Landlording & Rental Properties

How to Build Your Real Estate Portfolio Faster Using “The Stack”

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP
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choosing-investment

You know the common advice all the finance gurus teach: “Save 10% of your paycheck, put it away in some slow growth stocks or mutual funds, wait 50 years, and you’ll be the richest person… in the cemetery.”

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I don’t know about you, but I didn’t want to take the slow route. I wanted financial freedom faster.

So I jumped into real estate investing!

But that can take a long time, too. I mean, if you buy one house every few years, saving up enough for the down payment each time, it could take 20 years to get the financial freedom you want.

So, if you want to build a portfolio fast, what should you do?

Today, I want to teach you a powerful strategy that I follow called “The Stack.” I think you’re going to like this.

Now, first, let me show you how most people build wealth through real estate.

How Most People Build Wealth (the Slow Way)

They buy a house, then maybe another house, then a few years later another one. They are growing their portfolio linearly.

Nothing wrong with that. It’s just slow.

If you want to achieve faster growth, you’ve got to grow exponentially.

And that’s where the stack comes in. Let me show you a hypothetical example of what I mean.

Related: The Real Estate Investing Strategy I’d Recommend to Newbies (As a Seasoned Investor)

How “The Stack” Can Help You Grow Wealth Exponentially

Let’s say you buy one house this year. That’s it. Just one house.

Buying that first deal is a lot of work, and when it’s all said and done, truth is, one deal isn’t going to get you freedom.

But what it does give you is knowledge and experience.

So, let’s say you wait an entire year and then, after knowing how to buy a single house, you buy two units. Maybe a duplex, maybe two single family houses.

Awesome!

(And hey, in case you are wondering where you’re going to get this money, I’ll explain that in a moment.)

OK, so now in the second year, you own a single family and a duplex.

The next year, can you double down again? After all, you already own three units. What’s another four? You add the experience and knowledge from the last deal, and now you buy a fourplex or maybe a couple duplexes.

Then, the next year, you double again and buy eight units. Then, the year after 16. Then, 32.

Each year, you are adding experience and knowledge, dialing in your systems and finding an easier time getting financing.

So, here we are in year six, and you’ve got 63 rental units. If each unit is averaging $150 in profit after all expenses, that’s almost $10,000 per month in income. And that’s with just one purchase per year! What if you double again?

Now, if you wanted to do this faster, maybe you do two purchases per year. Or maybe you go from one unit to four to 16 to 64, and you’ve done it even faster.

The point is: If you grow exponentially, you can grow your portfolio fast. No one gets to hundreds or thousands of units by purchasing one unit at a time. They grow exponentially. And the really fascinating thing is that because you are starting small, you keep your risk small at the beginning. As your knowledge and experience grow, so does your portfolio. You aren’t jumping into a 100-unit for your first deal.

You scaled up smart, you scaled up fast, and you scaled up secure.

Related: Does the BRRRR Strategy Work? (And Introducing the BRRSR & BRRHR Methods)

How Do You Finance Your “Stack” Portfolio?

What about funding?

Well, there are a ton of ways to finance deals, and in fact, I wrote an entire book about it.

But my favorite strategy, and one that works really well with The Stack method we’re talking about, is known as BRRRR investing.

It’s where you:

  • Buy a fixer upper (with short-term money, like a hard money loan, line of credit, or partner)
  • Rehab it (and make it look ooooh soooo cuuuute!)
  • Rent it out (to great tenants who are thrilled to have a remodeled home—and pay top dollar for it!), and then
  • Refinance it, pulling out all the money you put into it (which gives you your cash back, so you can then…)
  • Repeat the process again and again

But this post is long enough, so to learn more about BRRRR investing, check out this video I made a while back—when I had a much smaller beard.

A Call to Action

Real estate investing is SO powerful, and I hope this post and video are going to help you accomplish your real estate goals even faster.

But remember, it only works if you work. So, set a goal: How many units will you buy this year? One? Two? Forty?

Then, go out and crush it. 

What do you think about The Stack method? Would you use this to start building your portfolio faster?

Weigh in below!

