Mortgages & Creative Financing

How to Take the BRRRR Strategy to the Next Level with a 198-Unit Apartment Building

Expertise: Real Estate Investing Basics, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Landlording & Rental Properties, Business Management, Personal Development, Flipping Houses, Commercial Real Estate
152 Articles Written

The buy, renovate, rent, refinance, repeat method (BRRRR) can be very effective to grow your rental portfolio if you implement it properly. This method works for single family and small multifamily deals—and it works on larger properties as well. In today’s video, I am going to show you how I used the BRRRR method to take my real estate investments to the next level.

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The only way to make the BRRRR strategy work is to find the right deal. The property has to need a “face lift.” Perhaps the kitchens are dated, the windows are old, the carpets are damaged, the bathrooms need updating, or the heating system needs replacement. But the key factor is that the property has to have good “bones,” meaning it doesn’t need structural repairs and it isn’t becoming functionally obsolete. It’s just the ugly duckling. This is where the BRRRR strategy becomes super valuable. You find a property in a good area with a good structure that simply needs some cosmetic repairs. Those cosmetic repairs are predictable and add value to the rents you will get once you lease it out. With that increase in rents, the property value goes up, which allows you to refinance. It’s a fairly simple equation, and it can be scaled up on larger deals.

Related: Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment

The Deal

We found a deal in North Carolina that fit the equation. The kitchens were dated, floors needed replacement, the exteriors were drab and dated, there wasn’t any landscaping on site, and the property didn’t have any amenities like a playground or pool. On top of that, the vacancy was high and the units that were leased were rented for around $140 per month below the market rent. By adding an average of $140 per month, per unit, we increase the yearly revenue to about $330,000 per year. Notice that we didn’t increase expense; we just did renovations. By doing this, we’re increasing the cap rate that will justify our refinance.

The creative part of these types of deals is figuring out how you will finance the renovations. On this project, renovations will cost around $8,000 per unit. We will get the money for this by using equity, investors, and loans—$8,000 x 198 units at 6% debt cost will come in at $480 per unit per year or $40 per month. In a nutshell, we pay $40 per month to renovate each unit to make $140 in additional rent, which yields us $100 in cash flow per unit per month. This adds up quickly on larger deals, as $100 x 198 x 12 = $237,000 per year. Once we achieve stability and renovate all 198 units, we will refinance the short term loan and pull out some of our investor's capital to return to them, which increases their ROI on the project. Watch the video for a full breakdown of the numbers on this one.

The BRRRR method is simple if you apply it properly. It works if you are just starting out and you’re doing smaller multi-unit family properties or if you’re looking for a way to elevate your portfolio to the next level. Be sure to watch the video to hear all the details on this deal!

Questions? Comments?

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Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

