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How to “Invest on Repeat” with The BRRRR Strategy

How to “Invest on Repeat” with The BRRRR Strategy

77 min read
The BiggerPockets Podcast

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The BRRRR method can be taught by no one better than David Greene, author of Buy, Rehab, Rent, Refinance, Repeat, and adorably dubbed “Sir BRRRR” by co-host Rob Abasolo. While David may be a master of BRRRR budgets, schedules, and rehabs, Rob isn’t as familiar with doing full-on buy, rehab, rent, refinance, and repeat rentals. To not only help out Rob but the BiggerPockets audience as a whole, David does a full walkthrough on his latest BRRRR.

This hillside property situated in David’s native San Francisco Bay Area has huge potential to become a cash-flowing, equity-increasing deal. David is turning this large home into multiple smaller units that will rent out to A-class tenants and should net him a six-figure equity boost simply by doing these cash-flow-first renovations.

David walks through exactly how to find BRRRR properties, telltale signs of a good (or bad) BRRRR deal, how to use the BiggerPockets BRRRR calculator, funding options for your BRRRR (from David’s broker!), writing up a contractor scope of work (SOW), and how to build cash flow when there isn’t any to be found. You’ll also hear how David had a surprise run-in with the cops when walking this property. Action, excitement, and lots of equity are all coming up in this episode!

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Read the Transcript Here

Rob:
This is the BiggerPockets Podcast show 598.

David:
You got to be dedicated. This is not a market where deals fall into your lap, or people come to you and beg you to buy a property and you make up your mind if you want to do it. A lot of competition for these assets right now, they’re going up in value very quickly. Rents are going up just as fast. The stakes are higher than they have ever been. And so now is the time to continue taking action.
What’s going on, everyone? This is David Green, your host of the BiggerPockets Real Estate Podcast, here with a very special episode for you. Today is all about The BRRRR Method. Does it work in today’s market? Is the BRRRR extinct? Did the BRRRR ever work? Has anyone ever even done a BRRRR or is this more of a concept than a real thing? All of those questions will be answered here today. I am joined by my amazing co-host, Rob Abasolo. Rob, how’s it going?

Rob:
Hello? How’s it going, man? Typically, I try to come in here with some profound quotes, a couple of sound bites, pontificate, have a little bit of banter. But we had so much good stuff in this episode that I think we can probably get straight into the nitty gritty of what it takes to execute a successful BRRRR.

David:
Yeah, to be completely honest with you guys, this is less of a podcast and more of a bit of like a masterclass. So this is probably what you would expect if you paid money to take a course on how to do a BRRRR, or you wanted to have somebody who is doing a deal, that you paid to show you what they’re doing, where you’re getting this all today for free. So in today’s podcast, we’re going to talk about what The BRRRR Method is. If you’ve heard about it, clarify how that works.
We’re going to run you through a hypothetical BRRRR where we give you the numbers and the details, show you where you would find them, and then show you how you can use BiggerPockets calculators to do the heavy lifting for you, and let you know if you should move forward with this BRRRR or not. We’re then going to show you how, if you’d like, you can sign up to use all of those resources all the time. And then we’re going to get into a deal I am doing right now. The property is in contract, I share some pictures. We share some videos. We give you the insight into how I’m doing the deal. And then I share all the numbers myself of this deal to show you not only that BRRRR is possible in today’s market, but to go even deeper and show you how you could make it work for yourself.
Before we get into all of this content, I’m going to share with you today’s quick tip. And it is, if you’ve ever thought about going pro on BiggerPockets, now’s your chance to do so. If you sign up using the code REPOD21, you will get a discount on the membership. You’ll get a free copy of my BRRRR book, one of the best selling books in real estate and on BiggerPockets. And Rob himself actually said some very nice things about it. But more importantly, you will get access to the calculators where you can run these deals yourself, just like I do, just like Rob does, so that you can start to taking action today. Now, if you’re already a pro member or you don’t want to sign up, that’s cool. You’re going to love today’s show because it is so nitty gritty, behind the scenes, brass tacks, insert analogy here for the realist.

Rob:
Even if you decide not to sign up for the pro membership today, you can still go in and actually use all of these calculators up to five times for free.

David:
Yeah. And I highly recommend that you do that. One of the big things that scares people from investing in real estate is math. They weren’t good at math before. They’re afraid of math, or they don’t know what numbers they need to be getting. Well, the BiggerPockets calculators will walk you through all the questions you should be asking, what the data that you need to be inputting is, as well as how to find it. It makes it not scary. So I never liked math when I was in high school. I didn’t like it when I was in college, I was not a math guy. I was more of a logic, reason type of a person. Well, I don’t mind math with real estate, I actually like it a lot of the time. So go check it out. Play with the calculators. They got a BRRRR calculator, a rental estimator calculator, a rehab budget calculator, all kinds of cool calculators for you to play with. And that being said, we are going to get into it. I hope you enjoy the show.

Rob:
Oh, one little thing here. Stick around into the very end for a very good story on quite the pickle that David found himself in on his own property. You got to stick around to the end though.

David:
Oh, and last thing, let us know what you think in the comments. If you are not watching this on YouTube, this is a show where you should be. Please follow us on YouTube because you’re going to see all the pictures that we’re sharing. And then let us know in the comments what you thought about today’s show. All right, let’s get into it.
All right, everyone, you are in for a treat today. Rob and I are going be going into The BRRRR Method. Questions have been asked. Does this still work? Can I still BRRRR? Is BRRRR dead? What does BRRRR mean? And today we are going to answer a lot of those questions, as well as give you some examples of a deal that I’m working on right now using The BRRRR Method. Rob, you’re kind of new around here. I like you. You’re doing a really good job. But I’m curious, what was your impression of The BRRRR Method when you first kind of got into the BiggerPockets world?

Rob:
Well, give me one second because I think I can show you how important this method is. Right behind me, at all times, I keep the BRRRR bible always on the set of the raw built studio.

David:
Also known as the BRRRRible.

Rob:
The BRRRRible. That’s right. I like that. Yeah, man. So I’ve really only done flips. I’m looking to get more into what you and I call the BRRRRster, which is obviously the same principles and everything like that. Except instead of refinancing it into a long term rental, we’ll refinance it into a short term rental. But all in all, all the same concepts apply here.

David:
Yeah. So in today’s show, we are going to go over a hypothetical deal to show you exactly how the BRRRR would work. We’re going to do what we can to explain how the BRRRR works in today’s market. What strategies you want to use, kind of how you want to execute this. We’re going to show you how BiggerPockets has resources that can do all the heavy lifting for you, because if you’re like me and you like to get everything done quickly, it’s very helpful. And then we’re going to, near the end of the show, break out a deal that I’m actually working on right now, it’s set to close in about a week. I’ve been getting my rehab estimate. I’ve been running my numbers. I’ve been making some content about what the house is going to look like. I’ve gone back and forth because this is a bit of a more complicated rehab, because it’s going to end up as like a BRRRRster, like we talked about. So it’s either going to be a short term rental, or it’s going to be like 30 day plus corporate housing type stuff.
I’m going to kind of test out both sides and see where I get more demand. But you get a behind the scenes look at exactly what happens when I and Rob look at a property, see what we’re going to do with it. Because as we’ve said before, in today’s market, you don’t really find great deals, you make great deals, the vision that we have, and then what it should look like in the end. So I don’t know that we’ve ever done a show where we went into this much depth about an individual property. I guess we did one that was about the property you and I are buying in Scottsdale, but there’s not a ton of rehab on that one. That’s going to be more how we’re going to market it, maybe how we’re going to furnish it, a little touch up here and there.

Rob:
A few little things to spruce it up. Nothing crazy.

David:
Yes. That is more strategizing how we are going to generate revenue with this property. Whereas this one we’re going to talk about today is going to be pretty straightforward with the revenue, but it’s going to be a lot more intensive on the creativity. So I’m ready to get into this thing. How about you, Rob?

Rob:
Yeah, man. I’m ready to experience a masterclass from Sir BRRRR himself. So I mean, this is an exciting day for me.

David:
There it is. So I’m going to ask you, young Padawan, what is your understanding of The BRRRR Method? Pop quiz. Let’s see what you know.

Rob:
Well, obviously first you must buy. The B in BRRRR is you must buy, you must acquire. You must go and obtain a property that you feel, obviously, has an added value component that you can bring to the table. Next, you must rehab. That is the first R in the BRRRR analogy or in the BRRRR acronym. This is where you go, you fix it up, you get it ready. You add the value. You turn it from a diamond in the rough to just a sparkling diamond. You then go out and you rent it. Again, this could be short term rental, midterm rental, longterm rental. The more traditional approach here would be turning it into a 12 month rental.
And then you will take those rents and that lease agreement to a bank, and you’ll get it financed and refinanced. Sorry. Specifically refinanced. Sorry. I know we’re working in the acronym here. You get it refinanced to hopefully pull out most, if not all of your money out. Although leaving a little bit of money in every so often is not a loss, because you still have equity in the house and everything like that. And then the final and perhaps the most important for building your wealth. The final R, repeat. Where you go and you do this over and over and over again after you’ve read the BRRRR Bible.

David:
So here’s the best part about The BRRRR Method. If you can memorize what it stands for, you know how to do it. That’s what I love about it. Well, what am I supposed to do next? Well, what letter comes next? It kind of walks you right through it. And basically what I would like people to understand about The BRRRR Method is it’s a way of maximizing your capital. It’s a cool way of talking about real estate. I think it’s a good blueprint to use because it forces you to excel at each level of what an investor has to do. You want to buy a property right. You want to know how to rehab it. You want to be able to analyze it, so know what it rents for and maximize the income it makes. You want to be able to use equity. Or sorry. You want to be able to use leverage to increase your ROI as much as possible, which is the refinance. And then you want systems in place to make your job easier, which is repeat.
So in the BRRRR book I talk about, to become a black belt investor. You have to do something a lot. Just like to become a black belt at martial arts, you got to practice the same movements over and over and over. Well, real estate investing and life is no different. So The BRRRR Method, one, will kind of force you to invest in real estate the right way. But what it’s really doing is getting you more of your capital out of the deal and into your bank where you control it, where the market crashing can’t take it away from you, where it’s not useful to you. You can’t use it if you need money in reserves or you need to fix something up.
Basically, capital is how you make money with real estate. You spend money and you buy something that’s worth more than what you paid for it. You needed capital to do that. So if you can’t get capital in the bank, it’s very difficult to add value to real estate and to run a sustainable business. But when people lose real estate, it’s usually because they didn’t have enough capital to sustain it. And so, this is a way that will help you scale faster, scale more safely and invest better. It’s very hard for me. I’ve yet to hear a criticism of BRRRR that actually makes sense to me. When you’re doing it the way that we’re teaching it, it just forces you to invest in real estate the right way.