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Nancy Roth Investor from Washington, Washington D.C.
    Replied over 1 year ago
    Rehabbing is not for me. What else you got?
    Frank A Piccirillo II from Bridgewater, New Jersey
    Replied over 1 year ago
    Rehabbing doesn’t necessarily need to be a big process, it could be just putting money into smaller projects like redoing the paint, and bathrooms. I re-did the floors, 1 whole half bath, my banisters, my entire ceiling, painted a few rooms, and added some light fixtures. I did all the labor myself and it cost me about $3000 for everything. Would have cost $10,000+ if I hired someone to do it. If the physical labor part is what turns you off, maybe another BP Forum member would be willing to help out and strike a deal for it!
    Edward Synicky Rental Property Investor from Yorba Linda, CA
    Replied over 1 year ago
    save up a down payment by any means possible, then repeat as often as you can. Unfortunately there is no magic bullet.
    Tess Robinson from Tacoma, Washington
    Replied over 1 year ago
    I don’t know how you get out of rehabbing if you want to invest in real estate…. I feel like there’s always going to be some rehab involved. Even if you buy a turn-key property today, and put tenants in it, there will be some rehab down the road.
    Peter S. Rental Property Investor from Denver, CO
    Replied over 1 year ago
    I’m not sure that would be considered rehabbing as much as maintenance. I think Nancy is talking about not wanting to buy a fixer upper.
    Tess Robinson from Tacoma, Washington
    Replied over 1 year ago
    I was thinking of properties only… I think fixers are the most efficient & effective way to force equity & ensure cash flow …. So I go back to turn key. Buy a property that’s already fixed up & rent it out for enough $$ to hit (or exceed) your target numbers. Then just maintain it through the years. Or… have you thought about wholesaling?
    Cody L. Rental Property Investor from San Diego, Ca
    Replied over 1 year ago
    Buy a turnkey property at a retail price. You don’t have value add ops but you get a nice steady 4-8% return depending on location / class. Buying a property for $1m, putting in $200k, and having it valued at $1.6m is the way you’re going to actually build wealth. I’m sort of making up those numbers but that was close to my first deal. Then at $1.6m I did a 80% LTV loan, got a $1.25m loan that paid off my first loan and my upgrade $. Now I’m in it with $0 of my own money and cash flowing. Find the next deal, do it again. Before you know it you have 1000 units throwing off more money than you can spend. Or, if rehabbing is not for you, then buy the no-value-add and relax.
    Paul Doherty Rental Property Investor from Mc Kinney, TX
    Replied over 1 year ago
    What bank is allowing you to refinance an apartment complex that was valued at 1 million within a single year? I know you’ve updated it but the way I’ve heard it, since comps aren’t a thing and cashflow/revenue is, you’ll have barely any history of the new rent rates and occupancy rate, and most banks would want a long term history of that occupancy and rents before allowing it to be refinanced at a new valuation.
    Edward Synicky Rental Property Investor from Yorba Linda, CA
    Replied over 1 year ago
    Love the BRRR method but after 10 conventional loans your cost for private financing may become prohibitive to get #11.
    Cody L. Rental Property Investor from San Diego, Ca
    Replied over 1 year ago
    At the point you have 5-10 stabilized SFH, find a portfolio lender to clear out your traditional financing to open those ‘slots’ back up. I have a dozen or so single family homes and a pile of multifamily. If a traditional SFH lender ran my credit, they’d see two homes (my primary and my vacation house)
    Cindy Larsen Rental Property Investor from Lakewood, WA
    Replied over 1 year ago
    Cody, Your comment is very interesting. I have a couple of questions: Why do traditional SFH lenders not see your multifamily portfolio loan? Don’t you have to disclose that (income from the rentals, and montly debt payment) when you apply for a new SFH loan? The lenders I have been working with want to know everything in my financial life. Do portfolio lenders charge higher interest rates than SFH lenders? How much higher? Could you please provide pointers to some portfolio lenders? I have a total of 4 loans, on 4 multifamily parcels, (10 units) all done this year, hoping to beat the rise in interest rates. Thanks, Cindy
    Rudy Bello Investor from Vancouver, Washington
    Replied 11 months ago
    Great questions. I’m also in the same boat as you. This year I bought a triplex, two duplexes and a SFH.I also owned my primary , second home and a townhouse. Lenders won’t entertain my offers, so I’m curious to know how portfolio lenders work. As of now I’m stuck like chuck due to being low in funds, not having enough reserves to show.
    Olga Marquez Real Estate Agent from Lees Summit, MO
    Replied over 1 year ago
