BRRRR Real Estate: Building Wealth

I am a huge proponent of the BRRRR Real Estate Investment Method that Brandon Turner developed from BiggerPockets.

The BRRRR Real Estate Method stands for buy, renovate, rent, refinance, and repeat. It essentially uses the equity and profit from one property to fund the next property with leverage.

It creates a massive domino effect. One property can fund another property, and that property can fund an additional property.

Then, after a few years pass, you will have a HUGE portfolio of investment properties that deliver monthly cash flow! BRRRR Real Estate works.

1. Buy

In real estate, the majority of money is made on the purchase, not the sale.

Unfortunately, you can’t simply buy any property and expect to make money. The property needs to cash flow and supply equity over time.

A cash flowing property means the rent payments cover property taxes, insurance, maintenance, mortgage, and profit. This is not an easy feat, so make sure to diligently take your time before buying something!

Your equity is synonymous with net worth. It is calculated as the (market value of your house – outstanding loan balance). Notice, equity uses market value, rather than historical purchase price.

You can create immediate equity by buying something below its market value or renovating. The sad reality is that the perfect buy might come around once every six months!

Most deals just don’t get the job done. You must be patient, and become an expert in your area. I would recommend performing months, or even years, of market research before pulling an initial trigger.

Here are a few real estate negotiation tips to get a better deal!

  • Sellers want more than just a high price. Create favorable closing terms and inspection waivers.
  • You word is bond, treat it as such!
  • Research the market and have the ability to spot a “diamond”.
  • Grow your network to get the first call on a newly listed property.
  • Work with lenders to secure immediate financing.

2. Renovate

You never want to buy an investment property that is already “turn-key”. A turn-key residence might be a great reason to buy a personal home, but it works in the exact opposite favor for investment properties.

Renovations are the best and easiest way to add value to a property. Doing the work yourself saves you from paying someone else to renovate. This doesn’t necessarily mean you have to manually perform the labor.

It just means you want to be the one managing the project.

brrrr real estate

For example, a seller might renovate their kitchen for $10,000 because it increases the value of the home by $20,000. You want to buy the property before the renovation, so you can capture that $10,000 excess gain in equity.

Additionally, you can usually renovate a property for cheaper once you have a network of contractors.

3. Rent

Now, you have successfully bought and renovated your property. Before you even bought the real estate, you should have been thinking about what rental price you could charge tenants.

Remember, the property NEEDS to cash flow! A cash flowing property means the rent payments cover property taxes, insurance, maintenance, mortgage, and profit.

Your business is not a charity! You do not start a company with the intention of losing money. Profits need to be your first and foremost priority when scaling!

There should be no surprises about comparable market rents. Check out Apartments.com or Zillow if you need help forming quick and dirty estimates in the planning stage.

As I mentioned earlier, not every property will do this. In fact, most properties will probably not meet our business strategy revenue expectations.

You need to be patient and to find the 1/500 that makes the numbers work. All your money is made on the buy!

You need something at the right price, that can earn high rents, and adds equity to the deal.

4. Refinance

Buying a property creates a liquidity issue. Liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value.

In other words: the ease of converting that real estate to cash. Real estate is a non-liquid asset.

In the event you need access to the money within the property, you can get access TAX FREE! You will have to do a cash out refinance.

Zillow states, “A cash-out refinance is a refinancing of an existing mortgage loan, where the new mortgage loan is for a larger amount than the existing mortgage loan.

You get the difference between the two loans in cash. Homeowners do cash-out refinances, so they can turn some of the equity they’ve built up in their home into cash.”

Here’s an example to illustrate: Let’s say you own a $300,000 house and still owe $200,000 on the current mortgage.

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This means you’ve built up $100,000 in equity. Now, let’s say you want some extra cash to the tune of $30,000.

You could do a cash-out refinance to get this money. If you did this, you’d get a new loan worth a total of $230,000. Use that new loan ($230,000) to pay off your old loan ($200,000).”

You have $30,000 for a new down-payment!

5. Repeat

You’ve already done the hard work. You’ve successfully bought, renovated, rented, and refinanced. You are ready to repeat the process and build more wealth!

EVERY TIME you buy something under market value, you increase your net worth.

“By fixing it up, you increase your net worth and cash flow at the same time. The higher your net worth and the more equity in a property, the more banks are willing to lend you.

Do it again and again to continue increasing your cash flow!”

You’ll end with a huge portfolio of cash flowing properties! It will take a lot of work, but there are more billionaires in real estate than any other industry for a reason!

Why Real Estate?

I keep throwing this concept in my articles because it is so important to emphasize!

According to Mad Fientist, a popular finance, investing, and real estate website, “Real estate is an I.D.E.A.L. investment:

Income: Regular cash flow from rents or interest payments. I consistently see unleveraged returns of 5-10% from this one method of making money.

With reasonable leverage, it’s possible to see these returns jump to the 10-15% range or better.

Depreciation: A required accounting method that spreads the cost of an asset over multiple years (27.5 years for residential real estate).

This paper expense can “shelter” or protect other income from taxes and reduce your tax bill.

Equity: If you borrow money to buy a rental property, your tenant essentially pays off the property for you.

You use the rent to pay the mortgage, and each month the principal paydown (aka equity) gets bigger and bigger like a forced savings account. Read my article about house hacking for advanced tips!

Appreciation: Over the long-run real estate has gone up in value about the same rate as inflation (3-4%).

This passive style of inflation helps, but active appreciation is even more profitable. Active appreciation happens when you force the value higher over a shorter period of time, like with a house remodel.

LeverageMany investors use debt leverage to buy real estate. This means, for example, $100,000 can buy four properties at $25,000 down instead of just one property for $100,000.

Leverage magnifies the profits mentioned above (and potentially the losses). Plus, interest on debt is deductible as a business expense.”

Conclusion ~ BRRRR Real Estate

The BRRRR Real Estate Method stands for buy, renovate, rent, refinance, and repeat. It essentially uses the equity and profit from one property to fund the next property with leverage.

It creates a massive domino effect. One property can fund another property, and that property can fund an additional property.

Then, after a few years pass, you will have a HUGE portfolio of investment properties that deliver monthly cash flow!

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