Rob:
Well, I’m a sucker for a good acronym here. And you mentioned something a little bit earlier. You said, oh the market crashing or this and that. So obviously, we’re in a pretty competitive market right now. Interest rates are obviously going way up right now. There’s a lot of people bidding on the same thing, overbidding. And it can be seemingly a bit of a discouraging market to a lot of people that are trying to break in. I’m kind of curious, just in your opinion, is a BRRRR still applicable in today’s real estate market?

David:
Here’s why I think it is receiving criticism as just being harder to do. The way we have typically described BRRRR would focus on adding value through the rehab. So we are usually looking for a fixer upper property. That’s really where it works the easiest. And because there are less fixer upper properties right now, it becomes more challenging to pull this off. So when I was first doing this, 5, 6, 7 years ago, nobody wanted the trash houses. They were just sitting there for a long time. People wanted a house that was move in ready, or that didn’t require a lot of work. So it’s pretty easy to go out there and find something that either you could add some square footage to, you could upgrade it. Just maybe you got rid of the trash that some hoarder had left in there, and bam, you’ve added some value and you’re on your way to executing a BRRRR.
Where in today’s market, even the worst houses tend to be selling relatively quickly. There’s not enough inventory. So it’s harder to earn money through the rehab. That doesn’t mean you can’t, as you guys are going to see on the deal that we’re going to show you at the end. This is a big value add. It’s a house that needs some work, quite a bit of work. And it’s going to be both cosmetic and functional, as in we’re adding some square footage to the property.
But the good thing about today’s market is that because there’s so much demand for these properties, they’re harder to get, you end up able to add equity simply just by owning it. So a lot of people that are using The BRRRR Method are watching their properties appreciate during a period of time before they refinance and after they buy it. It’s actually like this wind at your back that makes it a lot easier to get your value to go up. So while you lost something on, it’s harder to find the deals to do. You gained something on, when you do find it, it tends to be easier to add value than it ever was before.

Rob:
Okay. So I guess with that in mind, you’ve done this a few times. I don’t know. You’re no spring chicken as it pertains to The BRRRR Method. So kind of curious, my wife always says I use that phrase wrong. And I’m almost positive I used it wrong just now again.

David:
Spring chicken?

Rob:
Spring chicken. Well, she’s always like, well, spring chicken means it’s like a physical. [inaudible 00:12:51] a spring chicken in regards to a physical activity. But you could argue that a BRRRR is a very physical activity. So sidebar here.

David:
I love that you’re arguing with your wife in your head in the middle of the podcast right now. This is awesome.

Rob:
We’ve had this conversation more than you know. So as a no spring chicken in the BRRRR field, kind of curious here, what are some key elements to understand to perform a successful BRRRR? Is there anything that really stands out to you when you’re examining a deal or anything that you’re looking for specifically that is a very big indicator of, A, getting equity in the house simply by holding it, but, B, just being able to successfully execute?

David:
Well, there’s basically three ways that I see that you get equity. The first one is holding, if the market appreciates. We never know if it’s going to appreciate, but it has been. That’s one way you get equity. The other is by buying the equity, meaning you got it at less than what it’s worth. So you got a really good deal. And then the third way is by creating value through the rehab. So you can make a property worth more by fixing it up. But what you’re really doing, when we talk about this, is you’re trying to increase the after repair value. That’s all that the goal is. And I do just mentioned three different ways that you can do it.
And in this property I’m buying, I’m actually using a combination of all three. And we’re going to talk about how I got it at less than what it appraised for, how I’m adding value through a rehab, and how appreciation is also just shooting up. In fact, the house that I’m buying, man. There’s a house, it’s at the very top of like a street that goes up a hill. So it kind of ends in a cul-de-sac. And then from there, there’s a private drive going up to this property. Well, one of the houses before you get to the top sold for almost, actually probably more than what I paid for this one. It was listed for close to what I paid for this one, but I’m sure it would’ve sold for more than that, because it sold very quickly. And it’s about half as big.
So as I’m waiting, I got it at less than it appraised for. That one sale made it worth more than even what my appraisal was, right off the bat. So I’m seeing all three ways that are adding value to the property. Now, once you’ve done that, the BRRRR kind of takes care of itself. At that point, you’re just trying to manage a rehab, and you’re trying to keep your holding costs low as you get to the finish line when you can refinance it.

Rob:
So I’m kind of curious here, because you have done this a few times. And I know that you’re a really big fan of adding an extra room if there’s a way to slice a house this way, right? Is there ever a moment in a BRRRR, in your career, where it has made sense to add square footage to haul on additions to the house or anything like that?

David:
All the time? Yeah, that was actually one of my go-to ways when I was investing in Northern Florida five years ago. I would look for a sunroom that could easily be added into part of the house. So if I just ran electrical and plumbing, and if the kitchen was really close to it, I had all the infrastructure right there that I needed to put in. I would look for garages that were attached to the house, especially if they also had another detached garage, and I would convert the garage into part of the home.
A lot of houses have mud rooms, utility rooms, like different names for a structure that’s there, but it’s not included in the actual square footage of the house per the tax records. Maybe they did an addition and they didn’t have it added, or maybe it didn’t comply for whatever reason. And so, because we didn’t have to build it from scratch, we would just go in there, find existing space and then convert that into the home. And if you could take a house that’s 1,100 or 1,200 square feet and make it 1,500 or 1,600 square feet, you’re adding significant value just by making it bigger.

Rob:
So really, it makes a lot more sense to convert than to just newly construct square footage.

David:
Whenever you can. If they’ve already done some of the work, you want to hijack onto that and develop it rather and assume you have to build from the ground up. Now this is a side note, but this is one of the reasons that when people ask me the question of, “Should I build an ADU on my property?” The answer’s not always a quick yes. Because many times, you have to finance that ADU 100% with your own money, whether it’s cash in the bank or a refinance from something else. The point is, you can’t go to the bank and say, “Can you pay for 80% of my ADU, and I’ll take a loan on that money?”

Rob:
Yeah, that was me. I paid cash for mine.

David:
So let’s say you got to spend 100, 120 grand to build this ADU from the ground up. Would that have been better used as a down payment on a completely new property? And many cases, it can make more sense to do that. So that’s one of the, I guess I’m using this to highlight that ADUs are inefficient when you have to build them completely from the ground up. Now, if you’ve got prime real estate, it can make sense to do that. I’m not saying don’t do it. I hope you’re not hearing me. But you got to look at it a lot more close. The stuff that I was buying in Northern Florida was not really expensive real estate. It wouldn’t have made sense to spend $80,000 to build a new structure to make my existing home bigger when I could have spent $80,000 and bought a completely different property already constructed.

Rob:
Yeah actually, the reason I did it was because I was in LA. So it is like prime real estate out there. Land is at a shortage. And well, I was trying to do the supercharged house hack, if you will, where I was renting out a little studio under my house. And I was like, well, hey, if I do a little tiny house in my backyard, not only will I cover my mortgage, but I’ll make more. So it did make sense in that instance. But I definitely feel you what you’re saying, where, yes, I had to pay a private loan that was like 7.54% interest. I ran out of money halfway through. This was my first really, really big project. Honestly, very thankful that I did it, just from the learnings of it. But yeah, I totally see your points there.

David:
Yeah. I would say areas like Los Angeles, Miami, where I am in Northern California, The Bay Area, real estate’s very expensive. So adding an ADU can give you the return you want. Los Angeles, yes. Louisiana, no. If you can look at real estate that’s going to cost $70,000 to $90,000. You spending $50,000 to $60,000 to build additional square footage to that property isn’t going to make sense. There’s also situations where the property is 3,000 square feet. And adding another 500 square feet isn’t going to make a huge difference unless it’s prime real estate. So these are things you have to keep in mind. And I’m bringing this up because a lot of people hear this information and they say, “ADU, yes or no?” And they just want to simplify it to that degree. Where, as real estate investors, it’s a little more art than science a lot of the time.

Rob:
Especially on something like that. I mean, because there are definitely some instances where an ADU. And either way, building an ADU, did you think that concept alone, does that even fall under the BRRRR strategy?

David:
It would if the ADU’s adding value to the property. But that’s tricky. Because the way that you determine if it added value to the property is based on the appraisal of your refinance. And if there’s not many ADUs around for appraisers to use as reliable comparables, they’re not going to give you the value that you want. And because ADUs are a relatively new thing. I mean, they’ve been around for a while, but not en masse. It’s only a new thing that we’re starting to see them popping up because of the housing shortage. There’s a very good chance that you spend $100,000 to build an ADU and the appraiser gives you $10,000 or $20,000 of extra value in your property. And that would be a terrible investment.

Rob:
Oh man, I also can relate to that. Because I bought a house. Well, I was in escrow on a house in Destin. I was going to close. And then the appraisal came in and they valued the back house, which I think was an ADU officially. They value that at like 25% or 30% of the actual value of the home. And so I had to walk away. The appraisal came in $300,000 less. And then when I built my tiny house in LA, my ADU, I had to get an appraisal to come out to do a cash out refi. I was one of the first people to ever do an ADU in that regard, especially in my neighborhood. There were no comps. So I think the appraiser, it kind of threw him for a loop. I was able to get most of it back, thankfully. But you know, little bit of fighting there, I think.

David:
Oh, I’m sure you probably had to fight quite a bit. The average investor who’s new at this wouldn’t have known what to do. And that’s an example of why, whenever possible, we don’t want to build from the ground up. We want to take existing structure that isn’t being used efficiently and change it. So I’m a big proponent of garage convergence. If I buy a property, which I’ve done several times, and it’s got a big lot, there’s plenty of parking. I’d rather take a detached garage and turn that into an ADU, than build something from the ground up. And then instead of building from the ground up, I’ll just build like a new, I don’t know what you would call it, like a non-covered garage.