    If you are pulling the equity, won’t you diminish the cash flow after repair and refi mortgage payment on that first property unless you buy it super cheap? Does that first house matter, if you are cash flowing on future properties?
    Chris Field Investor from Milford, Connecticut
    Replied over 1 year ago
    Yep, and than when the economy turns You go underwater. It’s not how many units you own it’s how much profit you make per unit. The refinance to the max montra and buy for slim cash flow reminds me of 2006-7 articles I read.
    Vaughn K. from Seattle, WA
    Replied over 1 year ago
    I would say yes and no… In 2007 the people who went under were the ones running negative cash flow, where they couldn’t continue to make debt service, and were DEPENDING on the refi out. AKA Coastal investors. If we had another 2007 level event, and you were running positive cash flow on all your units, what would happen to you? You’d keep paying the mortgages, and eventually the market would turn around and… You’d be fine and have made a ton of money. You might not be able to continue rapid growth during the downturn as your paper net worth would be in the toilet, but as long as you have the cash to pay the debts you are fine. This is why I will never buy negative cash flow properties. I imagine a lot of midwest investors just sat out 2007 as a nuisance, but didn’t get destroyed like the people in negative cash flow areas.
    Kenny Lincoln Rental Property Investor from Washington, DC
    Replied over 1 year ago
    Yes you will diminish the cash flow each time you refinance and pull out equity. The key is to make certain that you still achieve at least $150 profit/cash flow per month after all expenses (PM fee, vacancy, maintenance, mortgage) are paid. I assume Brandon intends on refinancing each new purchase one year after obtaining the property … this is the “REPEAT” part of his plan. I’m concerned with this strategy because the new property purchased has to be one that will have strong equity growth in order to refinance in one year and keep the pattern going. Imagine that you take equity out of property #1 to purchase property #2 (20% down payment) BUT property #2 doesn’t grow fast enough in value over the course of one year. You have equity in property #2 because you put down 20% BUT will you have enough to refinance, keep at least $150 cash flow, and purchase property #3?
    Chad Larson
    Replied over 1 year ago
    Isn’t the equity growth part of the rehab he mentioned? I’m assuming the house will be worth more than the initial cost plus rehab costs if done right.
    Chris Field Investor from Milford, Connecticut
    Replied over 1 year ago
    Correct Chad equity is made when you buy. Buy a property cheap enough rehab and you should have good equity from day one.
    Chris Field Investor from Milford, Connecticut
    Replied over 1 year ago
    Correct Chad equity is made when you buy. Buy a property cheap enough rehab and you should have good equity from day one.
    Michael Andrews from Eau Claire, Wisconsin
    Replied over 1 year ago
    I think it’s important to note the $150 per unit cashflow not really a good measure for whether a property is profitable. Using the cash on cash return rate is a much more accurate portrayal of how much your money is making you. In my area you are lucky to get $100 per unit cashflow, but the property I own is returning upwards of 17% CoC. Per unit cashflow doesn’t really matter as long as you’re achieving your desired percent rate of return, as any investor, real estate or not, should be focused on.
    Caleb Stephens from Freeport, Maine
    Replied over 1 year ago
    Each property he purchases would be “value-add.” You make your money when you buy. No matter how large your portfolio becomes, never abandon the fundamentals of buying right.
    Chris Gottshall from Saint Paul, Minnesota
    Replied over 1 year ago
    I recently met with my CPA and mentioned that I plan to refinance the loan on a property I own, and he advised that “cash out refis” will cause the mortgage interest on the entire loan to be excluded from Schedule E deductions as a result of the new tax law changes unless the cash goes directly back into that exact property. This puts a kink in the Refi step, as I see it. What are other people hearing on this topic?
    Darin Anderson Investor from Victoria, Minnesota
    Replied over 1 year ago
    The money has to go back into the real estate business but not back into that one property. There are no changes in the new tax law that make the radical interest deductibility rule that you just cited. I suggest getting a new CPA.
    Darin Anderson Investor from Victoria, Minnesota
    Replied over 1 year ago
    The money has to go back into the real estate business but not back into that one property. There are no changes in the new tax law that make the radical interest deductibility rule that you just cited. I suggest getting a new CPA.
    Chris Gottshall from Saint Paul, Minnesota
    Replied over 1 year ago
