Maximize Your Returns: The BRRR Model Explained with Dave Lundgren

Mike Hambright (00:05.862)
Hey everyone, welcome back to the show. Today I’m here with my buddy, Dave Lundgren. We’ve known each other for a long time now. We’re growing old together, buddy. I guess that’s, yeah. I still feel young though. So, but great to see you. So we’re to be talking about just kind of innovation in the marketplace. over, you know, this is what happens during challenging times in the market is people pivot and figure out unique ways to do things. And sometimes it’s a new spin on an old trick or something like that. I don’t know if that’s the phrase, but we’re going to be talking about.

Dave Lundgren (00:12.046)
Yeah, we are.

Mike Hambright (00:34.66)
new construction burr. So Dave has been a syndicator and a turnkey provider. In fact, we worked together before we were doing some turnkey stuff and provide some properties to you back in the day. And for those of you that know, you know, that you don’t already know turnkey is basically insurance, insurance, real estate investors. There’s lots of variants of it, but typically find a house, buy a house and ultimately sell it to somebody.

that just wants to be a property owner. They’re not really a real estate investor. They want to be more passive. And sometimes that means you’re managing a forum. Sometimes it means you find a manager forum. Sometimes it means you just pass it off to them and let them do what they want with it. But that’s evolved quite a bit over the years. And we’re going to dive into that today. And maybe some tips and tricks you could learn here about how you might evolve in your business as well, right? So, hey, Dave, hey, before we jump into that.

You have an amazing background. I you worked with Tony Robbins and Dean Graziosi and a lot of these guys. I know you also do a lot of mindset coaching to help people get their mind right. And I love listening to you share stories because I got a lot of junk in my mind too, you know. But just give us a brief overview of your background and all the amazing things you’ve done.

Dave Lundgren (01:41.272)
Ha ha ha.

Dave Lundgren (01:45.716)
all right. I’ll try and compile 25 years.

Mike Hambright (01:48.12)
Yeah, I find myself sometimes I’m going to tell somebody something and I literally think to myself, what’s the short version of this?

Dave Lundgren (01:54.842)
I’ll give you the reader’s idea. So 2000, I was actually a chaplain in the army left that world came into what we call the high ticket coaching. Right. And like you said, uh, Dean grassy, he’ll see his right hand really 2005 to 2013. all the infomercials were right when a 30 minute infomercial was actually on TV. I was blessed and lucky enough to be a part of that team. You know, so millions of books and got to work directly with Dean, which taught me a whole lot, certainly an education and training site. So I came from that world.

2013, long-form infomercials really weren’t working, so he pivoted to live events. And Dean came to me and said, hey, dude, let’s do Cherokee like you were describing me in Kansas City. So he was doing the live events, and then I was his team in Kansas City taking Dean’s money. And I learned Cherokee really quick. I did invest it in some real estate, when you do 200 deals where I’m literally doing every aspect of that deal and buy, and flip to his students,

That’s when I really dove in on the active side. And that was really 2013 to 2015-ish. Got introduced to some other folks like Fortune Builders is a big name that people have heard. And those groups taught me more about Cherokee, but also the syndication side, like you mentioned. So Cherokee, like you were saying, is hey, let me buy one asset, a piece of real estate as an alternative to the stock market of commodities. And I’m very biased, as I think a lot of people on this podcast might be, that that’s a great way to deploy your capital. Syndication is just, hey, let’s do this collectively as a group.

and do bigger deals and let’s pool our money together. That’s a very, know, lot of syndications, a lot of capital raising. And that led to, like you were saying, this new construction burr, which is an innovative way of getting incredible returns with passive real estate. So it’s kind of a blend of syndication and owning one asset. And really the seed was planted in 2008 as I sat here in Kansas City, which is a great market.

Mike Hambright (03:21.328)
Right. Yep.