Rob:
Oh, like a carport?

David:
A carport. There you go.

Rob:
Yeah. Those are very popular in Joshua Tree, the carports. And then even in my neighborhood here, almost every single house. I’ve never really seen it before, the way it is in this neighborhood of where I’m at. But like every single house has a garage apartment. And so it shows you that a lot of the houses here were either fix and flips or some form of BRRRR because they came in and they fixed it. They flipped it. And then instead of just rehabbing the garage, they converted it into like a garage apartment.

David:
Very, very common to see in areas where the land itself is more higher value, because they’re going to do exactly what we’re talking about here. So for those that maybe want to know more about what a BRRRR would look like, or are confused about how to know if they should do it. You are in for a treat. We are actually going to walk you through a hypothetical BRRRR, and show you how BiggerPockets resources can do all the math for you and help you figure out if this is a deal that you should buy or not. So Rob, any questions before we jump into the BiggerPockets calculators here and we show somebody how to analyze a BRRRR deal.

Rob:
No. I’m excited. I’m excited to see my sensei at work. So before we jump into the calculator here, do you mind just walking me through this property? Maybe give me some of the nuts and bolts of the actual process or what you were planning on rehabbing here?

David:
Yeah. So a property like this is what will catch my eye. So as we can see from the main picture on the left, the front of the house, it’s not in terrible shape. The roof looks like it’s solid. There’s no reason to think it’s falling apart. You can’t see that this is actually a duplex and it has a downstairs from this angle. But I like that, because that means that other people that are looking at pictures on the MLS or whatever, they’re not going to see it either.
When we get into the actual interior photos here, we’re seeing that there’s not mold. There’s not anything like fire damage or smoke damage, water damage that would really scare me. But it’s also not updated. So your casual buyer’s going to skip right over this. So swipe it left. If this is housing dating apps, they don’t want anything to do with this. But there’s some good bones here. This is the one that other people are going to be passing up. I can tell from the street scene that it’s a good neighborhood, that the cars all look like they’re in pretty good condition. There’s not garbage or graffiti all over the streets. It actually looks like a nice area as well, which is very important.

Rob:
Yeah. I know. My test on that kind of stuff is, I mean, this is Google Maps, granted. But even better, every single yard that you can see here is pretty much mode, right? It’s all manicured. So curb appeal kind of checks the test there.

David:
And I’m seeing green. The grasses are green.

Rob:
That’s right. Hey, this isn’t a seeing green man. This is just a regular show.

David:
And we see here, in additional interior photos, it wasn’t-

David:
And we see here in additional interior photos, it wasn’t marketed well, so this is clearly a realtor who is probably getting a discounted commission and isn’t spending money on the photos. And in today’s, like I mentioned, real estate house dating apps, that’s how it works. There’s no list of properties that no one else has. Everybody’s looking at the same stuff. And so if your photos don’t look right, people are skipping them. These photos are dark. They look like they’re taken with an iPhone six. They show you what’s there, but it’s definitely not a flattering look, so a lot of my competition’s going to skip right over this. But what I’m seeing is outdated but good bones.
The bathroom looks like it’s in okay shape, it already has a shower. I don’t have to put a new shower in. It’s got a vanity. It’s just outdated and ugly. And then you can see the mudroom the kitchen are very outdated, looks like something out of That 70’s Show. So most buyers are going to be turned off when they see these pictures. You see that the two bedrooms there, the sun’s coming in from the drapes, giving it that golden look that I remember from being seven years old, and that’s what every single house looked like. This is not going to be catching attention on my competition, but I’m not seeing anything that scares me, and that’s … This house isn’t wearing makeup, but it doesn’t have any giant warts on it or something that you go, “I don’t think I can work with that.”

Rob:
Well, I mean, yeah. When I see this kind of stuff, especially whenever I’m shopping for short-term rentals or anything, or important comping out my competition, oh, man, I love seeing terrible photos. That is some of my favorite, favorite thing because I’m like, “Okay, great.” So many, 50% of people are going to walk away from this, not even click past the first three photos because they see these orange drapes right here. That creates just a great opportunity for people like us.

David:
Yeah. I’m drawn to this. This is what gets my attention. When I see really nice pictures, beautiful house, and everyone oohs and aahs, I click right past it. No money there, no opportunity there. When I see something like this, I get excited. It’s kind of funny, but this is what you want to be looking for.
All right, now this is where we get into the nitty gritty. As you can see from these pictures, now also, let me give you another tip. You won’t hear this anywhere else. When I’m looking at properties on the MLS, or if you’re using a portal like Zillow, or Realtor, one of those type of places, most people click on the initial picture and they click on the arrow to the right. N what happens is when I’m listing a house as a realtor, I put my best pictures first. I want the ooh and the aah stuff, the beautiful view, the amazing kitchen, or the master bathroom, I want you to see that. We put the worst pictures last. So I always click on the left arrow when I’m going to be looking at homes because that’s going to show me what the lots looks like and it’s going to show me stuff like this, the unfinished portions of the house that scare away the casual buyer, but someone like me is interested.
I get excited when I see exposed framing, rough in plumbing. Right? As you can see here, a lot of the expensive work has already been done in this basement, but it is not livable. Somebody could not live here, which turns off a lot of my competition, so I always click on the left button because I want to be seeing those ugly pictures first. So you can see the basement already has a bathroom. It’s ugly, but it’s got plumbing run to it, which is one of the most expensive things in a rehab. The bedroom just has this wood paneling wall that makes you look like you’re sort of in an underground bunker in World War II. But it’s already finished, you don’t have to do any work.
And then you can see that the mid basement has exposed framing, where somebody could just come in and put up some drywall right over the top, which it looks uglier than would actually be to finish this. And if you’re not experienced with rehabs, this would scare you. But somebody like me looks at this and says, “They’ve already done 90% of the work.” So it was these pictures that made me think this is the house that we should be going after. This is the one I want to use in the hypothetical BRRRR because it’s got everything you need, but it still looks ugly. Does that make sense, Rob?

Rob:
It’s got everything you need, but it still looks ugly. I’m going to frame that quote.

David:
And you’re going to put in on a T-shirt right next to my face. David Greene, bringing you everything you need, but still looking ugly since 1983.

Rob:
Yeah, I’ll get you that. I’m going to get those mass produced for BP Con.

David:
So we see here, this property, it has some potential. It’s got what we’re looking for. Now we need to figure out. Is it going to work if we rent it out by the number? So I’m going to show you just how Bigger Pockets can help you do that very thing easily, quickly, and without making mistakes. All right, everybody, so here are the deets. We’re going to be looking at a 1950s ranch up down duplex, so this is going to be a duplex with an upstairs and a downstairs. We’re looking at a purchase price of $220,000 because this place is in need of some repair, an estimated rehab of around $50,000, and ARV of $350,000. So in this case, one of the units of the duplex, the bottom one, is not finished. It actually has to be made into livable space, which is going to increase both the square footage and the value of the house, as well as the rents that it can bring in because in its current state, you’re only going to be able to rent out the top unit.
The rents would be about $1600 per unit, and we’re looking at property taxes of about $220 a month and homeowners insurance of $60 a month. So let’s say you have that information, which frankly shouldn’t be too hard to get if you listen to this podcast, you have a pulse, and you know how to use a computer. The question is: What do I do with these details to figure out if I should buy the house or not? So because Rob here has not done as many BRRRRs as me, we’re going to let him actually get a little bit of repetition in here. So Rob and I took a quick break and we entered in all of these details to the Bigger Pockets calculator. Now Bigger Pockets has several calculators you can find them at biggerpockets.com/calc. There’s a rental property calculator, a rehab estimator calculator, and this one, the BRRRR calculator. So Rob, will you show us just how easy it was to put this information in and what you inputted?

Rob:
Yeah. So this is obviously very, very quick here because kind of simple information to be entering. It’s very nice and easy to flow through here. So report title, you can name this anything. We’ll call this BP home test. All right, I probably could’ve thought of a catchier title than that. That’s all right. Property address, 123 Main Street, property city, Salt Lake City, property state, Utah. Zip code, and then for annual taxes here we put $2400. You can add a photo and add a property description. I probably would recommend doing that if you’re going to be doing a lot of these at a time. And then for purchase price, like you talked about, 220. We got our ARV in here that we entered in, $350,000.
You put your closing costs at $500, estimated repair costs at $50,000, and then really, it’s just a few drop downs here to just make sure that you’re tightening up some of these details, so you put in things like your down payment, your loan interest on the purchase loan details. Are you going to be wrapping in your loan fees, paying your loan fees? And then is the loan interest only? Does it include PMI, amortization over 30 years? And then how many months until you refinance it? And how long is it going to take you to actually rehab? So all very kind of straightforward information here. I think if you’ve done this a few times, again, this’ll probably take you five minutes.
And then it’ll ask you all of your refinance loan details, so what that loan amount’s going to be, interest, rate, and then really a lot of the same questions. Are you going to be wrapping your points into the loan, paying them out of pocket, interest only? Are you going to be amortizing it? That’s pretty much it.

David:
Now let me jump in. If someone doesn’t know what PMI is, or how to calculate their taxes, or what amortization means, there’s these little question mark bubbles that are right next to all those inputs that you could hover over, and Bigger Pockets will tell you this is what this means, and here’s where you can find this information. So it’s designed for people who don’t know what they’re doing, who haven’t done this before, and who are trying to learn. It kind of walks you through by, in a way, forcing you to get the information that you need to analyze the deal to teach you how to do it.

Rob:
Yeah, actually, that’s nifty. So right here it says, “Total gross monthly rent.” Obviously, we know what that is, but if you’re unsure, that little gray box that you’re talking about says, “How much rent will the property receive every month?” Enter a master number here, expand the section to break down the numbers into specific units. If unsure on rental price, consider using Craigslist, Zillow, Rent O Meter, rentometer I’m not really sure, I’ve never said that out loud.

David:
Well, have you ever called it a speed O meter? Or do you call it a speedometer?

Rob:
Well, a speed O meter is a whole different machine. Or as your landlord. So okay, well. Speed O meter, speedometer. Okay. Listen, I say rentometer, and then one time I said that on YouTube and I got a couple comments from people that’s like, “Did Rob seriously just call it rentometer?” And I was like, “I thought that was correct.”