    Thanks, Darin. Like most people, I haven’t read the details of the new tax law, but I have attended a fair number of webinars that have highlighted the key changes. The fact that I had not heard of this up until last month struck me as odd. I’ve only been working with this guy for a few years now. The quest for a really great CPA seems to be never-ending. I prefer someone I can meet with face to face in the Twin Cities area and I’m always open to suggestions. Thanks again for the reply.
    Darin Anderson Investor from Victoria, Minnesota
    Replied over 1 year ago
    As a side note there is a change to how HELOC interest is treated for a non-business homeowner. If your CPA is confusing that with business interest deduction for a real estate business then you probably aren’t getting very knowledgeable real estate tax advice from this CPA.
    Jose Rivera Real Estate Agent from Derry, NH
    Replied over 1 year ago
    Good info on a nutshell, yet, leaving many details a newbie like me still cant figure out; like where does the downpayment and closing cost come from? I havent bump into a lender who would lend 100% of the purchase and repairs money yet. Specially to a newbie. If there’s any out there tell me where to find them. Also, in my case I don’t know anybody with money to ask if they want to invest. Finding a partner hasnt work well for me so that option is not an option. I hope to get a response.
    Corey Adams from Joplin, Missouri
    Replied over 1 year ago
    Definitely just have to save up the money for the down payment and repairs. But after that when you refi you pull your money back out so you don’t have to do the same thing for the next one. Ideally if you’re in the right market and add a ton of equity you can pull out more money than you invested when you refinance. This might allow you to buy 2 more properties and then exponential growth really starts to kick in. I bought 3 properties in my first year, sold one and refinanced another and now I’m looking to buy 5 more properties. It really starts to take off after the first one, especially if you maintain a high savings rate. Best of luck!!
    Cody L. Rental Property Investor from San Diego, Ca
    Replied over 1 year ago
    Oh, and I should add. In SFH land, you can find lenders who will loan higher than 80%. It’s just in commercial world, at least the loans I do, 75-80% is about all ya get at least with normal 4.5 – 5% rate terms
    Cody L. Rental Property Investor from San Diego, Ca
    Replied over 1 year ago
    No (okay, very few) lender is going to do 100%. So if you don’t know anyone, the initial down payment comes from your own savings. It’s very hard to start when you truly have $0. One option would be to find deals for an investor in exchange for getting a piece of the pie. I had a young kid offer that to me. I didn’t want to give him part of the deal but I told him I’d pay him 5% of any off market deal he brought up and some of the upside. The first deal he found me I bought for $880k. He made $45k and I gave him $10k when I refinanced it (since I did that vs. selling) Thats’ $55k. Enough to buy a $250k home w/ 20% down. But it still came from his ‘savings’ or earnings. He just earned it a non traditional (non “9-5 job”) way.
    Lee S. from Northern, California
    Replied over 1 year ago
    I think a couple newer investors are a little confused, here are some examples: Buy a 200k house turn key, put your 50k down and make your cash flow. BRRRR – buy the same house as a fixer for 100k, put 50k into rehab. House is now worth 200k, refinance 150k out to get your money back, get your cash flow and take your 150k and do it again. It isn’t always going to work out perfectly, maybe you only get 80% of your money back, it’s still better than having 100% stuck in the deal. It’s hard to grow the business exponentially buying retail and having to “save” the down payment each time. BRRR is the only way to go imo, I don’t even look at houses that don’t need a rehab or that I can’t get well below market for some reason.
    Alan Brown Rental Property Investor from NY MA CT VT MT, MO
    Replied over 1 year ago
    yes, ‘velocity of money’– how fast you can turn your money around and have it working for you again! Especially wonderful when you’ve been able to pull all your seed money out, and basically have infinite returns on your investment, because you have none of your money tied up in that deal anymore! ‘Value Add’ is really the only way to make all this happen, imo; finding the deals is the key. I happen to have most of my accounts at a local bank, and they happen to be wanting to expand their market share, so have been happy to make portfolio loans, which are technically commercial loans, but fixed for 20 years and the rates arent bad at all, maybe a point higher or so, but if it works into the numbers, who cares? Just be very careful not to edge into your 20% equity at the top end of that loan… those that were careless about that in 07 often got hammered in 08 and beyond. ONe guy in the BP podcasts had something like 2000 properties between Memphis and Florida, and was waaay too leveraged, but apparently worth 50 million… then he crashed and burned because his empire was maxed and the whole house of cards came crashing down. Lost every penny.
