In this video I talk about the buy, repair, rent and refinance strategy which is also known as the BRRR Method (which is an acronym for Buy, Repair, Rent and Refinance). This is an excellent strategy for new investors especially if you are an investor with decent credit and a good job (meaning you will be able to be approved for a mortgage).
The goal with the BRRR strategy is to buy a property below market value for cash or with a hard money loan, repair it, rent it out and then refinance and pay off the loan (or the cash) that you used to buy the property.
If you can buy properties for less than 75% of what they would appraise for (all in including repairs) then you should be able to refinance and pay off the previous loan (or pay yourself back your cash invested) without having to put up any additional money.
If you buy wholesale properties at a large enough discount, you can essentially find yourself getting all of your money back at the refinance which means that you will be able to buy unlimited real estate (with no money down). If you have a good job and good credit and would easily be approved for a mortgage on a rental property then this is a very good strategy for you to build your wealth by buying a portfolio of rental properties.
Many beginners want to learn how to wholesale or fix and flip houses. But one of the easiest ways to build long term wealth is buying rental properties with positive cash flow. Income property (like rentals) that produces monthly income will increase both your income as you raise rents and your net worth as the property increases in value over the long term.
If you can find a wholesale real estate deal at a huge discount and you can buy that property with a hard money loan, then all you need to do is repair the property, rent it out and then refinance the hard money loan. When you refinance, you will pay off the hard money loan and have a regular conventional mortgage. I suggest that if you can – get a 15 year mortgage instead of a 30 year. That way you will own the property free and clear in 15 years. This is an excellent strategy for building wealth for retirement.
Since conventional mortgages are typically at 75% for rentals, if you can buy a property and your purchase price plus all repairs is 75% or less than what the house would appraise for (after you have repaired it), then you should be able to refinance and pay yourself back all of the money that you invested in the property.
Here is an example:
Assume a property is worth $100,000 After Repair Value
Assume you can buy this property for $50,000 and spend $20,000 repairing it. Your cost would be $70,000 (including the repairs). Now you rent the property out to a tenant and have them sign a lease. Then you go to a mortgage broker and tell them that you have a rental property that you want to refinance. They order an appraisal and the house appraises for $100,000 (what you estimated for the ARV). The bank is willing to loan you 75% of the appraisal value, so the bank is willing to loan you $75,000. You use that $75,000 to pay off the loan that you used to purchase the house plus the repair money. And you essentially have a house with no money down. Now you repeat the same process and buy house numbers 2, 3 and 4. You are only limited by your ability to find houses at a cheap enough price. You are not limited by cash. The way you find these types of houses at huge discounts is by buying from motivated sellers (like people in foreclosure, behind on payments, with damaged properties etc.)