Rehabbing is not for me. What else you got?

Love the BRRR method but after 10 conventional loans your cost for private financing may become prohibitive to get #11.

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?

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?

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.

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.

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.

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.

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?

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.

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?

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?

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)?

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.

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??

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?

Ridiculous article! Just sat, buy my book, which is true intention

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 .

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.

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.

When you reach the refinance stage, and you have tenants in the home, do you typically do a Conforming Conventional cash-out mortgage? In that case, since it's an investment property, you need 25% equity left after taking cash-out assuming it's a one unit property. I'm asking because it seems like it would be hard to reach those numbers needed...If you purchase the home for $500,000 and put $50,000 of rehab in + have a new loan amount of $550,000 the home would need to appraise for $733,333. I guess the heart of my question is what kind of financing do you usually use when you refi as part of this method?

BRRRing could also mean living in and fixing up a house. After 2 years, you refinance and get cash out to put as a down payment on another property....rent out the first one and move into the second. Something like that could be done, especially if you don't live an extravagant lifestyle... Once you have a pre-defined (by you) amount of passive income from the rental unit(s), you can splurge on something you've always wanted.

It’s gets boring with the same near impossible strategies.

This sounds good. But there are issues. Brandon assumes that you can find all the worthwhile deals you want on demand to keep expanding. This has not been my experience. Good deals don't come that offten, especially in multifamily. People do sell off good earning buildings that easily. And about the BRRRR strategy, once you've bought a property, the refinance step can be an issue, especially with regard to appraisal. The idea of BRRRR is to buy and rehab wholesale, and then get appraised and mortgage out at retail. But the system has been changed to make this harder. I'm having a hard time getting properties to appraise at high enough number to get sufficient money out to roll into new deals. I'm run into situations where appraisals came back low, even if I've handed the appraiser comps showing that my desired valuation was justified. I think they're under pressure to keep valuations low.

@Michael Wolffs: You are correct and not just about finding REAL quality deals. The system HAS changed from even a few years ago. I am a fan of the BRRRR "idea" but after you do one or two, you realize that it is not as easy as the articles make it seem. Once you have 4+ mortgages, regardless of how positive your cash-flow is, the banks look at you with MORE risk and raise the bar so high that it is clear that they do not want to lend. Case in point, I went bank shopping to do a cash-out Refi on a property I own FREE and CLEAR. It would be a 1st mortgage, so not a real ReFi. I own many, many properties, all cash-flow wonderfully and only 6 mortgages (average of 60% LTV per mortgage), so I am low risk. In order for the banks to do a 70% LTV cash-out 1st mortgage on this property (at 5.0+ % rate), the banks wanted me to show and keep liquid 6mo in reserve for EACH property I own! I was told this by 3 banks including one that I currently do business with. Keep in mind that I have been a successful RE investor for 20 years, have perfect credit, very low debt, awesome cash-flow and a high paying W-2 job and the banks are asking this of me. What will they ask of someone starting out with 3 years experience, low cash-flows, high debt and that never went through a downturn in the economy? With all of that said, I have to ask Brandon this: How do you expect a newbie to scale as you describe when the key part of your BRRRR (the banks) are placing road blocks that even make a seasoned investor like myself balk? I am not saying it cannot be done, but it would be very difficult to scale as written in the article AND you would be taking on a ton of risk given the crazy market that we are in now. Of course, that is assuming you could get the loans required to scale and fine deals that make sense. Brandon??

Maybe the answer is not in the banks, but how you are doing business. If you are holding all the assets in your name, it will make it harder to do business. You need to be incorporated, and use the company to finance the properties to continue to grow. Not take it all on yourself. It’s also how you protect yourself and all of the hard work you’re putting into RE. If you feel like you’re hitting a ceiling, it’s time to shop for a good CPA who can help you get where you want to go.

We are in a weird time. The banks are (legitimately) jumpy. Barring government action, a not-small percentage of the population that will be in serious financial trouble in about 63 days if PUA is allowed to run out . Loans are likely to go into default rapidly as the un/underemployed lose PUA income and have to chose between food, utilities, and mortgage/rent.

Brandon - thank you for all the great content you provide. Here’s my take on you; down to earth, easy to be around, genuine, and truly a good decent man. Thank you for being you. You and your site have motivated me. I have done 6 projects, held 4, and have 2 in rehab mode now - all in the past 3 years. Here’s my 2 cents on your strategy. I modify slightly to accommodate my needs. I need income during rehab - so I pad my rehab budget to put cash in my pocket, before it’s complete. The margins have to be higher than usual, and I do some of the work myself. I’m limited to the lender I can use for refinance, because of seasoning restrictions. I keep 30% equity in the property, pay myself income, and walk away with some cash. The down side is that the properties don’t cash flow, using this strategy (interest rates are high with niche lender). This modified strategy came from circumstances - no cash to start with (used credit card advances!). My goal was to be in this full time, build as big of a portfolio as possible, and start selling/refinancing after a few years. It isn’t for everyone, but for me I’m living a life beyond my wildest dreams! I love this stuff! Thanks again for all you do. Harry

@Harry Arnold: GOOD FOR YOU and keep on going! With you positive attitude, you will achieve even greater success. Never stop learning and adapt to your situation. Again, excellent job!

Thank you! I'm just beginning my REI journey, and I've been using your podcast as a huge learning tool. Also starting to navigate this website to utilize it the best way possible for networking and education. I appreciate all the "paying-foward" you guys do, and also keeping it real. There are days when you scare me a little with the reality, BUT I'm glad to come in knowing all the possibilities vs. being blind-sided. Thanks again for this article and for the totally doable plan to scale at a good pace.

Nice educated article. Good properties are getting hard to find these days.

I have been Successfully BRRRRing for a few years. I have tried twice to stack with small multi-family, but the financing always falls through for different reasons. I would appreciate any advice, especially regarding an LLC. I had one for a while but I dissolved it because It seemed to make loans terms less favorable, and I can get liability protection through my insurance. Thanks in advance for any help.