Dave Lundgren (03:43.502)
But when the world was collapsing economically, I’m like, I wonder if you could create a sustainable model that could withstand no matter what is happening in the real estate market. And I believe that’s what we’ve done. So you’re protected because the reality is it doesn’t matter what the market’s doing. If you have three exits, which we do in this model, your money is incredibly safe and protected, which we can elaborate on. So that’s the new construction burr. A lot of people have heard of burr. So we’re doing actually new construction, not just go buy an older house that’s rehabbed.

Mike Hambright (04:05.82)
Yeah.

Dave Lundgren (04:13.378)
We’re talking from the ground up, new construction type of model, which again, we can dive in on.

Mike Hambright (04:17.978)
Yeah, I remember. So I’ve only been, it’s kind of funny because I get invited to all these events like, shoot, I forgot the name of it already. It’s so unimportant to me that I forgot the name. These huge like institutional conferences. yeah, and you know, it’s more the Wall Street guys than the Main Street guys. And I’m like, I’m a Main Street guy, you know? mean, I have a degree in finance and my wife used to work on Wall Street actually, and we’re pretty savvy.

But I’m like, my whole career in real estate has been, I’m a main street guy, not a institutional type guy. So it’s interesting being around these folks. But I remember this was back in, it was probably five, this is my, maybe pre-COVID or kind of when COVID hit, I think it kind of went haywire, is obviously there’s been a lot of big institutional buyers coming into the marketplace, like starting five or six years ago. But everything dried up. So then you started hearing all this stuff about build to rent. So they all like, they have all this money, what are they gonna do?

Dave Lundgren (05:02.67)
Mm-hmm.

Mike Hambright (05:16.218)
And they’re like, the constraint is I can’t find deals anymore. And a lot of the deals were coming from guys like me, like, or wholesalers or people that are kind of wholesaling it to somebody else and it’s going upstream and it’s making its way into an institutional portfolio. They’re like, one, how do we cut out this middle man? Cause that’s what they always want to do. And two is we can’t just sit around here and see if something pops in our lap. Like we have to go make it happen. That’s when build to rent started happening. Right. And so you guys are

Dave Lundgren (05:34.307)
Yep.

Dave Lundgren (05:40.258)
Yeah, 100%.

Mike Hambright (05:43.59)
basically doing the same thing. I mean, you were a turnkey provider for a long, time and you’re like, this inventory is drying up. Like we have to make it happen.

Dave Lundgren (05:51.406)
100%. Yes, it is all about that build to rent. My partner has been a builder in Kansas City for 25 years. He went exclusively to build to rent five years ago. for that exact reason. How can I feed Wall Street and involve Main Street? Main Street being the people like you and I and other people who want to invest passively to feed the appetite for the institutions. There is a massive appetite to your point. People know this. These big hedge funds are like how can I

get a safe, secure investment. Well, they figured out a new construction, build a rent in a good market that they vetted out. Money’s pretty safe for all the reasons we know. I mean, you got cash flow, got appreciation, all the benefits. And that is the appetite that we’re feeding and we’re selling off to institutions and hedge funds for sure.

Mike Hambright (06:36.316)
Yeah, and I can tell you, mean, your properties that you’re building now are, they’re not entry. I mean, like, how would you position them as they’re not like, you know, they’re not like hood houses. I mean, where are they at? They’re probably not like A plus and A plus neighborhoods either. Right. I they’re probably affordable housing type stuff.

Dave Lundgren (06:47.456)
Yes.

Dave Lundgren (06:54.604)
Yeah, so I’ll talk real world numbers. So again, Cherokee, which again, I’m a big fan of, let’s just take $50,000 as an example, because that’s a real world example. I could take $50,000 and buy a Cherokee house in Midwest, right, about $200,000, putting 25 % down, I get a loan. Again, I’m very biased. I think that’s a better thing to do with your money. If you’re getting the right provider, you’re in the right market, right, assuming you’ve made a good decision on who you’re working with. And you look at that over five to seven years, you get amazing returns.