David:
I got your back, man. Hit them with the speed O meter, speedometer test. It’ll shut down the haters.

Rob:
Okay, final thing on this. The way it spells it is rent, capital O, capital M, meter, so I think it’s understandable.

David:
So they’re purposely causing confusion. That’s why we use Bigger Pockets for this, because Bigger Pockets actually has a rental estimator tool that you can use, where you can put in your property address and it will tell you this is what it would rent for. So I use this all the time, we do it for our clients that want to come by with the David Green team. And they say, “Hey, we like this house. What do you think it’ll rent for?” I say, “Go right here. Here’s the link. Put it in and Bigger Pockets will give you what the estimate is.” And then we verify that once we’re actually in escrow with a property management company, or Craigslist, or some of these other things Bigger Pockets mentioned.

Rob:
Well, that’s nice. That’s one other thing I wanted to say because I was asking you before this. How do you personally, how do you do the rehabs? Or how do we know what the rehab’s going to come out to? And then I found out that there’s a rehab calculator, which is very nifty for those of you that don’t really know how to estimate things like roof, drywall, flooring, anything like that.

David:
As well as a very good book that Jay Scott wrote called Estimating Rehab Costs about exactly what its title is.

Rob:
So in 2022, do you just take that book and then double all the prices?

David:
It’s happening so fast that, that’s what the problem is. Right? It’s like when you talk to your grandparents. I used to be able to buy a scoop of ice for a nickel. And I’m over here like, “Why do we even have nickels anymore?” Just round it up.

Rob:
Hey, man, don’t you know that nickels are the new penny? All right, so kind of finishing up this calculator. It is going to ask you a few more little things like variable landlord expenses. This’ll be things like vacancy, repairs, and maintenance, cap X, management fees. And then future assumptions, if you want to really get into the nitty gritty of annual income growth, annual expenses growth, sales expenses, all that kind of stuff. So get to the very end here, there’s a little blue button here that says calculate results. And if it’s your first time using it, you’re going to get a fancy schmancy badge that says, “Congrats. You’ve just ran your first deal,” which we all saw off screen when we weren’t recording. And here it is. The final output I guess of this calculators is a very nicely organized and aesthetic and very clean set of data, I suppose would be the easiest way to describe it. It just kind of runs you through this entire investment as a whole.

David:
So there are several ways that you can use this final result. The first and most important is it will let you know if you should buy the deal or not, so we’re going to get into that in a second. The second is you can share it with somebody else and they can very easily read it. And because so many people use Bigger Pockets’ calculators to analyze deals, they’re already familiar with the format. It’s sort of the Microsoft Excel of analyzing rental properties. Everybody knows what an Excel spreadsheet looks like if they work in that world. Third, and often sort of dismissed value of this is that you can you can take it to other people who you want to borrow money from and show them this is how the deal is going to work out, and this is how I got my numbers. And because it’s clean and professional and clear, it’s different than writing it down on a greasy napkin and handing it to someone and saying, “Just trust me.”

Rob:
Hey, man, we can’t discredit the greasy napkin too much. I mean, a lot of good deals have been penned over a greasy pizza napkin.

David:
That’s how I got my start. Luckily, it’s not how I got my finish. This is how I got my finish. Now this is a sheet that cleans everything up for you very nicely, as we can see looking at this. The property will cashflow about $615 a month. That’s $3200 of monthly income, minus $2585 of monthly expenses. Now let’s talk about the capital that gets left in the deal. On the left hand column here, you see all of your expenses sort of summarized. We spent $220,000 on this property, which you could’ve paid cash for, but in this case, we talked about getting a loan for. So we have $5000 in closing costs, and then we spent $50,000 to fix it up. So if we add $220,000 to buy, $50,000 to fix it up, plus $500 in closing costs, and then another $5000 in closing costs after that to do the refinance, we end up with about $280,000 invested into this deal. And if it’s worth 350, and we get a loan for 80% of that you see, we get $280,000 back, which ends up being the same money that we put in the deal.

Rob:
Yeah. And then usually, it’ll calculate this cash on cash return metric here for you. In this particular instance, notate that cash on cash is actually infinite because you got all your money out of the deal.

David:
Yes. And that’s a home run. Now not every BRRRR deal is going to be exactly that. What if you left $10,000 in this deal, or $20,000 in this deal. That’s still a lot better than if you bought it traditionally, spending $44,000 of a down payment, plus $50,000 of a rehab. Now you’ve spent $94,000 of your capital plus your closing costs that are sunk into that, that means you can’t go buy more real estate with that same money. So the BRRRR method in this case helps you get your capital back that you put into the deal, so you can go get another one of these suckers and start building your portfolio.

Rob:
Yeah. So when you’re doing this, I mean, do you kind of expect to leave a little money in the deal? Or do you go in planning for, hey, perfect scenario, I get all my money back? You as someone who’s sort of perfected this, what’s your mindset here?

David:
That is such a good question. And it’s relevant because I’ve seen so many people do a great job, add a ton of equity to a property, get a property in a great area, and it cash flows, and they left maybe 8% of their money in the deal, and they’re hanging their head with their tail between their legs saying, “Oh, I’m a failure. I’ve screwed up my BRRRR.” And I’m like, “Your competition put 25% to 30% down and then sunk all their closing costs and got none of that back. And you ended up leaving 8% of your money in that deal, and you think you’re a failure.” Here’s the amazing thing. When you’re leaving 8% and it’s cash flowing, your ROI skyrockets. Those people are often getting a 65% ROI on their money because not much of it got left in that deal. So when I’m doing this, no, I do not expect to get all of the money back. I shoot for that sometimes.
There are other deals that I go into knowing I’m not going to get all my money back, but I like this deal so much, I would’ve bought it anyway. I’m just going to buy a better using the BRRRR method. So I’m glad you brought that up. It does not have to be perfect. As long as you left in less than you would have if you put the full down payment and the rehab, then you won. And in this case, that’s exactly how that looks. Now we’re shooting for the home run because you want to take your best shot. You’re hoping that it works out. But if you don’t get a home run, you get a triple or a double, man, that’s still a big win.

Rob:
Yeah. Especially if you’re … I mean, one thing I asked a buddy, who kind of was in a similar situation the other day. And he was kind of bummed out about not hitting his goals on this type of stuff. And I was like, “Who’s the best baseball player of all time?” And he was like, “I don’t know. I guess Ken Griffey Jr. I guess.” And I was like, “Okay. You know that when he stepped up to the plate, he hit a home run not that often.” I was like, “His career, his VIP, MVP status came from singles, doubles and triples.” So yeah, I totally agree.

David:
That’s a very, very good point.

Rob:
So David, when you’re looking to actually get into BRRRRs and get started in this journey, what are some financing options that one can execute to actually get into this niche of real estate?

David:
So that’s a really good question because part of using fixer uppers to build wealth is that you can’t or maybe shouldn’t all the time use traditional loans to buy. A lot of the time when I buy a property, it’s in such bad shape that it won’t qualify for conventional lending, so we have to find other options. And to help with this, I know no one better than my partner in the one brokerage, our broker, Christian Bachelder. So Christian and I have built the one brokerage, and it might be the fastest growing loan company in the country, and a lot of that is because he’s a bit of a computer that wears tennis shoes. And so I usually say, “Hey, Christian. This is what we need. We need a product that works this way.” And he goes and does whatever magic that Merlin does when King Arthur needs some help. And he comes back and says, “I got something for you.” So Christian, welcome to the show. If you don’t mind, can you share some of the more common options that people use on the front end when they’re buying a property they’re going to BRRRR? And then we’ll ask you about on the backend on the refinance.

Christian Bachelder:
Yeah, absolutely. First and foremost, thanks, guys, Rob and David, for having me. David and I have been through quite the journey on a couple of his deals personally as well. So yeah, I mean, there’s a number of options. Obviously, David mentioned conventional isn’t always the best route, and mainly it’s going to be the best rate and best terms, but typically you’re going to run into, when pursuing BRRRRs, you’re going to run into financing issues, maybe due to the quality of the house. Typically, a BRRRR is going to need some remodeling, some updating that conventional lenders may kind of take a second look at and decide it’s not a risk they’re willing to take on.
That’s where we can get into a lot of what I call kind of the shorter term financing, the hard money, the private money, mainly a lender who’s lending maybe on a three, six, at most maybe 12 month timeline. It’s going to be high rates. It’s going to be high closing costs. But the idea is that you’re not going to hold it for very long. Typically with experience, you can get even some of your renovation costs financed as well, which is a good alternative if you have a little bit lack of capital to start out. The problem is when you’re new or inexperienced, it can sometimes be more difficult to establish that relationship with a lender. Hard money and private money is very significantly relationship based. Once a lender lends to you once or twice, they like you, they want to lend to you again. And obviously, that’s where developing that relationship comes in very, very, very, handy, whether that’s with a broker or a lender.

David:
Yeah, that’s a really good point. So we’ll talk about that a little bit more just when a lot of people do the work of the brokers, they go shop and try to say, “What’s your rate? What’s your rate? What’s your rate? What’s your rate? What’s your rate?” And they try to find the lowest rate. And they typically end up with that Wal Mart strategy, finding the broker who, their value is in the fact that they are the cheapest. Right? It’s kind of like the flea market approach. It’s not Nike, it’s Bikey, but it looks like Nike, and it will make you think that you’ve got that. Versus someone like you, who knows my file intimately, probably more than you want to. It’s probably a broker’s nightmare.
But because you understand the strengths and weaknesses the different properties I have, the different ways I make income, you are able to go find a specific lender that will do something unusual, but in my best interest. And we’re going to talk about that later. So when it comes to buying the property, would you say that for the average person, if they don’t have the cash, probably taking a HELOC on either their primary, or an investment property, or a hard money loan, are going to be the two most efficient options?

Christian Bachelder:
Absolutely. If you have a portfolio to leverage, that’s always a benefit to utilize, whether that is via HELOC or a cash out refinance. Obviously, in markets that were … This is being recorded in April of 2022, obviously being in a market like we are in right now, with rising interest rates and the Fed doing what they’re doing to hedge inflation, I would advise a little more toward the cash out than a HELOC because HELOCs are adjustable in the significant amount of cases.