    Max Briggs Rental Property Investor from Cleveland Heights, OH
    Replied over 1 year ago
    Brandon writes a lot of great stuff and i think “the book on real estate investing” is fantastic, but I’m a bit of a math nerd and this post rubs me the wrong way. First of all, people live the idea of “exponential growth” without really understanding what it is. What brandon describes as “linear growth” in this article isn’t actually linear it’s exponential, albeit with a slower time constant (nerd alert). For example. If I buy two houses that profit $400 per month per house in year 1then I make $10,000 in year one. That’s not enough to put a down payment on a house, so I have to wait until year two. When I buy another. Now I’m making $15,000 per year, so it only takes me a year and a half to buy my next house, and a year to buy my next house, and less than a year to buy my next house, etc,etc. that is also exponential growth, not linear. If, after I buy my third house I choose to spend that money and only use the profits from my first 2, that’s linear growth (and I agree with Brandon, probably a bad idea). But the BRRR method is not the only path to exponential growth. Good ‘ol save for the next down payment investing is exponential too as long as you reinvest your profits. Also, the BRRR method tends to net you substantially less cash flow per house after the refi, so you may be doubling your number of units more frequently, but that doesn’t mean you’re necessarily doubling your profits. I’m not saying that one is better than the other, and BRRR may be the way to go for people that have the money, skill, and team for major rehabs, but calling one linear and one exponential is a misunderstanding of math, or an intentional mismarketing of strategies.
    Jerry W. Investor from Thermopolis, Wyoming
    Replied over 1 year ago
    Brandon, I like most of your articles, but this one is kind of how to take huge risks in the real estate business on steroids. So someone in their 3rd or 4th year should be doing 4 or 8 rehabs a year and next year do 16, all while getting every penny out of every property they invested in and come up with enough money to buy a 32 unit the following year. This is not feasible to 99.8% of the investors out there. Furthermore this kind of over leveraging has bankrupt a lot of wanna be investors. This is not really a roadmap, it is a map that is likely to end at a cliff. The odds of finding a banker to show even remote interest in this huge of a fast play is also very unlikely. How are they going to get the kind of reserves in the bank that any serious commercial lender will require on these kind of properties? Not counting the down payment?
    Jeremy Elcox from Newport News, VA
    Replied over 1 year ago
    @Jerry, this is also what I’m seeing in my area. I do understand that we should enlarge search area but with a solid professional job that requires OT staying local is more realistic. Banks today really dont want to hear “investor” or “rental”. I would also love any tips on finding friendly banks because even with cashflow and 50k cash I get a lot of NOs even on cheaper places. Do people find that FHA is workable or 203k easier to get? I enjoy all the wisdom but sometimes articles do seem a bit in the clouds and asking for another crash. Thanks everybody. J
    DIANIE KANHAI Controller from West Palm Beach, Florida
    Replied over 1 year ago
    I am in Palm Beach County Florida, and even though I have 7 units free and clear, with decent income, I cannot get a loan to purchase another unit. I did get some small lines but really high interest rate. Wells Fargo approved me for 5K, that was a slap in the face. My Credit Score is Over 750. So I decided to save up and maybe find some options where I can flip to build my cash flow. I don’t believe in borrowing a high amount to yield a small return. It has to worth my time. It is difficult to find great deals but I am working on it. I looked into Cleveland, Ohio for a little but it was a little too slow and I was hesitant to take the risk since I am in Florida. If anyone has any suggestions, I am all ears.
    Stephen Dupuis from Loganville, GA
    Replied over 1 year ago
    In the BRRRR method. If you borrow cash to buy the house and you spend money to fix it up. Is there a time limit before you can do a cash REFI?
    Stephen Dupuis from Loganville, GA
    Replied over 1 year ago
    In the BRRRR method. If you borrow cash to buy the house and you spend money to fix it up. Is there a time limit before you can do a cash REFI?
    Gil N. Investor from Poughkeepsie, New York
    Replied 13 days ago
    The banks would want to see your rent roll or history to show you’ve stabilized the property and it’s cash flowing also the time as you mentioned is important but I believe 6 months or a year would satisfy them. Maybe call them and ask what they like seeing as far as time.