So what we’ve done is taken that same $50,000 and instead of putting into a C or a B class asset, you know, maybe it’s 50, 100 years old, it’s been rehabbed and it’s updated, but it’s still an older house in the C or B area. We’re taking that same $50,000 and we actually are in a kind of A minus B plus areas around the suburbs. And that $50,000 comes in from the investor. That’s their commitment. Don’t have to worry about finance or anything. We as the builder, and these are rough numbers.

I can send people performers and walk through them. We’re basically doing about a $250,000 construction loan. So they’re in for 50, we’re in for 250 on a loan. We’re all in about $300,000 on an asset that’s going to praise around 375 to 425. So we’re about 75, 80 % LTV. And to your point, in the marketplace right now, even the people that are out there, it’s so competitive, people that are experts in buy, fix, and flip, at 10, 15 mark

percent margin is tough to do. So because we’re building at that LTV level, they deploy their capital, which covers a lot of costs and some soft costs. We take out the construction loan. It takes us seven to eight months to build an asset. So now we have a completed single family home or townhouse or whatever. We return an investor’s $50,000 back to them because once it’s completed, we take out a long term loan. They get their 50,000 back plus 16%. So they’re completely whole.

and they got 15 or 16 percent and then they retained 30 percent in that asset long term. So the monthly cash flow, when we sell it off to REIT, they get 30 percent of that. So that’s what we’re doing and I’ve really compared and contrasted, hey, here’s $50,000, go put it into one asset, cool. Or if you can recycle that same $50,000 every eight to nine months, now you’re sitting on 12 to 15 assets over five to six years, you own 30 percent of those.

Dave Lundgren (09:12.672)
And it’s passive, right? We handle everything. We’re completely vertically integrated. You’re deploying your capital, but the money just goes a whole lot farther when you have that many assets and you recycle your money versus just one kind of set it and forget it.

Mike Hambright (09:21.863)
Yeah.

Mike Hambright (09:25.35)
Yeah, and I love it because when I look at it, so I have a single family portfolio and I’ve got a bunch of multifamily stuff too, but the single family portfolio in Dallas, know, I tended to buy more C, C plus type stuff, know, little frame houses and some brick houses and stuff like that. But just the, you know, the little three, twos or sometimes it’s a three, one or whatever. And so they’ve done remarkably well over, over the past, you know, 15 years or so. But I will say that

Dave Lundgren (09:44.364)
And a lot of those.

Mike Hambright (09:55.226)
I have some B-class properties too, and at the time I bought them, I’m like, they didn’t cash flow as well or whatever, or they didn’t, you know, the kind of rent to value ratio didn’t appear to be as high on paper, right? The problem is, the, well, the opportunity is the B-class type properties have appreciated faster, we get a better tenant, because the rents just tend to be higher, that takes care of the property more. We had one recently that…

They moved out after like five years and there was almost nothing for us to do, which is super rare. mean, sometimes I get like a 30 or $40,000 make ready on houses, right? So if you look at it over time, the higher quality property, just, there’s less maintenance issues. There’s probably more pride of ownership and they stay longer. And there’s lots of financial benefits that it’s taking me years and years to see that. And the thing I love about your model is, you know, it shouldn’t be any maintenance when you buy these things, you know.

Dave Lundgren (10:28.235)
Yeah

Mike Hambright (10:51.45)
Minor stuff, right? But shouldn’t be any significant maintenance for five to 10 years, really. And they’re in better quality neighborhoods, which you’re just gonna retain a better, a better tenant.

Dave Lundgren (11:04.078)
Yeah, so you pointed out, yeah once in a turnkey or buying a real estate model you pointed out there’s only two things that take money out of your pocket. That’s it, two. Vacancy and maintenance. That’s it, right? Now there’s a thousand variables that contribute to those two things but at the end of the day it’s vacancy and maintenance. And you just pointed out, okay, maintenance. We got a brand new construction, we got a builder warranty, all the CAPEX, the HVAC, the roof, those are new, right? So that’s deferred maintenance. So yes, there’s…

small things but the maintenance is incredibly low on these. So that’s one massive variable. And then the other point will vacancy. Well we’re in the best school districts right in Kansas City. High demand. We’re getting a very good tenant that’s out in the suburbs that is willing to pay a premium rent. So yeah things happen. Life happens. There’s things that go on right. It’s not always perfect but we’ve obsessed about those two dynamics in this model and we’ve just mitigated a lot of the variables.

vacancy and maintenance, which is why the Wall Street’s going through.

