your passive income to the point to live life on your own terms. Our coaching clients reliably do this in seven years or less. To learn more, check out our coaching program at nextlevelincome.com forward/coaching. That's nextlevelincome.com forward/ coaching.

Yeah, so when I was driving around looking for those properties that looked run down, I did that about two months and I was driving for dollars paper. That's right. Yeah. And I saw one of the properties on a drive that I knew I'd already written down. But this time, somebody was out with a ladder, a painter's truck, working on the property. And my stomach dropped because I felt like that was my problem.

I love it.

And so I went home and I looked up to see if anyone had bought it recently. And sure enough, three weeks ago, they bought it. So obviously, I felt like I missed out on a deal. It was just sitting on my paper. I'd never even sent them any piece of mail or anything like that.

Gotcha.

So I went home and I started out my mail, Putting that together with my printer. And that took a really long time. So I actually spent the rest of the weekend using the limited software development skills I had to make a widget for myself that was just like a Google map. Allow me to pin the house and link with a company that would print them as soon as I sent them a computer request. And I linked that up to my widget. Yeah, that's what I started doing. From then on, instead of writing it down, it would look up the person who owned it, and then it would send that mail as soon as I pin the house. So I started doing that from that point on. And it wasn't until a few months later that I showed somebody at my meetup that I was using that. And then they said they'll spend $1,000. Any new marketing? How do they get it on their phone? And my jaw dropped. It's like, I'm not even trying to sell this. What are you talking about? But I found out a way to link up a payment processor and then put it on the app store. And it needed a name to put on the app store. So I just came up with this word. My old job, if I had sold a. We. We sold software at that old job, if I sold something, they'd be like, man, David is a deal machine. At the company meeting, and I like that sound of it. I was like, well, I'm gonna name. I'll just come up with that. So that's how I love that man started. It wasn't meant to be a business, but she needed. And she wanted to put it on her phone. So that's how I set it up and got it going.

I love that. I love that. So what does it do? Like, I've. I've been checking out your website. You know who should check out DealMachine. Who's it? Who is it designed to help?

70% of the people who sign up, and we had 3,000 people sign up last month is somebody who wants to replace their W2 income and start a business that allows them to have more time, freedom. So they're doing a strategy called wholesaling real estate where they get paid to find a house that looks run down.

Yeah, so let's give it master. Yeah, sorry. Let's back up real quick so people understand. So wholesaling a house, this is something that we've used the term a couple times. So if I go and buy a house, quote unquote, retail, that's basically looking it up on, on the MLS or going to a broker, is that right?

Correct.

All right. And wholesaling, start over one more time. And what is wholesaling? How is that different?

Yeah, so you get paid for finding rundown house. So out of people who would do wholesaling, real estate would market to the house the way we just described. Looking for a rundown house, sending mail, asking a cash offer, they would get it under contract in the same way using a contract from the Internet, you know, no, nothing crazy. I use a three page contract. All you need is sale price, address, buyer, seller, and a date. That's what you need to buy a house. And there's a period of time, once it's under contract and before it closes, two, three weeks. That's typically got your inspection period. And during that time, then they would market that property, find a buyer for it, and the buyer would pay more than what you have it under contract for. And that's what you make as a wholesaler. And it's called a finder's fee or an asset fee. And that is how you do wholesaling real estate. You don't need money because you're not buying the house. You get paid for finding a great deal.

Love that. So for, for example, your house that you bought for $4,000, that first house in Indianapolis, if, if I was looking for a deal and you came to me and said, hey Chris, I got this great, this, this great opportunity, it's 10 grand. So you're would have made 6 grand in that case. Made, made us made, made would have made six grand just for finding that deal and quote unquote, flipping it to me. And then I would be the one that would, would take it over and actually do the quote unquote hard work and, and getting that on the market.

Right? Yeah, I would have, I could have done that too. I could have done that.

Yeah. That's awesome. So, yeah, I guess. So this strategy is it can not only be good for generating capital, you know, 5 grand, 10 grand, 20 grand. I know, I know people that have made six figures on, on flipping a really good deal or maybe a commercial property, that sort of thing. You're smiling. You probably have a good, good example of that. But also, if I'm looking like, let's say I'm, let's say I'm looking for my first home. I hear this all the time, David. People say, oh, you know, I'm, I'm a first time homebuyer. I can't find any, I can't find any deals out there. But this is something that that person could use too. Right, right.

I mean, I've used it to acquire my own properties every time. Tempted to wholesale it. But I remember my goal is to retire by the time I'm 40 and I need 15 properties to do that. So if I really don't need the cash because I've got a friend who's providing all the cash.

Yeah.