    Paul Nichols Realtor from Detroit, MI
    Replied 11 months ago
    If you use the BRRRR method to pull your cash investment out of the first house purchased, wouldn’t that supply only the cash funds to buy one more property (linear) and not two (exponential)?
    Glenn H. Specialist from Olathe, KS
    Replied 11 months ago
    Paul, you are correct if the pace of buying remains the same. If you are able to increase the pace of buying that’s the exponential part being referred to.
    Eddie Kay
    Replied 11 months ago
    Nice article Brandon as usual. Looks like your link to the book “No money down” is broken. Returns this error http://get.biggerpockets.com/nomoneydown/ The requested URL was not found on this server.
    Gil N. Investor from Poughkeepsie, New York
    Replied 13 days ago
    We just bought our 3rd single family. The first one is now perfect to refinance our money out ( we bought it cash for 134 k) problem I’m noticing with brrrr that I don’t see mentioned at all is going to the bank and them telling you you credit to debt ratio is getting super thin every time you refi. How many times can you do this? I’m stuck on the last R. Am I missing something??
    Natalia Comas
    Replied 13 days ago
    Hi, I have a question. I keep on thinking, how much you have to make a year for the lender trust you and give you all the time more and more loans? I know you rent it and it pays it itself, but still you create a debt every year more and more loans, how they consider that? I am always wondering, I barely made it to get my first loan, how they will give me another one?
    Daniel Peavey from Atlanta, Georgia
    Replied 13 days ago
    Ridiculous article! Just sat, buy my book, which is true intention
    Kevin Holmes Investor from Jamaica, New York
    Replied 13 days ago
    Thanks for sharing .I'm at a fork in the road .I'm 52 years old and I'm retiring next your from my city job as a Electrician .I have 3 multi familys in NY that I have a lot of equity. 5 one family in n.c that are paid off . I built my retirement home 14 years ago in Charlotte .My Primary home is in N.Y My question is it a good idea to pay off my investment houses in N.Y or should I just continue buy in N.c where I'm retiring at ? I went to move into multi-family until but the numbers dont like good I fill they are over price. Why I was thinking about paying off n.y property by making extra payments to gain the PI .
    Arthur Saucedo
    Replied 12 days ago
    FOR : Brandon Turner FROM : Arthur Saucedo, Houston, Texas [email protected] Brandon : On your attached article, how much money did you project to take out ? Regards / Arthur Saucedo How to Make $100,000/Year with Fixer-Upper Rentals (by Buying Only 2 Properties Annually) Brandon Turner Some people work so hard to make money in real estate. They flip dozens of homes, deal with hundreds of tenants, and are always trying to put out a fire somewhere.Sounds exhausting, doesn’t it? But what if I told you that within five years you could be making $100,000 annually from just two real estate transactions per year? Sound too good to be true? Today I want to teach you about the BRRRR strategy and the power it can have in your real estate investing. I’ll also be walking you through a step-by-step plan for making $100,000 per year using this powerful investing plan. What is BRRRR? BRRRR is an acronym for a popular investment strategy that, until now, hasn’t been given a name. So, I decided to name it! BRRRR stands for: • Buy • Rehab • Rent • Refinance • Repeat In other words, it’s the strategy that involves buying fixer-upper rental properties, repairing them, leasing them out to great tenants, refinancing to get your money back and then repeating the process over again and again. This can be a powerful strategy because of the ability to acquire numerous properties without you running out of capital to invest—and at the same time, combining the benefits of house flipping with the wealth-building characteristics of rentals. Let’s break down the strategy for you and look at each step. 1. Buy The first step in the process is to buy a great deal. Not just any deal… a GREAT one. Great location, great neighborhood, but a fixer-upper house. BRRRR investing is very similar to house flipping; in fact, it IS house flipping, but rather than selling the house, you are going to rent it out after fixing it up. But the same principles that go into house flipping are needed here. For example, a popular rule of thumb used by many house flippers is the 70% rule. This rule states that the most a flipper should pay for a property is 70% of the after repair value (what it’s worth when fixed up), less rehab costs. So a house that has an ARV of $150,000 and needs $30,000 worth of rehab could be bought for $75,000 because: $150,000 x .7 = $105,000. $105,000 – $30,000 = $75,000. Think that’s impossible to achieve? Just ask most successful house flippers, and they’ll tell you that their entire business model is built on margins similar to this. So