Mike Hambright (12:01.778)
Yeah, the other thing I like about your model, and I don’t know if you agree with this, is because it’s single family, if it didn’t make sense to sell it to a REIT, you could just sell them off individually. You have the ability to do that. with a big multifamily, I’m in a bunch of big multifamily syndications. mean, they’re not as liquid now as they were before. You’re missing some of the same pressures that we have.

Dave Lundgren (12:24.174)
100 % and that was really the seed that was planted in 2008, the fact that we got multiple exits. So to your point, if the market’s up, we can sell retail. Like right now, everything we’re completing, we could sell a retail all day every day. We could sell it to a turnkey buyer. We could sell it to REIT. So we’ve got that exit when the market’s up. If heaven forbid a 2008 happened again, I don’t think it’s gonna happen. I don’t have a crystal ball, but let’s say another 2008 happened. Well, we’re at 80 % LTV. We can refine this whole that thing and it cash flows. So even if the market completely dropped,

In markets like Kansas City, it took three or four years for things to turn back around, but your cash flow in the meantime, so you have that exit as just to hold it and wait for the market to turn around. And then when the market is kind of in between, you can sell the turnkey folks, you can still sell retail. So your point is exactly why we created this model, because when you’re taking somebody else’s money, that’s different than your own risk capital. And to me, that’s a different conversation. It’s a very sacred responsibility.

Mike Hambright (13:15.329)
yeah.

Dave Lundgren (13:20.694)
And in my opinion, in my experience, you’re very safe because no matter what the market’s doing, we’ve got pivots. We can sell retail, we can sell this way, we can hold. And like you said, you’re not dealing with a huge conglomerate where, I got to sell the REIT. Well, what if the REITs dry up and what if the REITs aren’t buying for a year, which happens? Well, yeah, we’ve got flexibility with individual assets like this.

Mike Hambright (13:36.956)
Right.

Mike Hambright (13:41.424)
Yeah, yeah. So you’ve been a real estate investor for a long time. maybe share some other things you’re seeing right now from what you know a lot of investors like I do that you’re seeing that are kind of from an innovative standpoint, like just evolution happens when times are tough or you go through a tough market or that’s usually when people figure out ways to pivot and do things a little bit differently. Like what are some other, I guess what are some other advice you can give people that might be listening?

Dave Lundgren (13:49.08)
Mm-hmm.

Dave Lundgren (14:06.326)
Yeah, well, in my very simple mind, there’s two big buckets. One is the active, right? OK, I’m active. This is my world. I’m living it. I’m breathing it. And then there’s the passive side. The passive side, vet out who you’re working with, right? Because real estate’s a massive. There’s everything from cell storage to tiny homes to whatever you want to do. So I would just say, on the passive side, that’s all about who you work with. Vet out. Look at their history. Look at what they’ve done.

and then pick your asset class and maybe diversify from that, even within real estate. I want some self storage, I want this. So that’s the passive side to me is all just about the track record of somebody taking somebody’s capital and getting them a return. That’s a very simplistic answer. And I do, I’m not actively in the trenches, even though I work with a builder, he’s the one building all the assets, but high level active real estate investors that I’ve known for years, men and women who are

at a high level, the thing that I’ve noticed with all of them, and this is even what I noticed with the Tony Robinson and Dean Graciosi, they surround themselves with like-minded folks, like masterminds. You and I met at masterminds, that’s how we met, how a lot of high-level people are. And even outside of the real estate world, being in the room, if you can be in the room with 20 other, 30 other high-level people who are investing in you and you’re learning ticks and trips from them,

And they show up, you know, a couple of times a year like, hey, here’s my biggest mistake I made and here’s my biggest win. And you’re in that collaboration with high level people. That right there, I would say is the high level people that I know in Kansas City and other markets, that’s what they’re doing. They’re in masterminds and they’re sharpening the saw with other people and it’s collaboration. Cause there’s a lot more made through collaboration than, so that’d be the one. If you did one thing, find a good mastermind, get around other people and.

