How to Make $100k a Year with Fixer-Upper Rentals

How to Make $100k a Year with Fixer-Upper Rentals

10 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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YouTube
Instagram @beardybrandon
Open Door Capital

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Some people work so hard to make money. Whether it’s a nine-to-five job they hate or a thousand side hustles that go nowhere, it’s easy to see why the path to making $100,000 (or more!) per year can be long and winding—and making that kind of money feels impossible. At BiggerPockets, we think building wealth through real estate is the smartest strategy. But still, it’s no slam dunk. Investors can flip dozens of homes and deal with hundreds of tenants—and don’t forget the endless fires needing put out.

Sounds exhausting, doesn’t it?

There’s an easier way. 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 walk you through a step-by-step plan for making $100,000 per year using this powerful investing plan.

First: What do you need to make six figures?

Making $100k a year doesn’t require years of experience—or even a college degree. It doesn’t require signing up with an affiliate marketing company, or starting an online business selling homemade goods on Etsy… or drop-shipping via Amazon. Yes, all of these strategies could build you wealth, but here at BiggerPockets, we believe there’s no better source of long-term wealth than real estate.

So what do you need to get started?

Drive.

That’s it: Drive. We can break that down into a few sections. First, you have to want to succeed. Killing it in real estate probably requires more effort than your nine-to-five—at least in your first year. But that hard work pays off in dividends, creating a truly four-hour-a-week career after a couple years of dedication.

You also need to take charge of your personal finance. Why does it matter if you make a six-figure income if you’re bogged down in debt, or struggling to curb a dangerous spending habit? And when you’re investing in real estate, personal finance is doubly important. Lenders care about how much debt you have—and if your debt controls you, not vice versa, they’re less likely to lend you money.

Can you bounce back from difficulties quickly?

Understanding the BRRRR strategy

The simplest, easiest—and fastest way—to drive your real estate investing business into the six figures is with BRRRR. No, it doesn’t mean buying properties in chilly locales—it’s an acronym for a popular investment strategy that’s easy enough for first-time investors to follow… but advanced enough to create serious cash flow. You don’t need a bachelor’s degree, and you can start while still holding down your day job.

Let’s get to know BRRRR—or:

  • Buy
  • Rehab
  • Rent
  • Refinance
  • Repeat

This strategy 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 and over again. With this strategy, you can acquire numerous properties without running out of capital to invest. At the same time, it combines 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. And don’t worry: We won’t leave you stranded. We’ve highlighted the best BiggerPockets resources to take your knowledge to the next level.

hoe to using brrrr

Ready to learn more about BRRRR? Check out BiggerPockets detailed guide: How to Invest in Real Estate Using the BRRRR Method. Here, we break down the method’s advantages and disadvantages—and walk you through each step in detail. 

1. Buy

The first step in the process is to buy a great deal. Not just any deal—a great one, in a great location and neighborhood. But it needs to be a fixer-upper, and for this strategy, we’d recommend a single-family house, not a duplex, triplex, or apartment building.

BRRRR investing is very similar to house flipping. In fact, it is house flipping—but rather than selling, you rent it out after fixing it up. But you need to understand the same principles that go into house flipping.

The 70 percent rule is used by many house flippers, and it’s key to getting a good price—and leaving room for the unexpected. This rule states that the most a flipper should pay for a property is 70 percent of the after repair value (ARV), less rehab costs. The ARV is what a home should be worth when it’s all fixed up.

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 0.7 = $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 similar margins. So stop saying, “I can’t do this” and start asking “How can I do this?”

Because I can teach you how.

Finding good properties may require direct mail. It may require Craigslist. It may require driving for dollars. It’s going to take some hustle. But you can do it.

To finance this first purchase, it’s unlikely you’ll be able to use a traditional lender, because most lenders are unwilling to loan money for a fixer upper. This means you are probably looking at options such as hard money, private money, cash, home equity, and other strategies that I outline in The Book on Investing in Real Estate with No (And Low) Money Down. If you haven’t read that yet, start there. It’ll change your life.

Related: Investors: Memorize These 11 Real Estate Metrics Now

2. Rehab

The next phase in the BRRRR strategy is fixing the property up. Unlike with traditional house flipping, this property will be rented out for a period of time. The materials you use should reflect that reality.

Let’s use a BRRRR property I’m currently working on as an example. 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. That would cost me around $3 per square foot—or $3,000 total. Someday, when I do want 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. After all, you can only refinish floors so many times.

Therefore, I’m going to use laminate wood floor throughout the entire home. This will protect the floors, cost around $2 per square foot, and look amazing. Before I sell, I’ll remove the laminate and finish the floors to sell for top dollar.