David:
Rates could go up.

Christian Bachelder:
Yeah. And that HELOC, you may have a 2000 monthly payment now that may go up to a 3000 monthly payment by the end of the year. And when you’re running your numbers, it’s sometimes hard to predict for that, whereas a cash out is fixed. If you can get a HELOC that is fixed, obviously that’s a different story. Typically, my experience, most are variable though. But absolutely, with that portfolio, people who don’t have a portfolio don’t have that option, but if you have it to leverage, absolutely a good call to … David and I talk a lot about that return on equity instead of the return on investment.
And if you got hundreds of thousands sitting in a portfolio, great job. You did a good job investing and taking advantage of appreciation. But at the end of the day, would you buy that same portfolio with hundreds of thousands of dollars down? Right? You’re still getting the same return on your equity as opposed to return on investment. And that’s where cashing out can help that velocity of money continue.

David:
And with the BRRRR when we talk about using HELOC, it’s because presumably you’re going to pay that HELOC back after you refinance, or at least the majority of it. So it takes some of the sting out. If you have to borrow 100 grand, and then you pay back 80 or 90 grand, you’re only left making interest payments that might be high on $10,000 or $20,000, which doesn’t hurt you nearly as much as if it was the full 100. But I do agree that an environment like this, the cash out refi is usually better because you lock in that lower rate. So there’s also options where you could borrow money from a friend, or you could borrow money from a partner and pay them interest on the money that is being borrowed. But that idea is once you’ve got a portfolio of properties yourself, you end up with more options, so it helps with the buying.
Now on the refinance at the end, that’s a little different. Right, Christian? At that point, you’re trying to get the better rate.

Christian Bachelder:
Absolutely. And that’s where you’re going to be leaning towards more of a 30 year fixed option, whereas the hard money or acquisition purchase is usually going to be a three or six month term. And obviously, that’s where our rental programs that you’ve discussed a lot on the podcast are a dead service product, where your personal income doesn’t count once you have maybe more than 10 properties, or don’t qualify conventionally. It could be a conventional loan. If you qualify, it could be your exit strategy loan.
Obviously, once that property is stabilized, you have a little more options on the forecast of what you can take advantage of. But you’re definitely going to be leaning more towards a long-term fixed rate stabilized rental loan.

Rob:
Can we just break down sort of what a hard money loan scenario would look like? What does a typical deal look like? Just because we’re talking concepts here, but I want people at home to sort of understand how this loan product could work. Do you think you could walk us through that, Christian?

Christian Bachelder:
Yeah, absolutely. And I know we’re going through David’s example shortly, but let’s just say a theoretical one. Say you’re buying a $400,000 house. You anticipate the exit value’s going to be worth 500, maybe you’re putting 30, 40 grand of repairs in. You’re going to hope to get 100 grand of increased value, maybe remodeling a kitchen, some bathrooms, or something. Typically, the idea is a hard money lender would go in as an equity position with you on a, let’s call it, you have to put 25% down. Right? So they’re going to be 75% loan to value. These rates, I mean, I’m sorry, these loan products are the most expensive in the industry, the highest rates, because like I said, they’re meant to be short-term. Right?
So this may cost two to three points to close in loan fees. That’s not including appraisals and everything else that comes along with it. And it’s going to be probably 8% to 12% interest maybe. Right? Typically, they are interest only to limit that monthly payment. And in some situations, especially if you show that you have experience with flipping or renovating, they would also be able to finance your renovation costs as well. So if you had, say you’re able to put 25% down on that 400,000 number, plus getting 100% …

Christian Bachelder:
… percent down on that 400,000 number plus getting a 100% of say your 40,000 remodeling budget. That’s actually a decent loan value. You’re getting more closer to that maybe 20, maybe 15% down ratio when you add in the renovation costs as well. With that though, there needs to be a solid understood, what we call ARV, after a repair value. Typically, the hard money lender would have their own in-house appraisal who is good at analyzing after repair values. And he’s the guy who would go in that say, “Hey, yeah. This property would be worth 500 or 550,000.” And they would only be lending in the event they know you can get to that exit strategy.

Rob:
What’s a common ratio on the ARV? Is it typically like they’ll loan, 70%, 65%, 80%? What’s that?

Christian Bachelder:
Yeah. A really good question. That’s where you get in if you have a really big renovation budget. What if you have a 100 to $300,000 renovation budget. Yes, and that’s going to vary by lender. Typically, they’re going to go up. They’ll go up above 80. In some cases they’ll go, maybe with the renovation they’d like to go to 85 maybe. But that is going to be different based on who your investor is. Some are more conservative, some are more liberal. It just depends on the strength of the property. Are there other comparables? How many comparables do we have? What’s your experience? For somebody like yourself or David, obviously they’d be much more flexible.
Somebody looking to do this for the first time. Absolutely. They’re going to cap you at maybe 75, 80% of that after repair value which is why you have to run your numbers really assertively. You got to know what you’re going to be going in for, because you don’t want to get $40,000 into a renovation budget and realize you still have 30,000 to go and you can’t get to that ARV with what the lender’s given you. And then you got to go start asking friends and family. Analysis is really important upfront and that comes from experience which is why lenders are more willing to lend more, to more experienced buyers.

Rob:
Well, awesome. Well, yeah. We can get into David’s nitty-gritty here in a little bit, but I appreciate you walking us through this.

Christian Bachelder:
Absolutely. Yeah. Happy to help.

David:
All right. Now, since I’ve taken over as the host of the BiggerPockets podcast, as opposed to the co-host, there’s been some changes around here. And one of the changes that we’ve really tried to make is we’re going deeper into individual real estate deals and the show in general. So rather than just interviewing guests and hearing their story, we’re trying to really pull back the curtain and show you what goes on behind the scenes, give you a lot more detail and a lot more practical help so you can understand this is what we’re actually doing when we’re investing.
And as you just saw, understanding how the numbers work on a deal is one of the fundamental things you have to understand. If you want to have confidence going into a deal, you have to know what you’re going to get on the other side of it when you come out, which means you have to be able to understand your numbers. Now I’m sharing my rehab numbers. I’m sharing the purchase price. We have our lender on here to talk about how we’re doing the financing. But none of that really helps if you don’t know what to enter into the calculator or the spreadsheet to figure out what you’re going to get when it’s done.
If you’re interested in taking your investing to a new level, if you want to make this year, the year where you actually make progress instead of just hanging out around the scene but not getting your foot into the water, I would encourage you to consider turning Pro at BiggerPockets. Now these calculators that we use, you get unlimited access to when you turn Pro, which means you can use them all the time. And there’s many uses for them. We’ve talked about how you can share.
Well, first off, there’s just the fact that you need to know what the numbers are going to be when you’re done on the deal. Is it going to get you money or is it going to lose you money? If the stuff’s going to lose you money you don’t want to be buying and the calculators can help save you if you find the wrong deal. But once you’ve run the numbers you can actually use these to share with other people that might want to let you borrow money, might want to invest with you, even might want to look over the deal you’re doing and see if they think that it would be worth it. So that’s one of the reasons that I went Pro, way back in my wee years where I was using calculators for that very same purpose.
But because you’re listening to this podcast, there’s a level of loyalty that you’re showing. You’re going to get more than what a normal BiggerPockets Pro member would get. If you decide that you want to upgrade after listening to today’s show, I’m going to give you my BRRRR book for free. In addition to the book, you’re also going to get the ultimate package. Now that’s some bonus content I made when the book came out, that’s BRRRR related. And I think one of the most important parts is an actual presentation that I’m giving of how you can explain how BRRR works to someone else to be able to raise money from them to help buy your deal.
You’re also going to get a workshop that Brandon and I did on how to buy deals with no or low money down because technically BRRRR is one of those strategies. I think this is some of the best work that we ever, ever did. This is a phenomenal workshop. You’ll get the, How to Find Great Deals class where Brandon is interviewing different investors that have off-market driving for dollars, different ways that they’re finding deals that would work for a BRRRR. And then you’ll get access to the online boot camps that BiggerPockets puts on which are only available to Pro members.
Now, the most important part is you’re putting a little bit of skin in the game to get yourself committed to this. You’re actually getting into the pool, not just sitting on the chairs on the outside looking in. If you’re someone who knows this is something you want to do but you’re not sure where to get started, I think this is a fantastic first step. Now, if you want to sign up and you want to save some money you just need to go to biggerpockets.com/proupgrade. There will be a section where you can put in a discount code. That discount code is repod21.
Now, in addition to all the bonuses I mentioned you’re also going to get 20% off the Pro annual membership, meaning you’re only having to pay $312 for the entire year. This is probably the biggest ROI that you’re ever going to get on anything investing in real estate. This is less than a home inspection would cost. Many people put houses under contract and then say, “Ah, I’m glad I spent that money on the home inspection because it revealed some things that I didn’t want when I bought the house.” Well, this does the same thing and that it reveals to you the houses that are not going to make sense financially to buy. So if you go to biggerpockets.com/pro upgrade and put in the discount code repod21, you can save 20% off as well as get all the bonuses.

Rob:
Yeah. Just run the math on this by the way. And it is less than a dollar a day to be a Pro member. Some of us, we do like to indulge in the finer things in life like Starbucks every so often, just don’t buy your Starbucks. Invest in your real estate. I really think for the most part on my end, sometimes it takes a little bit of a financial commitment to actually get started. And that’s what BP Pro was for me. I just did that and I was like, “Okay, I’m paying for this. I’m going to start utilizing these calculators. I’m going to start using all these different tools,” and start to realize once you have access to all the resources here, the master classes, the calculators, it really lights a fire under your butt. So I think it is very much well worth the cost, especially if you were going to buy it anyways, you probably were going to. You get 20% off. It’s a pretty decent discount I’d say.