Mike Hambright (15:55.387)
Yeah.

Dave Lundgren (15:59.49)
Give. Give your gifts. Give what you’re learning innovation, and you’re always going to get more back from that. That’s what I see for sure.

Mike Hambright (16:04.966)
Yeah. I happen to know a really good mastermind is called Investor Fuel for you guys listening. So I will tell you this, though. I mean, it happens all the time. Like you’re around, you know, you we we we think sometimes we think we know a lot, but you realize sometimes you hear a little nugget that it’s like it’s intuitive. It’s not like I couldn’t have thought about that, but it took somebody saying it.

Dave Lundgren (16:08.942)
I’ve attended it. It’s awesome.

Mike Hambright (16:27.602)
And sometimes it’s not even what they said. It just triggered another thought and you go a little bit different direction, but it took hearing something else that somebody did, good or bad, and you’re like, my God, that’s worth like six figures to me right there. Like that’s gonna save me 50 grand a year. I didn’t know that. Maybe it’s a resource or whatever. It’s amazing when you get around smart people. We’re like a bunch of Petri dishes out there testing stuff.

Dave Lundgren (16:48.386)
and you pointed out.

Yeah.

Mike Hambright (16:51.868)
And then we come back together and we say, you know, don’t touch that hot stove because you’ll get burned. And if you can save yourself from getting burned, then you know, what’s that worth to you?

Dave Lundgren (16:57.302)
Yeah, it’s both. It’s, yeah, it’s huge. Yeah. Yeah. To your point, it’s, here’s a gift. that’s cool. That’s a new innovative thing. We’re entrepreneurs. We always like that shiny new thing, but it’s just as much don’t go step in this landmine. That that’s massive. So it is those tips and tricks and tactics. But as you and I know as well, it’s a community, right? When you get to a certain level as an entrepreneur,

it’s difficult to be around other people who maybe don’t understand that world. sometimes it’s just being in the room with, dude, I’m struggling with this in my business. It’s a mindset thing. Or man, I’m struggling because business is good, but I’m gaining a bunch of weight. My marriage is falling apart. And being around other like-minded folks who genuinely care about you. So it’s not just the tactics and the strategies, but it’s also a community of people that understanding gets you. Because sometimes as people have elevated themselves on the entrepreneurial side,

It’s very difficult to go out small talk at the coffee shop with people who don’t understand your world and having that long-term relationship with people can be invaluable as well. Just other like-minded people who understand your experience outside of any tips or tactics can also be incredibly rewarding.

Mike Hambright (17:56.914)
Yeah.

Mike Hambright (18:09.702)
Yeah, especially if you come into a room where you’re not the biggest, right? And you shouldn’t probably be in a room if you’re the biggest.

as I say that, we have some members that were the biggest by far in our room and they left and six months later they’re like, dude, we gotta come back, like we miss everybody so much. you know, it doesn’t, even when you’re the biggest, sometimes the nuggets you hear could come from somebody that’s the smallest. It’s just, they have a different perspective, right? So nuggets are everywhere. But I think some of it’s just being in the room and being around people that…

Dave Lundgren (18:24.642)
Yeah.

Dave Lundgren (18:36.206)
100%.

Mike Hambright (18:43.122)
make you think bigger because you see what’s possible. Because I would say, I know, and you do too, a lot of amazing entrepreneurs, but none of them were born that way. Like they just found their way there through trial and error and falling down and getting up again, right? And so it’s not, there’s nobody that I see that I’m surrounded with. And I’m not, I don’t know, this isn’t my ego talking, that I’m like.

If they figured it out, I can figure that out. Like there’s nobody that’s like, they have some amazing gift that just nobody else could overcome. It’s usually they worked really hard, maybe had a little bit of kind of quote luck, but it really wasn’t luck because they were prepared for it, you know? And it’s just seeing what’s possible, being around people that did amazing things and you’re like, gosh dang, why am I thinking so small here?