The key to rehabbing a BRRRR property is to make the property as “tenant-proof” as possible by using long-lasting materials. When rehabbing, aim for the highest ARV and monthly rent possible. 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.

You could do all the work yourself or you could hire it out. That’s up to you and dependent upon your skills, availability, and desire. DIY saves 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 renters.

And because the property was rehabbed at the start, your repairs and capital expenditures, like roof, siding, and paint, 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 recommend saving the money and doing it yourself.

promotion for how to become a landlord guide

Purchasing your first rental property is just the beginning of your real estate journey, because being a good landlord is almost as important as making good deals. BiggerPockets’ free guide How to Become a Landlord: Managing Rental Properties for Real Estate Investors will teach you everything—from setting rent to handling evictions.

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. And I’m not saying to buy something that won’t cash flow. I won’t ever accept long-term negative cash flow. Ever.

However, properties that only cash flow a little bit might be okay with the BRRRR strategy. The power of the BRRRR strategy is in the long-term “flip”—the equity built. I’ll explain this more in a bit.

But first, let’s talk about the next “R.”

Related: How to Rent Your House: The Definitive Step-by-Step Guide

4. Refinance

Like I said earlier, it’s tough to get a conventional mortgage on a fixer-upper. However, conventional mortgages are really nice—low interest, long term, easy. You likely won’t be starting with a conventional mortgage, but the goal of BRRRR is successfully refinancing into that nice, conventional mortgage… and getting all your money back. (Woo hoo!)

Of course, you don’t need to refinance the property to get your money back. Perhaps you make great W-2 income and can afford to let your down payment and rehab money stay in the property. This does mean better cash flow, and perhaps even a better ROI. However, most investors want their money back so they can do it again and again.

Here’s how.

Let’s go back to those numbers from earlier. Our 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 lend 70 percent of the property’s loan-to-value (LTV) ratio. 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 any loan we took out for the original purchase and rehab costs. In this example, closing costs are the only out-of-pocket funds required.

After the refi, you should have a completely stabilized rental property with a little bit of cash flow—and 30 percent equity. Plus, you’ll have all your money back, so it’s time to…

5. Repeat

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.

With each new deal, you gain 30 percent equity and get cash back in your pocket.

How to make $100k per year in real estate

Now that we’ve covered the five steps of the BRRRR strategy, let’s see how someone could make $100,000 per year using this process.

Historically, real estate prices climb around three percent per year, on average. Yes, some years are better and some worse—but over time, this holds true. Still, let’s be a bit more conservative and say two percent per year.

Say we bought a property today with an ARV of $150,000… but at a purchase price of just $75,000. Nice going, us! Then we rehabbed it with $30,000 and refinanced it for $105,000. Then we rent the property out. At a two percent increase per year, this property could be worth $165,000 five years from now. At the same time, our tenants’ rent payments would help pay down the loan, decreasing the balance to 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.

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. You’ll never have more than 10 properties using this strategy, which is a pretty manageable number. (Many conventional mortgage lenders also limit borrowers to 10 loans.)

Related: Quit Your Day Job and Find Financial Freedom: Here’s How to Become a Real Estate Investor (Full-Time!)

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.”

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.

Want to learn more about real estate investing? Subscribe to the BiggerPockets Podcast for more real-life stories from investors just like you. 

The biggest drawback to the BRRRR strategy

So what’s the catch?

As with all investments, there are a few drawbacks. There is one big, looming question that you may have already asked: What if you can’t refinance? This could happen for a number of reasons—but most of the time, it’s because you’re not an ideal borrower. You carry too much debt, or your credit score is low. These things are easily fixed.

However, if you are unable to refinance the property to get your money back out, you’re stopped in your tracks.

Luckily, this problem can be proactively prevented most of the time. Before diving into BRRRR, visit a few local banks and ensure you’re a good enough borrower before you ever purchase the first deal. Fix your credit in whichever ways they suggest so you’re in ship-shape for BRRRRing.

Of course, if you are still unable to refinance after rehabbing, you could always wait until the tenants’ first-year lease is over 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 that there are answers! Investors ask these questions every day in the BiggerPockets Forums. Don’t miss out on one of the most powerful tools you have at your disposal—make an account and start learning from experienced investors.

The BRRRR strategy has a lot of moving parts, but if you work it right, it can be a powerful ally in building serious wealth. This strategy combines the equity growth of flipping with the tax benefits, cash flow, and appreciation of rental properties—maximizing your profit.

Get started today.

How did you get started in real estate? Sound off below.