stop saying, “I can’t do this,” and start asking “How can I do this?” It may require direct mail. It may require Craigslist. It may require driving for dollars. It’s going to take some hustle. But if house flippers can do it, so can you. To finance this first purchase, it's unlikely you'll be able to use a traditional lender. Most lenders are unwilling to loan money on a fixer upper. This means you are probably looking at options such as hard money, private money, cash, home equity, and the other strategies that I outline in The Book on Investing in Real Estate with No (And Low) Money Down. So if you haven’t read that yet, start there. It’ll change your life. 2. Rehab The next phase in the BRRRR strategy is to fix the property up. However, unlike in house flipping, this property will be rented out for a period of time, so the materials you use should reflect that reality. For example, I’m working on a BRRRR property right now. (I just purchased it last week and am in the middle of the rehab part now.) When my crew tore up the carpet, we discovered beautiful hardwood floors underneath. While this seems great… I’m actually not going to refinish them, yet. To refinish them would cost me around $3 per square foot, or $3,000 total. Then, someday when I go to sell the property, I’ll probably have to refinish them again because of the heavy tenant usage. And that’s IF I can refinish them again (you can only refinish floors so many times before they are sanded too deep.) Therefore, I’m going to use laminate wood floor throughout the entire home. This will protect the floors, for around $2 per square foot, and will look amazing. Then, before I sell it someday, I’ll just remove the laminate and finish the floors then, to sell for top dollar. The key to rehabbing a BRRRR property is to make the property as “tenant proof” as possible, using materials that will last a long time and won’t need to be redone later. Also, it’s important to rehab with the goal of getting the highest ARV and rent possible. For example, if you can turn a two-bedroom home into a three-bedroom home, do it! This can add hundreds of dollars per month in cash flow and thousands in equity. Of course, you could do all the work yourself if you wanted, or you could hire it out. That’s up to you and dependent upon your skills, availability, and desire. DIY can save you a lot of money, increasing the odds you’ll find a deal that has numbers that work. But it will also take a lot of weekends and evenings. 3. Rent Next, it’s time to rent the property out to GREAT tenants. Luckily, you just bought a property located in a great location and rehabbed it to look brand new. It shouldn’t be hard to find incredible tenants to rent the house. Furthermore, because the property was rehabbed at the start, your repairs and capital expenditures (roof, siding, paint, etc.) should be fairly low for the next few years. Everything has already been fixed! Of course, you’ll still need to budget for repairs and maintenance, but it should be much less than you thought. Then, it’s time to rent the property out. You might choose to hire a property manager, but because you already rehabbed the property and because you are renting to high-class, great tenants, managing a BRRRR deal shouldn’t be too hard. I would save the money and do it yourself! Now, to say something a little controversial: the goal of the BRRRR strategy is NOT to make a ton of cash flow. I know, I know—that goes against almost everything I’ve ever preached before. And I’m not saying to buy something that won’t cash flow. I won’t accept long-term negative cash flow. Ever. BUT if I’m only making a little bit of cash flow, that might be okay with the BRRRR strategy, because the power of the BRRRR strategy is in the long “flip”—the equity built. I’ll explain this more in a bit. But first, let’s talk about the next “R” in the process. 4. Refinance Earlier I talked a little about how you were going to finance the property and mentioned that it’s tough to get a conventional mortgage on a fixer upper. However, conventional mortgages are REALLY nice—low interest, long term, easy. So the fourth step in the BRRRR strategy is to refinance into a nice conventional mortgage after the property has been fixed up. And even better, by refinancing, there is the possibility of getting all your money BACK. Of course, you don’t NEED to refinance the property to get your money back. Perhaps you make great income from a job and can afford to let your down payment/rehab money stay in the property. This will likely help you get better cash flow, and maybe you’ll get a better ROI than you’d get elsewhere. However, if you are like me, you probably want your money back so you can do it again and again. So let’s talk about how to do that. In other words, let’s go back to those numbers we used earlier. We found a property that had an ARV of $150,000. We purchased it for $75,000 and put $30,000 into the rehab. At this point, we have $105,000 into the purchase. Most lenders will allow you to refinance a property for 70 percent of the