Do You Want Me To Teach You How To Buy Your First BRRR Property?
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In this video, I am showing you a perfect example of the buy, repair, rent and refinance strategy that I am currently using with one of my rental properties. If you have a job, and good credit, this is hands down the easiest real estate investing strategy to deploy. It is also the best way that I know of to create wealth. This strategy has made me, and many of my students millionaires.
The BRRR Strategy can be used anywhere in the U.S. The goal is to buy a property with hard money (or a private lender), repair the property, rent the property, and then refinance and pay off the private lender and get a conventional 15 year fixed rate mortgage.
To employ this strategy, all you need to do is to find a property that you can purchase at a price that is less than 80% of fair market value. The ideal property will already have a tenant in place and be a cash flowing rental property that is not managed well.
This is not as difficult as it sounds, because there are many disgruntled landlords that mismanage their properties. There are a lot of “newbies” that buy a rental property and don’t know anything about being a landlord. These new investors don’t manage their rentals very well and they typically have a few things in common:
1. They let the tenants trash their properties and don’t inspect the interior of their properties.
2. The rent is way below market and they are afraid to raise rents because they don’t want the tenants to leave.
3. They don’t have any spare time because they work 40 or more hours a week and don’t want to deal with tenants and maintenance.
4. They don’t have enough cash saved up to maintain and repair the property, and there is a lot of deferred maintenance.
5. They are afraid to evict the tenant when the tenant does not pay because they can’t afford to have the property vacant.
These investors are “scared investors”. They are “afraid” of what can go wrong and afraid of upsetting their tenants. They should be focusing on managing the property correctly which means:
So how do we find houses that would make great buy, repair, rent and refinance candidates?
One of the ways that we market to find these “disgruntled landlords” is by searching through the eviction records at the court house. We cross reference that with the “code violations” list. That is a pretty motivated list of landlords. They are trying to evict their tenants, and at the same time their tenants have created an issue that has code enforcement giving the property owner fines and penalties.
That landlords is probably not very happy and may be interested in selling.
We market to this list that we create by sending them postcards and letters. We also text, email and call them.
If they do decide to sell, we are usually their first call. They don’t call a realtor. Why? Because then they would have to list the property on the MLS and that would entail showings, and they are afraid that their tenant will leave. In short, the way to buy these properties is to buy them “as is” with the problem tenant and the code enforcement violations. That is how you buy a property at 60 cents on the dollar.
The property in this video was acquired a little differently. It was actually listed on the MLS as an REO (Bank Owned Property). Remember that banks are motivated sellers too, and they are motivated to sell their properties fast and for a huge discount to market value – as long as you can pay cash.
This property was listed on the MLS around 5 years ago, and one of my students made an offer to purchase the property. Their offer was accepted and they wholesaled the property to me for a $3,000 assignment fee. My purchase price on the property was $38,000 plus I paid the student their $3,000 assignment fee. I borrowed $50,000 from a private lender at 10% interest to pay for the purchase, plus assignment fee, closing costs and the repairs to make the property rent ready. I paid my handyman to clean up the property, and make it rent ready. That cost me around $3,000. My total cost all in, including repairs was $44,000 plus closing costs (around $46,000 total). Since I borrowed $50,000 to purchase this property I actually purchased it with no money down and had $4,000 left over.
I never upgraded anything and kept the original terrazzo floors. Market rents were around $800 at the time. We rented the property out very easily in a few days for $800. That tenant left and another tenant moved in and paid $1,000. A year later that tenant left and we raised the rent to $1,100. I would estimate we spent around $2,000 cleaning up the property each time a tenant left, before a new tenant moved in. That cost was mostly trash out, cleaning and painting with a few minor maintenance repairs. However the new tenants paid us $2,200 (first month’s rent + security deposit)to move in which offset that $2,000 cost.
Our most recent was paying $1,100. Pay attention to those numbers – this rental went from $800 to $1,100 a month in just 4 years. That may not sound like a lot to you but it’s an extra $3,600 a year. Remember this, don’t wait to buy real estate. Instead, buy real estate and wait :). My payment to the investor was 10% interest on the $50,000 which I borrowed which is $416.67 per month in interest. But I was now getting $1,100 a month in rent and the cash flow was great.
When this last tenant moved out, being that the market had moved up so much I decided to renovate the property and list it on the MLS for sale. I spent around $20,000 to make the property ready for sale to list on the MLS. This included new central air, new flooring, new kitchen and new bathroom. I estimated that I could list and sell this property for $139,000 (which is $100,000 more than I paid for it just 5 years ago).
However, that would create a very hefty tax bill. As I was debating whether to sell it or not, our landscaper asked if they could move into the property and offered us $1,500 a month in rent. It didn’t take me long to make that decision. I rented the house out to my landscaper for $1,500 a month and I received first, last and security deposit (total of $4,500). The tenant moved in and they were happy.
Then I called up my mortgage broker, and refinanced the $50,000 private lender loan into a conventional 15 year fixed mortgage. The rate was 2.375%. The monthly payment is only $330. So now I am getting $1,500 a month in rent, on a property that is only costing me $330 a month. After taxes and insurance I am cash flowing around $850 per month which is $10,200 per year. Keep in mind that this $10,200 goes into my pocket every single year.
I NEVER USED ANY OF MY OWN MONEY to buy this property. Remember that I borrowed ALL of the money including the purchase price, repairs, closing cost and assignment fee. My investment was zero, and since I had borrowed $50,000 and my all in cost was $46,000 I actually had $4,000 left over. So not only did I not spend any money to buy this property, I actually got paid to buy it!
That is they key thing for you to understand. You CAN buy real estate with no money down.
This property is now worth $130,000 and I have a $50,000 mortgage on it so there is $80,000 in equity.
In addition to that $80,000 equity, the property also puts $10,000 per year into my checking account
And this is all with NO MONEY DOWN.
If I hold this property for 15 years and prices increase at just 4.8% per year, then it will be worth $260,000 and I will own it free and clear. That’s over a quarter of a million dollars from a property that I purchase with someone else’s money.
If rents go up by just 4.8% per year then rents will double in 15 years and the rent will be $3,000 per month.
Buy just ten houses like this, and you will have $30,000 per month in income coming in for the rest of your life.
And when you move on, your kids will inherit that income for the rest of their lives!
This is how you become wealthy. Like I said above, don’t wait to buy real estate. Instead buy real estate and wait!
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