    Joshua B. from Irvine, California
    Replied almost 2 years ago
    Matt another great video. This is an amazing example how the BRRR strategy, primarily used by investors on primarily SFH, has the power to scale up to larger projects. This shows once again that learning and understanding the fundamental concepts will continue to help your business as it grows.
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Thanks Joshua! Glad you liked it!
    Jami Lynn from Browns Mills, New Jersey
    Replied almost 2 years ago
    Hi Matt – as someone who is just learning about real estate investing, it’s great to see how the BRRR strategy can be applied to more than just small multifamilies and SFH. Thanks for this helpful article.
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    You got it Jami! Glad you liked it.
    Jim McNeill from Tallahassee, Florida
    Replied almost 2 years ago
    How do you get the renovations done when tenants are in the units?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Hey Jim, Good question. We actually don’t renovate with tenants in. We go after the vacant units first. Then as renewals come up, we tell tenants that they can either renew at the new rate and move to a renovated unit or move out of the complex. For senior citizen tenants or those needing assistance, we will provide a crew to help them move. That way we end up with a fully renovated complex after all the leases renew. Matt
    Andrew Syrios Residential Real Estate Investor from Kansas City, Missouri
    Replied almost 2 years ago
    That’s awesome Matt, best of luck with this project!
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    You got it Andrew! Just trying to keep up with you and that juggernaut business you and your family have going on out there 😉
    Mike Shep from Littleton, Colorado
    Replied almost 2 years ago
    Great project and informative video Matt! Just a couple questions: 1. How are you finding the deals? And, aside from just looking at the condition by driving/walking by, how do you get the financials to determine how a property is performing? 2. Can you give just a brief overview of how all the financing looked including both the purchase and the renovations? Did you do that in 2 phases or combine both into same original package? 3. Jim McNeill had asked my exact question–how do you do renovations on occupied units? 4. Time to complete? guessing 18 month timeline Thanks again and great job!
    Bernard Pearson from Teaneck, New Jersey
    Replied almost 2 years ago
    Thanks great video. Thinking about purchasing a 2 Family 3 BR (1BR & 2BR). Considering a 203K loan to do the Reno (its an ugly duckling on a great street) asking price 299,000 post reno estimate value 380,000 ($35K in Renos with the 203K). and Gotchas with using a 203K for the BRRR
    Bernard Pearson from Teaneck, New Jersey
    Replied almost 2 years ago
    Correction to my first post **** Thanks great video. Thinking about purchasing a 2 Family 3 BR (1BR & 2BR). Considering a 203K loan to do the Reno (its an ugly duckling on a great street) asking price 299,000 total in would be 334. Post reno estimate value 380,000 ($35K in Renos with the 203K). Are there any “Gotchas” with using a 203K loan for the BRRR
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Hey Bernard, Sounds like a winner! I have not done a 203K myself but I have heard that you need to use a contractor that’s approved by FHA and the inspections to release construction draws to you can be very cumbersome. Also as I understand it, you have to pay for the construction phases out of your pocket and get reimbursed by the bank as you go, so you will need 10K or so in operating capital to advance the contractors and then get paid back by the bank. Matt
    Bernard
    Replied almost 2 years ago
    Thanks again Matt.
    Philip Mascia from Ridgewood, New York
    Replied almost 2 years ago
    Great video. I need to learn more about bridge loan financing and the requirements
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Hey Philip, A bridge loan is just a short term loan from a bank. It’s typically interest only and designed to give you enough funds to perform a renovation and then refinance into a long term loan (in lender language it’s called rolling to a perm). Larger banks that want your refinance business will give you these types of loans but I have not seen them offered on a deal less than 100 units. Matt
    Rene Pepin Investor from Woodstock, Georgia
    Replied almost 2 years ago
    Hi Matt. That is an impressive deal. You really know your numbers. How long do you estimate it will take to renovate all 198 units?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    We are targeting getting all the renovations done in 2 years. We will renovate units as tenants move out and give them an option to move to an updated unit or move out of the complex, that way we will get all 198 renovated in that time frame.
    Bryan Zundel from Chicago, IL
    Replied almost 2 years ago
    Great and informative video! Thank you. Out of curiosity, how did you identify this property?
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Hey Bryan, We were searching in that geography for some time and a broker we are connected with sent it over. It also ended up on Loopnet before we put it under an agreement, but it wasn’t on the market for long. Matt
    Jessie Silva New to Real Estate from Miami, FL
    Replied almost 2 years ago
    Great post again Matt, I always love reading your posts! I’m still somewhat new to the BP community and I always had my own formula/strategy that I look foward to implementing on multi-family properties that is strikingly very similar to what you guys called the “BRRRR” formula. My “Magic Formula” as I call it, goes as follows; 1. Buy an underperforming asset 2. Force equity 3. Refinance the asset 4. Be in for free positive cash flow 5. Watch the asset appreciate over time 6. Sell at a higher price (optional) However, me personally I would always consider selling the asset once I can force some value and is stabalized so I can fully liquidate and “trade up” my properties (buy bigger deals as I recieve more capital). I see my properties as moving chest pieces – so I wouldnt like to sit on them for very long. I would consider my money getting “lazy” and I want my cash moving at high velocity. So generally I would consider holding within a 3-5 year span.
    Matt Faircloth Rental Property Investor from Trenton, NJ
    Replied almost 2 years ago
    Hey Jessie, That’s a good plan. Evaluate the potential sale on a case by case basis as it will depend on how strong your management team is, tenant base in the area, and “longevity” of your rehab work. Matt
    Gianni Laverde Investor from Corona, NY
    Replied over 1 year ago
    Hi Matt, Awesome breakdown explanation on the numbers! I had never heard of Bridge loans. One thing to keep in mind for the future if doing large deals. Congratulations on the deal. Thank you Gianni