ARV (in other words, they will do a 70 % percent loan to value [LTV] loan on the property). Well, it just so happens that 70 % percent of $150,000 is $105,000 so we could theoretically get back 100 % percent of our invested capital. That’s right—we’re going to refinance this property with a low-interest, 30-year fixed mortgage for $105,000. This will pay back whatever source of funds we used on the original purchase and rehab. In this example, the only money out of pocket will be the closing costs. After the refi, you should have a completely stabilized rental property that shoots off a little bit of cash flow and has roughly 30 % percent equity just sitting there. Plus, you’ll have all your money back, so it’s time to… 5. Repeat The final “R” in the BRRRR strategy is to repeat the process. I mean, it worked once, and we got all our money back, so why not do it again? And again? And again? Sure, at some point the bank will stop refinancing the properties for you. And maybe you’ll need to find another solution, like a portfolio lender or a partnership. But it CAN be done. Each deal you repeat, you are gaining 30 % percent equity at the end of the day and getting your cash back in your pocket. How to Make $100,000 Per Year With BRRRR Now that we’ve covered the five steps of the BRRRR strategy, let’s look at an example of how someone could make $100,000 per year using this process. Historically, prices of real estate have climbed around 3 % percent per year when averaged out. Yes, some years are better and some worse, but over time, this has been true. But let’s be a bit more conservative and say 2 % percent per year. Therefore, say we bought a property today with an ARV of $150,000 but paid just $75,000 for it. Then we rehabbed it with $30,000 and refinanced it for $105,000. Then we rent the property out. At a 2 % percent increase per year, this property could be worth $165,000 five years from now. At the same time, the loan during those five years would have been paid down so the balance would be just $96,000. In other words, after five years, we would have $69,000 in equity. Of course, if we went to sell the property, it would likely need another coat of paint and maybe some other minor fixes. Plus, we’d have to pay the real estate agents about $10,000 as commission. And then we’d pay a few thousand in closing costs. So that $69,000 in equity would look a lot more like $50,000 in profit at the end of the day. Therefore, to make $100,000 per year using the BRRRR strategy, you simply need to buy two deals each year, and starting in year five, begin selling two each year. As long as these numbers work, you’ll never have more than 10 properties, and after five short years, you’ll be making six figures by just doing two purchases and two sales per year. Now, that could truly be a “four-hour workweek.” Of course, if you want to take that $100,000 per year and quit your job, you could. You could buy an airplane. You could go to Tahiti. Or…. you could recycle that money and turn that $100,000 into millions. But for more on that, you’ll need to read my post “How to Make $1,000,000 Through Real Estate Investing.” The Biggest Drawback of the BRRRR Strategy At this point you are probably thinking, “This sounds great… so what’s the catch?” As with all investments, there are a few drawbacks to be aware of. There is a looming one that you may have already wondered about: what if you can’t refinance? If you are unable to refinance the property to get your money back out, you are kind of stopped in your tracks. Therefore, I recommend visiting a few local banks and making sure you are a good enough borrower before you ever purchase the first deal. Of course, if after the rehab you are unable to refinance the property, you could always wait until the first-year lease is over with the tenants, kick them out, and sell the property. Having multiple exit strategies is always a great thing and one of the perks of the BRRRR strategy. Other drawbacks include: What if the tenant destroys the house? What if you can’t find a good enough deal? What if you can’t finance the original purchase? These are legit questions, but the cool thing is—there are answers! These are the kind of questions asked every day in the BiggerPockets Forums, so if you are not engaging there, you are missing out on one of the most powerful tools you have at your disposal. The Bottom Line The BRRRR strategy has a lot of moving parts, but if you work it right, it can be a powerful ally in helping you build some serious wealth. Following this strategy can help you combine the equity growth of flipping with the tax benefits, cash flow, and appreciation of rental properties, maximizing your profit at the end of the day.
    Gloria Sheridan Rental Property Investor from Marietta, GA
    Replied 11 days ago
    I'm sorry...What exactly was the "stack?" I read this twice and I only saw a description of BRRRR, which has already been covered in depth in your many other articles. (I'm a big fan of that strategy and have done it.) I was hoping to learn something new.