David:
Yeah. I was just thinking, when I sign up for jujitsu, they have you buy a gi on your first day. You’re going to spend a couple hundred of bucks on this gi. But once you’ve got it, you’re not going to not use it at that point. You’re like, “Well, I better be going to class because I bought the stuff.” It’s an amazing investment to actually get your butt in there and start training. So this is just how human nature works. You want to have some form of skin in the game but you don’t want it to be tens and tens of thousands of dollars if you’re not at a very, very high level. So if you’re a beginner, this has everything you need. It’s the full arsenal of weapons that you need to get in there and start building wealth through real estate.
When we talk about this deal, it’s actually very simple. It’s the exact same principles on the deal that I’m doing at maybe higher price points, then it would be if you were working the same thing out on a 50 or $60,000 house, that the math is the same, but you need a way to determine what the math is going to be. So I’ll say one last time, if you want to save 20% off on a Pro membership and you want to get all those freebies that I mentioned, the BRRRR book, the bonus deal, the workshop with Brandon and I, the How to Find Great Deals class and access to online boot camps that BiggerPockets puts on, go to biggerpockets.com/proupgrade and use the discount code repod21.

Rob:
And actually I do want to point out one thing that we always forget to mention. There’s a 100% money back guarantee. So if you upgrade to BiggerPockets Pro and you don’t like it, you can get a full refund within 30 days. So you can literally go and you can buy it right now. You can use the heck out of the calculator to analyze a bunch of deals, you can get into your first deal. You can watch all the master classes and if you don’t like it, you can literally email, no questions asked, [email protected] and get a full refund. So legitimately you have nothing to lose.

David:
There you go. So if you’re ready to get that fire lit under your butt like Rob said, this is the best place to go get it done. And many of us got our start in exactly taking that first step.

Rob:
And now for the moment we’ve all been waiting for. We want to see the BRRRR machine himself, David Greene, walk us through a deal. Everything that he is going through, the mechanics, the deal, the remodels, straight from the man himself. So David let’s get into this deal, man.
I think it’s safe to say that we’ve covered BRRRR in excruciating detail. So now let’s talk about out the actual deal that you’ve been alluding to. Getting everyone all excited about this awesome deal that you’re working on right now in California. So can you walk us through some of the financial mechanics of the funding on this deal before we take a look at it?

David:
Yeah. So I originally was planning on using pretty a straightforward loan when I was going to buy this property. But like we said before, because I have a relationship with a mortgage broker and not a bank, or a direct lender, or somewhere where I run around looking for the cheapest rate, Christian here was actually able to find me something much better that we’re going to be using for the purchase. And then after that I’ll refinance into a different product. So Christian, could you share where we started and where we ended up with your help?

Christian Bachelder:
Yeah, absolutely. As David alluded to you, this is exactly the situation where your broker understanding your finances can lead to a complete game shifting change in your financing, which is what happened here. Typically, we would’ve financed this with our debt service loan as we talked about earlier that doesn’t qualify conventionally. However, David, over offered on this deal. As is required in this market, it seems David offered more than listing price. However, our appraisal came back extremely high. Since he got an appraisal that was significantly higher, 20% down of the appraised value actually lined up perfectly with 10% down of the purchase price. So we were able to leverage the property further because the appraised value came back so much higher.
And this is a situation where the appraisal came back couple hundreds of thousands of dollars higher. And because of the purchase price obviously some of you can expect what it would be in LA, I’m sorry, in California, we were able to do that. I think we landed at just about 11% down on David’s deal here. And it looks like we may possibly get some financing for the renovation cost as well. So in a position where David would’ve been required to put 25 or even 30% down, we wiped all that around and saved him what? Almost half of his down payment. With this purchase price, that was a very significant amount of money.

David:
As well as the rehab here we’ll see like if I want to borrow for that or if I want to pay out of pocket, but it’s nice to be able to have that option depending on what other deals come around. This was something that you brought to me at the 11th hour. You’re like, “Hey, I found a way that we could do this. Would you rather do 11% down instead of 20 or 25?” And I was like, “Tell me more.” That’s not something I would’ve known to go look at. I’ve become a firm believer that many investors focus on parts of the deal that other people should be specializing in. I get people messaging me asking questions that their real estate agent should 100% have asked them.
Many times they live near me and they use a different agent. Then they come ask me and they’re looking for answers that their agent should have been giving them so they shouldn’t have come to me. That’s always weird. Why do you guys do that? Why don’t you just come to me first, but that’s neither here nor there. Or they’ll ask me a question the title officer could have answered or their broker should have known. And what happens is they end up doing everyone else’s job instead of focusing on the part the investor should do, which is finding the deal, coming up with a plan and then executing on that plan.
Even property managers are often let off the hook because the buyer is trying to figure out how to do their job. I’m actually curious, I want to turn that around and ask each of you, Rob and then Christian. Where do you see this happening in our industry? Do you also see that you find yourself doing other people’s jobs or see other investors asking questions that they should be asking of the person who they’re paying?

Rob:
This is a tough one because yes, I find myself doing almost everyone’s job. It’s not necessarily their fault. It’s just more like, I just move very fast and I’m not patient enough to wait for answers. So I typically just go and find my own answers. Especially in this market, we don’t have time to wait. You don’t have time to really hear back from every party before you can move forward. And so a lot of the times I just empower myself to figure things out on myself. But yeah, I don’t know if I’m alone there or not. That tends to be my mindset. Just not a lot of people move at the speed of me. So I’m just going to keep rocking and rolling and I’ll ask questions as needed.

Christian Bachelder:
Yeah. I think Rob hit that right on the head. I work the same way, that speed is everything especially in our industry, in this market that we’re in. I regularly find myself and our team doing the job of title officers, of agents not on our team. Yeah, that happens more than I would like to admit but absolutely, especially in this market.

David:
I still think it’s better for the investor to go to the loan officer and say, “Hey, this needs to get done,” and let the loan officer go do the work instead of the actual buyer themselves. That’s more of what I’m getting at is when they’re like, “Hey, what do you do when this happens?” I’m like, “That is something I would have to go ask a title officer. So why don’t you ask your title officer?” They end up thinking that they have to know it all.
All right. So now Christian, on this particular deal, once the rehab has been done and you guys are going to see pictures of what this property looks like. The plan is to upgrade it, so fix the bathrooms, fix the showers. There’s a basement that we’re going to be including and then refinance it. Then after the refinance, actually look at splitting the property up into different units. So can you tell a little bit about what product we’re going to try to use when we want to refinance out?

Christian Bachelder:
Yeah. Once we refinance out, you’re going to have leases in place. Now, people who are familiar with lending guidelines will know that you probably will need a master lease. So everybody expecting in your exit strategy maybe to be renting out by the room or renting out to individual tenants. Typically, there’s one master lease that covers the entire house. And then each of the tenants will individually sub-lease off of that master lease. But yeah, once that lease is in place, we’ll refinance based on the debt serviceability of that master lease. Also, knowing that your ARV is going to be significantly higher because of the renovations you’re going to be doing and exactly just like we would for other rental property purchases, we’re going to refinance you into our debt service loan on a 30 year term fixed rate. That’s going to be much more competitive than your hard money.

David:
Speaking of people that need to do their job, I’ve got a contractor and he’s going to do a job. And as you guys are going to see, I’m going to show what a bid looks like that I’m getting from a contractor. This particular deal is very complicated. There’s going to be four or five different units we’re making out of this property. We have them listed as units, one through five, and then work that’s going to be done in every unit. A typical rehab is not going to be this complicated, so you can get more level of detail on the scope of work that we’re going to show when it’s just remodeling a kitchen, remodeling a bathroom.
This would be 10 documents if I tried to show that much detail. So it’s a little less detail than what I usually like to see, but I’ve worked with this contractor before and I’m very comfortable with the work that they do. We’re going to show you how I think you should be communicating with your contractor, how you should be getting a scope of work from them to work into your rehab bid. And after that, we’re going to get into some actual pictures and brass tacks of this deal itself.

Rob:
Okay. I have had the privilege or the, I don’t know if privilege is what I would call it to see photos of the before of this property. I’m going to grill David here a little bit on the property. But before we jump into roasting this house too badly, can you walk us through the contractor bid and how you got to this final budget for this house?

David:
This is not a typical rehab. Most rehabs are going to be classified by the portion of the home and what the contractor’s going to be doing. And I always like to get my bids as itemized as possible so I can know exactly what I’m paying for. In this particular case, what we have is one property being turned into four to five, maybe six units, depending on how I use the about 5,000 square footage of space that the property has. In this case, he’s taken units one, two, three, and he’s broken it down for me and said, “Hey, for unit one, it’s going to be this much money. And this is what I’m going to do. Same for unit two, same for unit three.”
We won’t go through the whole bid here. But you can see, this is the way. If you’re watching this on YouTube, you can see what we’re showing on the screen here. This is the way that we break down what work is going to be done so I know what I’m paying for and the contractor knows what they need to do.

Rob:
So yeah. This is not a light renovation. This is really quite extensive based on the price tag here.

David:
Yeah. We’re changing quite a bit of the floor plan of the house, and then we’re doing some upgrades as well. And then the basement area and the garage is all being turned into a completely new additional unit. So the total rehab’s going to be a little over $186,000 on this deal. But as you can see it’s being turned into about four to five different units.

Rob:
Yeah. And then one thing I wanted to ask, because it seemed like there’s a few schools of thoughts. I don’t want to say it’s controversial or anything like that. But I do see on this bid here, there’s just the price per trade. It doesn’t break it out by materials or by labor. Is that something you care about? Do you care if it’s that itemized? Because you said you like it to be pretty itemized in that capacity.

David:
I do when it’s the first time I’m working with the contractor, I don’t know the person. This is someone I’ve worked with many, many times before. And they do a lot of the work for the people that work with my team. So I’m okay. We basically had to get this thing put together earlier than it normally would’ve been to do for the show. So that’s why you’re seeing it like this. There would be nothing wrong if you got a bid like this from a contractor and it showed plumbing $2,000 to have them put in there what they’re going to do for the plumbing. You actually want to have an idea of where they’re going to be running pipes, what you can expect.

Rob:
Okay. So it’s fair to ask for the scope of each trade, but you can leave it at that.

David:
But you also have to realize when they put the trade here, they’re talking about for that particular unit. For unit three, this is what the plumbing would be. For unit four, this is what the plumbing would be. Now, I also walked the house with the contractor several times and we had conversations that are recorded that says, “Hey, here’s what I want you to do.” And he said, “Yep, this is what I can do.” When he’s putting the information here into this spreadsheet for me, it’s done with the understanding that we’ve already talked about what’s going to be happening for unit three plumbing.