It's better for me just to take this deal down ourselves, in my opinion. I never wanted to let go of such a great deal, you know, so that's.

Yes.

Why I've never. Yeah, it's exactly why I kept it. But yeah. And if you look at those types of properties yourself, you'll find better deals that way than you could possibly find with a wholesaler. Because a wholesaler is in the business to make money, of course. So they should be selling it for the top dollar that they can. And there's a lot of heads that will buy it for a top dollar way more than I would buy it as an independent investor. And so the wholesalers will sell it to them every time. So it's, it's hard. And deals that meet my criteria from wholesalers.

Gotcha.

And so that's why I just go direct to the seller myself.

Yeah. Yeah. All right. So how does your app fit in here? So I download the app and what's it going to help me do? To help me? It's going to just spit out the properties in my local neighborhood that I should go check out.

So the way we started was a little tool that just saves you time while you're driving for dollars. And elim everyone's ability to not follow through. You know, I, I was struggling following through myself, so that's valuable.

Accountability is worth a lot. Yeah.

It tells you who owns it and you can send mail and it will repeat the mail just after you pin the property. So it's what it started off with. But now a lot of people, instead of sending direct mail, they may Be cold calling or text messaging the owners. And so you also get unlimited contact info deal machine so you could see who owns it and you could call them or text them to see if they want that cash offer. So it's faster than the mail. It obviously is. Is right away. So. And normally you get nickeled and dime to look up that information with like a skip trace is what it's called. But we just launched this unlimited contact info back in November. It's the number one like hot thing now for us and reason why people use the old machine and find it really valuable. If you don't have as much time because you're working a 9 to 5 job to look around your neighborhood for rundown houses, you could also pull these niche lists of houses that may be highly motivated, such as people who are behind on their taxes or properties that may be going into the probate process soon or, or a property that has some type of code violation, meaning, you know, the city's charging an obscene amount to cut your tall grass. And, and this, you know, bills are stacking up. It's becoming a hassle. Um, I just did a deal like, like this from somebody who's an orthodontist in Utah. He had bought six properties in Indianapolis four years ago. None of them have been renovated because the person who was advising him really disappeared. They were supposed to work on the property and he was making more money as an orthodontist than was worth his time to figure out and track down a great contractor and, and manage the process. So by the time he was behind on his taxes in 2023, he just assumed sell a property to me for what I needed at great discount.

Yeah.

So there's always people and you wonder why would somebody sell below value? Well, for him it was a huge. And he was about to lose the property so he just wanted to get rid of it. And so there's. Yeah. And he didn't really care that it was lower than what he actually paid. It just been a three year headache. He wanted it to end.

Yeah. Yeah. I love that. I love that. All right, so how can people download the app? We're gonna, we're gonna share the link here in the show notes as well that you share. But if somebody wants to check this app out, if they want to download, if they want to see how it works, what's the best way to do that? David?

Yeah, so machine.com and there's like a. Try it for free to start that seven day free trial. And, and one other thing too. If You're. If you're brand new to marketing property like this, I wanted to let you guys know, in my own podcast, I just did this episode that was the best episode of the last six months called Six Ways to Help Someone in Foreclosure. It's episode 97 of the Deal Machine podcast. And. And that could really just quickly, within 29 minutes, you know, show you how to talk with and market to somebody like that who would be in motivation. Right. To sell their property before it's taken by the bank.

Awesome, man. We will. I'm gonna go ahead and put that in the show notes as well. Tell us a little bit more about your podcast, David. We're talking a little bit about a little bit before the show. You already have a ton of episodes out there. Who should listen to it, who should tune in?

It's the podcast to quit your W2 and replace, you know, your income by wholesaling real estate. So the mo. The average person, you know, has a job they're not excited about, but they're scared to take that leap. So, you know, start by building a side hustle and end up making four times your salary if you've gotten that going, and ultimately end up quitting your job and having freedom to take your kids to school and have a lot more control over your schedule. So that's. That's typically who's listening to the podcast. They're looking for their first wholesale deal.

I love it, man. I love it. Yeah. So if. Look, as we said at the beginning of the show, if you're starting out and it's a little overwhelming to think about investing 50 or $100,000, but you want to start a side hustle. You want to create more time, more freedom for yourself and your life. Maybe you want to create money to invest. Maybe you want to help your spouse get a job. Check out David's website, dealmachine.com, check out his podcast, check out his app. It can help you do all kinds of things that we've talked about today. David, thank you so much for being on the show today and sharing your knowledge with our audience.

Thank you, Chris. You're a great interviewer. It's great to be here.

Thanks a lot. Hey, Chris, here again. I hope you found this episode valuable. Now, I have one more thing to give to you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.