Jun 25, 2019
Have you ever heard of the BRRRR method of Rental Real Estate Investing? BRRRR Stands for Buy, Rehab (or some may say Renovate), Rent, Refinance, (and to add yet another R) - Repeat. I've used the BRRRR method for all of my rental properties, buying each at some level of distress. And then rehabbing them into cash-flow positive rentals, before refinancing to pull out my invested cash, plus a nice profit - at least for most of them there was profit.
Now the idea of buying a distressed property to rehab into a rental may seem risky, and so you may be more inclined towards turn-key properties. Who wants to do actual rehab work when you can buy rental ready properties that need no more effort or expertise on your part beyond turning the key? But as mentioned in this episode of the [... and Landlord!] Rental Real Estate Investing Podcast - you make money in Real Estate Investing proportional to the level of problems you're able to solve. And the one solving the problems is the one who gets paid most.
So while a turn-key investment property will give you potential positive cash-flow, appreciation and tax benefits - it's not as likely to produce instant equity or an infinite return. Whereas a BRRRR deal successfully executed is one where you found a property with a problem you could solve, and your benefit for doing so is positive cash-flow, appreciation and tax benefits - PLUS, all your invested money back out of the deal (creating an infinite return), a nice profit check at refi closing, and instant equity in the deal.
Turn-key may be easier, but you're not solving any problems. Someone else solved the problem, and so that is the person who will profit the most from the deal. And then you have to hope that person knew what they were doing and did not cut any corners - thus still introducing risk into the deal, but a risk with no reward... just risk that you're dealing with a turn-key provider who is incompetent or a crook. But worse than that, what do you learn and how do you improve in your problem solving skills by buying turn-key properties?
This episode of the [... and Landlord!] Podcast is about doing BRRRR deals to build your rental property empire, because among other reasons - each deal done increases your knowledge, experience and skills. You can then do more complex or more challenging deals as you move along - and each increases your profit potential for solving higher level problems.
In this episode, I give details of how I increased from doing BRRRR deals where the rehab budget was estimated to be $3,000 to projects with rehab budgets of $150,000. I don't want to hold you in suspense, so I'll just tell you now that I made a lot more profit on the $150K deal than those nearer to $3K. That is because the $150K rehab had some big problems to solve, as did a $90K rehab project that I also mention in this episode. And since you would not want to jump right out there on a 6 figure rehab project, you need to work your way up by doing repeated BRRRR deals... that is why the last R is Repeat.