Rob:
That’s a little nugget there. Do you always record your conversations with your contractors?

David:
I do now.

Rob:
So, okay. Got it.

David:
Now I do it under the guise of, “Hey, this way we won’t forget everything we talked about.” It does come in very handy if they ever come back and say, “I never said I was going to do that.” Or they do it the way different than what they told you and then they say, “We never had that conversation.” When it’s recorded you don’t have to worry about it.

Rob:
Have they ever said to you, “Are you a cop? You got to tell me if you’re a cop.”

David:
That’s funny you ask that. At the end of this segment here, I’m going to share a story with you about cops that occurred on this property this weekend when I was there taking these pictures and making these videos.

Rob:
Wow, that was… Man, that’s very organic. I didn’t even know this. That was just a joke that led to the greatest little plug there for ending the story. So, okay. Let’s hop in, man. Let’s take a look at it. Walk us through this property, the vision for it.

David:
Okay. So one of the things that I loved about this property in addition to the location is that it’s very private. So you have to drive all the way up to the end of a road that ends in a cul-de-sac, but there’s no other houses on the cul-de-sac. It’s a private cul-de-sac with just nature surrounding it, just trees and bushes and flowers. And then you go up a private driveway, which is what we’re looking at here. I’m standing at the top of the driveway, shooting down. You have to drive all the way up around this little twisty private drive to get to the house so that nobody sees what’s actually happening in the property. And you have a ton of privacy.
Now you can see the picture on the right here, that’s the property. And you see that, it looks like the garage is open. There is a garage space that we’re looking into. And then if you’re standing closer to the garage looking into it you’ll see that there’s another door that leads you into the basement. That’s the downstairs unit that I mentioned is going to be remodeled and turned into livable square footage.

Rob:
I’m only really seeing a preview of this, but the outside actually, it’s very serene. This is just very enchanting. The trees are all curvy. I don’t know what kind of trees, willow trees. I like it though. It’s got some vibes.

David:
Yeah. This is a really nice area in the San Francisco East Bay. This is where, if you’re a professional athlete that plays in Oakland or San Francisco, you’d buy into these type of cities and all the houses actually have names. So this one is referred to as the Castle in the Sky, because it sits on the top of a hill and it’s got a lot of windows to give you a view out over the East Bay.

Rob:
Okay. So now we’ve got the serene outside. Let’s take a look at the inside here.

David:
All right. So this would be the picture that I mentioned. If you’re still standing in the covered garage looking forward, the one on the left here, that open door is going to be the basement that we’re going to be finishing and then converting this garage that I’m standing into, into square footage as well. The picture on the right is me standing in the garage, shooting down at the driveway that would be leading up to the unit.

Rob:
All right. And then is this a basement or a garage?

David:
Yep. This is the basement. So the picture on the left there is going to be where we’re going to be putting the dining room. The picture on the right is part of where the kitchen is going to be. This is all like, man, this is what sold me. When I saw this part of the house I’m like, “Oh, this is a really big space that’s not being used. I’m going to get an entire extra unit out of this property that’s pretty significantly big.” I got excited again, when we’re looking at this unused space, this is what gets investors like me really going.

Rob:
This is something that always possibly would stop me from a deal like this. In this photo there’s like a really big boiler or furnace or whatever this is, maybe AC unit. I see some ducting. How do you build around that to finish out the basement?

David:
We’re actually going to cover it. We’re going to use the type of material, I haven’t figured out exactly what we’re going to use. I’ve got the contractor working on it. Now, it’s not going to be full drywall, but something that aesthetically will wrap around that thing so that you don’t see it. And then the spin to the right of it will be turned into storage area. So we’ll put cabinets there. This is where people will keep their pots, their pans, their cooking utensils, stuff like that. And you can’t see in this picture but from where I’m standing if you look to the right, there’s going to be more cabinet space added there as well.

Rob:
Got it. You’re not necessarily moving these big items. You’re just closeting them in.

David:
There you go. So you can see in this picture here, you can’t see the whole thing but this is a bedroom. And then I’m standing outside of the stairs that you walk up from the basement to get to this bedroom. Next to this bedroom is another bedroom. Behind that is a bathroom.
Now what we’re going to do is we’re going to create an entrance of this house that doesn’t exist which I’ll show you in a different picture. I’m going to knock down the wall that I’m pointing at. So this window you can’t see it, but there’s a stairway that is on the other end of it that goes up the entire backside of the house. Now we’re going to…

David:
… other end of it, that goes up the entire backside of the house. Now we’re going to take out this window and put in a door. Now, this is the view that you’re going to be looking at when that door goes in. So this is a room that you’ll be able to see in other pictures better. And when you walk in this door, there’s going to be a split where if you turn to the right, you’re going to go into the room you’re looking at. And if you go to the left, you’re going to be walking up a set of stairs that would lead you to where I was in the first picture, where I’m pointing at the wall. That wall for that bedroom is going to be taken down. And that entire bedroom and the space I’m standing in the previous pictures is going to be made into a loft.
That’s where we’re going to put in the kitchenette and have like your TV, your living area, and then behind that will be another bedroom with a bathroom. So that will be its own unit. You’ll walk up the stairs and you’ll have a loft and a bedroom and a bathroom. So you saw unit one that will be the downstairs basement remodel. Unit two is the one we just talked about. In this picture I’m standing in the same place where the door is going to be made, but I’m taking a view of what will be unit three. So you see this fireplace, this is an entire big open space with a balcony leading to the outside, where I’m going to put in another kitchenette and this will be a living space. And you can kind of see that hallway on the left side of this picture.
There’s another bedroom with a bathroom that’s right down that hall. So unit three here will be this open space with a one bedroom and a one bathroom. So this right here is me standing near the fireplace we were just looking at pointing in the other direction at where the kitchenette is going to be. On the left side of the wall that I’m pointing at, that’s where the kitchen to the existing house is. So it’ll be very easy for us to tap into the electrical and the plumbing that’s right there. And just put a kitchen on this side for unit three. This is a better angle of unit two that I talked about, where we’re going to be knocking down the wall to make the loft. So this wall that we’re looking at in this picture is what walls off what is now a bedroom that’s what’s going to be taken out so that this is one big open area.
The staircase that you’re seeing here is what leads down to where unit one is, sort of the basement. Right now it’s the garage that’s going to be converted. So that’s going to turn this into unit one. Now that wall basically does nothing, but just have a closet and some framing to make off a bedroom. So this house doesn’t need another bedroom. It’s already got like seven bedrooms. So by taking this one out, we’re going to go create a completely new unit that we can rent out.
So unit four is going to have the house’s existing kitchen. It’s going to be probably the biggest of all the units. So it’s kind of hard to see from these pictures, but that stairway I told you about earlier, where we’re going to be putting a door in that’s right now a window. It goes to the left of this picture right here.
So you’d be walking in from just behind this oven, to the left of it, through a door that already exists, that go on the stairs from the back of the house. So people will be walking into this kitchen. The kitchen’s going to be remodeled before we refinance the property. So it’s got this kind of nice Spanish tile, but it just isn’t very trendy. So we’re going to be replacing the countertops with either granite or quartz. We’re going to be putting in a more modern back splash. Some of the appliances will stay, but the older ones will go and then we’re going to be painting this room as well. So it’s kind of got like, how would you describe the look of this kitchen, Rob? You’re better with this stuff.

Rob:
I would say it’s like very… It’s kind of antique Spanish. But this kind of stuff I always try to salvage on from a design perspective in a flip or in a renovation. But it’s not the kind that you want to salvage. I think you’re making the right call.

David:
Yeah. Especially because we’re going to be rehabbing this house and just giving the kitchen a more modern look is going to add value to the property. Now, some of the cabinets that we’re going to be taking out the area where the refrigerator is, if we see that part. I’ll probably move that to the downstairs unit one. To the kitchen we’re going to having to be building in the basement. Some of this stuff will go down there so I don’t have to buy all new things, but the kitchen here will be upgraded. And then unit four will have this big kitchen space. This is going to be the family room living area for unit four. So the kitchen will be on the other side of the fireplace. You can kind of see the door behind it. So you’d be walking out from the kitchen and into this living area.
I don’t know if we got the best pictures, but the view is spectacular from right here. A ton of light, really high ceilings. So where I’m standing is going to be basically the living area. And we’re going to be putting a bathroom in right where my feet are, which you can’t see because the front door is to the right of me. But we’re going to be walling that off and putting in a bathroom right here. So this area where I’m standing right now is looking in the same direction that the last picture was coming from. So those little stairs that are in the distance, that’s where I was standing shooting towards me now. And the kitchen is currently at my back.
This area where you can see that kind of pink, floral tile is a dining room. We’re going to be walling off and framing off this dining room to create a bedroom where I’m standing. To the right of this picture, just outside the frame is another existing bedroom with a bathroom. So this unit’s going to end up having two bedrooms. And it has one bathroom inside of a bedroom, but that bathroom is a half bath. It doesn’t have a shower. So that area that you can see in the foreground where the stairs are, or the background, I guess that’s going to be where we put in another bathroom with a shower. So that whoever’s living in this unit doesn’t have to walk into somebody’s bedroom to use the bathroom and they can actually have a full shower. That’ll turn out unit four.

Rob:
For what it’s worth. I like the tile right here. I guess if it’s going to be a bedroom, I probably wouldn’t necessarily keep it. But I think it’s really nice. That to me is something you’d want to save.

David:
I’m just going to put carpet down right over the top of it. I’m not going to demo that out.

Rob:
Okay. So the next owner can decide if they want to… They’re going to lift up the carpet and they’re going to be like, “Oh my gosh.”

David:
That’s it. K. Leaving them a little Easter egg.

Rob:
That’s right.

David:
So this is me standing on the stairway above unit four, looking out the window at the view I described. Again, it’s not the best shot of it. When I do some of my future content for this project, I’ll make sure I get a better view, but a lot of light comes in right here. And it’s a really cool view looking out over the drive that comes up to the house. Now, part of the reason I said it might be four units, it might be five, it might be six is because we’re not exactly sure how this is going to turn out.
But this photo shows where I want to get a loft put in. We have these really high ceilings and I’d like to add some square footage by putting in a loft at this section here. I have a structural engineer going over the details to see if it can be done, how safe it’s going to be, how much it’s going to cost. So if we can do that loft, that will be an additional unit. If not, then this is going to stay looking the way it is here.