Dave Lundgren (19:28.494)
No, 100%. It reminds me of somebody who’s part of a mastermind. He’s a big, big guy here in Kansas City. Met him years ago and I introduced the Fortune Builders account to him and he was a lot of ego. I’ll just say that he was a lot of ego because I’m the big guy in Kansas City. Well, I took him down to at the time. I mean, I probably still is the biggest churn keeper by the, know, Memphis Invest. can’t remember what they call themselves now. The Clothier’s amazing churn key operation. But this guy was big dick swinging in Kansas City shows up.

meets Kent Senior Chris and is like, my gosh. He’s like, I am the smallest fish. And it just blew his mind at the point he came back to Kent City and literally doubled his business and started to put systems in. Cause he got in the room with some people who were doing at the much higher level and his ego went whoop. And he’s like, wow. And it was, it was really cool to watch. And the clothiers were so generous and allowing us to go down there. Cause we were friendly competitors. I mean, we were both sourcing.

Mike Hambright (20:15.974)
Yeah.

Dave Lundgren (20:25.464)
to a big educational group and they were collaborating. They’re like, hey, come in, look at everything we’re doing. And I’ll never forget that, to your point. That opened his mind and he took things to another level just by being in the room of like, there is another level. There’s always another level. And it’s not just about money sometimes, right? Sometimes it’s about simplifying. Sometimes it’s, I’m just burning myself out and then I get introduced to somebody who’s pulled back their time. Maybe they didn’t hugely scale their business, but they were able to create a lifestyle.

Mike Hambright (20:45.586)
That’s right.

Dave Lundgren (20:54.286)
Because the business, you the E-Myth, you really should, the business should be serving you. Why do you even go into entrepreneurship? Typically it’s for time freedom and all this freedom and sometimes the business takes that freedom away. So sometimes it’s about maybe scaling back and creating a system so you can actually have a lifestyle to enjoy, not just burning yourself out, always looking for more money. It’s not always about more money.

Mike Hambright (21:14.806)
for sure it’s about buying it’s about I I talk about scaling all the time and I say you know scaling is not just to be able to get a Lambo or you know flying private jets or whatever those things are all great if that’s what you want but it’s just more dry powder you need more profit in your business to be able to hire smart people to buy back your time and pull yourself out of your business and enjoy your life more because that’s why you got in business in the first place usually right

Dave Lundgren (21:37.806)
And like you said, pull yourself out of it. CEOs, their responsibility is to pull back and have that time to work on the business, not being in the business on the tactical side. And that’s a real challenge for business owners. So masterminds allow you to do that, give you some time for you to pull back and look at the business. How can I work on it? Not, I’m digging the ditch every single day for sure.

Mike Hambright (22:00.722)
Well, Dave, thanks for spending some time with me today. And everybody you’re listening right now, get innovative if you need to. This is a time to pivot, not time to jump ship. A lot of people have jumped into something else that seems easier, but I promise you, that too will get hard. And there’s more opportunities to make money in real estate than anywhere else. So stay strong and work smart and get around the right people and get innovative when you need to. I think that’s a little summary of today’s show, Dave.

Dave Lundgren (22:02.816)
Absolutely, Mike. I appreciate it.

Dave Lundgren (22:25.804)
Yeah, I love it. Yeah, and we’ll send out information anyone’s interested in that new construction burrow. We’ll send a link out. But yeah, I agree with that 100%. And I appreciate the time, Mike, and everything you’ve done.

Mike Hambright (22:32.72)
Yeah. If you guys want to learn more about what Dave’s doing on the new construction burr, either investing in some of the deals they have available or learning more about the model, we’ll have a link right down in the show notes. So make sure you check those out. So that’s it, my friend. Well, thanks again for joining me, Dave. Everybody will see you on the next show. Take care.

Dave Lundgren (22:51.756)
Awesome. Thanks, Mike. Appreciate you.