Rob:
Yeah. So after hearing you talk about all of this, it starts to make a lot more sense why this bid was coming in a little bit higher than I was thinking it was going to be. Because yeah, you’re doing a lot. This is a full on renovation I’d say. And honestly, for the bid you got, it seems you’re getting a pretty good deal.

David:
Yeah, no, there’s a little bit more. I don’t think I got all the photos of it, but the last unit is going to be a two bedroom, two bathroom with a living area as well. And so there’s a lot of demo that’s being done in that one. The house currently has a sauna, we’re going to be converting that sauna into a kitchen for that upstairs unit. We’re also going to be knocking down a bunch of walls and then reframing to turn like this huge, expansive master bathroom into a bedroom that can be used by somebody else. And then the bathroom portion will be turned into like a communal bathroom. So part of the reason that the bid’s high is because we’re adding square footage. Part of it is because we’re actually adding a lot of living area to the property and knocking down walls while rebuilding stuff.
So it’s not your typical paint, carpet. Most of the time you’re putting lipstick on something that already exists. We’re actually changing the personality of this property to make it work in a different way so that it will end up cash flowing in one of these really nice areas. And those cash flow should go up every year, as well as the appreciation of the property. And I’m going to get grade A tenants. These are going to be like the best people that you could ever hope for or are going to be renting this property, which is why I’m willing to take on a bigger project. Because I’ll have less headache over the long term.

Rob:
So I really liked this property. I’m not sure if you mentioned it, but can you run us through like the purchase price and then maybe the ARE?

David:
So the purchase price is $2.25 million and I’ve got about $75,000 coming back to cover my closing cost because I have to buy down the rate and the closing costs on properties like this are pretty high. The rehab estimate as we’ve gone over is around $186,000. That could go up once we actually start working on the property and I may want to do some more stuff. The property is appraising at $2.65, and that’s one of the ways this is a good deal because it’s actually appraising for more than what I paid for it right off the bat. Now the appraiser told my agent, Johnny, who helped me get this house. We had him on the Bigger Pockets Podcast on episode 583. He said, “Hey, if this thing was upgraded some of the houses around it, you’re looking at 3.2.” And that’s before the basement has been finished.
So what we’re hoping for is once we do the initial rehab, before we split it into different units, we’re actually going to get it refinanced then. And we’re hoping that 3.2 is the bottom level of where it’s going to be coming in. So if it does appraise at 3.2 with the numbers that I have, I should be pulling out a little bit more than the 2.25 plus $186,000 that I’m going to have into it in the beginning, meaning that I’m going to pull out more money than I put in, and I’m going to have this cash flowing property. And it be even more than that once I add the square footage in the bottom and as the market continues to appreciate.

Rob:
So the quick math here, is the equity on this when you’re done with it going to be the 700, 800 mark?

David:
I’m thinking that it’s going to appraise at 3.2, I’m going to borrow at 2.56. That’s 80% of 3.2, the purchase price and the rehab together is going to equal about 2.496. If you add in $60,000 of holding costs, I end up being a little bit underneath the 2.56 that I think I’m going to pull out of it. So the equity there would be the difference of… What’s 2.496 to 3.2, which is yeah, right around $700,000.

Rob:
Man that was an emotional roller coaster for me because the more you math it out the more horribly wrong I thought I was. But hey, Rob’s still got it.

David:
Right on my brother.

Rob:
So on this property, man, is there anything else you want to tell us? Is there any particular that comes to mind about this? I think you alluded to a little something happening.

David:
So this weekend I went to the house to take some of the pictures and the video to show on the podcast because we knew everybody’s asking, can you still BRRR, does BRRR work? And we knew we wanted to do a show on it, but I wanted to be able to show you guys what I’m actually buying myself. Because I’m not just saying BRRR properties, I’m doing a BRRR. So I go to the property and we’re buying this from a family. The property is a probate sale. So their father had passed away and we’re dealing with two of the sisters. There’s no agents, we’re doing this directly. We told one of the sisters, I was going to be going to look at the property and not the other one. So while I’m there, property currently has security cameras that are recording it all the time because it’s in a really nice area. And I show up on the security camera with the sister that’s never met me.
So she calls the police thinking that there’s an intruder in this house while I’m walking around with my camera, taking videos and talking through what we’re going to be doing and talking to Johnny on my team that was on the Bigger Pockets podcast about, “Hey, tell the contractor, we want to do it this way instead of that way. And have them change the bid.” And going through that whole thing. I look out those windows that I was showing you guys where all the light comes from and I see four or five uniformed police officers with their guns out walking up this hill, tactically from different ways. They’re like approaching it they’re going to be taking the thing down. And I immediately realize, oh no they don’t know that I’m here.
They called the cops. The cops are going to walk into this house and see me not supposed to be here holding my big black iPhone in my hand that look just like a gun. So I told Johnny like, “Hey, I got to get off the phone.” I put it in my pocket. I open the front door. I come out really slow with my hands out. And immediately they all point their guns at me. And they’re like, “Freeze, stop right there. Are you in the house alone?” And they go through the whole thing and just word of caution for everybody don’t argue with police when they’re in that situation. They don’t know who you are. You know who you are. They don’t know who you are. They know that they were called by somebody else saying someone’s in the house that isn’t supposed to be there.
So they prone me out. They do their whole thing. Once everything’s calm I’m like, “Hey guys, I’m actually a former police officer myself, my ID’s in my pocket, check it out.” They run me out and one of them says, wait a minute, “Are you that cop guy that buys a bunch of real estate I’ve heard about” He goes, “David Green real estate, right?” And I’m like, “Yeah, you’ve heard of me?” And he goes, “Yeah man, all the cops think you’re really cool. What are you doing here all by yourself in the middle of a Sunday?” And I was like, “Well…” And I kind of explained what was happening. Orinda police department, shout out to you guys, thank you for being very professional with how you handled that and for staying calm in what could have been a very tense situation. And given me a really good story to share with the Bigger Pockets audience.

Rob:
Well, I hope you got a seller credit out of that, man. That’s very scary, but happy ending right there.

David:
Yeah. So what I would highlight about this deal is that instead of looking for something in saying, would it cashflow or would it not cash flow and then moving on. Is I found a property that I thought I could add value to this property. And then I said, “How could I make it cash flow?” Is there a way that I can make this thing work? And it looks at this point there is. And so that’s where the strategy came from.
And I just want to highlight that in today’s market, you are going to have to work harder than normal. I mean, I’ve got a team looking for people all the time, trying to find deals that will work. And so they came across this one that they thought would work for me. And that’s why I’m buying it. But you got to be dedicated. This is not a market where deals fall into your lap or people come to you and beg you to buy a property and you make up your mind if you want to do it. A lot of competition for these assets right now, they’re going up in value very quickly. Rents are going up just as fast. The stakes are higher than they have ever been. So now is the time to continue taking action.

Rob:
Well, I’m really jealous of this. This is a really… Well, first of all, I love the house. I mean, as much as I was giving you some grief about it earlier. It’s really cool. It’s got a lot of insane bones, a very magical outside, very expensive. So for someone walking into a deal like this, obviously what I want is for them to have the experience to be able to do so. But what are the actual, I guess you kind of talked about it earlier, the holding costs. Because if you’re going to buy a $2.2 million property, I got to imagine you’re doing hard money loan on something like this. So the cost on that, is that like a 10% interest on a total of like $2.4 million.

David:
Yeah. So as Christian mentioned, when we brought him in, he was able to find me a sort of a hybrid hard money type of a deal where my interest rates going to be 6.99%, which is going to sound higher than what most people are used to hearing. But I’m only having to come up with 12% of the purchase price and the rehab, they’re going to be able to fund the whole thing. So the higher rate makes more sense for me. And then, because it’s at 2.25, and I’m only having to put 12% down, it’s still at a pretty high loan amount. So you’re looking at about a 2 million note or so for the time that I’ll be holding this property as well as the property taxes and the insurance and whatever other expenses we’re going to incur, which is just why I keep saying you always have to have a lot of money in reserves. You have to plan for the worst case scenario and hope for the best.

Rob:
Man, I’d have to really look at those numbers. But top of my head that actually seems like a pretty sweet deal. A pretty good loan product for something this size, especially.

David:
Yeah. And that’s one of the reasons that he and I, and a lot of other people in this industry are banging the relationship drum. If we were just trying to find the cheapest rate you could possibly get, you usually end up getting the cheapest representation and your whole deal gets screwed up. But when you work with a broker that actually intimately knows your finances, knows what your profile looks like, and they can go look for someone that would work with you. It doesn’t always work out. K. Like on the deal you and I are buying we didn’t get anything incredibly special. We, instead of putting 30% down, I think we’re probably going to be doing, is it 20%?

Rob:
20, yeah?

David:
We were hoping for 15. But so you don’t always end up getting that home run, but more often than not, when you work with the same lender and you have a property that has options like the one you and I are buying just doesn’t have that many options. There’s not as many investors for a luxury property like that. But when you do work with someone who knows files, they can find you loan products like this that give you some creativity.

Rob:
All right. Well, I’ll be giving Christian a call right after we finish recording this.

David:
Yes, sir. Well, thank you, Rob. I appreciate you sitting here and kind of letting me put you up on game. When it comes to the BRRRR model, you’re asking the tough questions that everybody wants to know.

Rob:
I feel like I’m putting you up on game.

David:
Well, I’m showing you kind of, this is how I’m approaching real estate. And I will admit this is not traditional stuff, but we’re just not in a traditional market. This is the craziest market I’ve ever seen in my lifetime. I’ve been telling people for as long as I’ve been hosting the podcast, the white walkers are coming. Inflation is coming. A crazy market is coming. When a lot of other people were sitting on the sidelines, I was still saying I think you should buy.
And people that have been buying and doing fundamentally smart moves are making a lot of money, but you got to have that creativity piece. This is no longer just the boring churn, rinse and repeat model that I was able to use before when I was stacking up properties. Now you got to see angles that other people aren’t seeing, you got to be willing to do work other people aren’t doing. You have to be thinking about how to run your property better than other people are running it. You got to be a better investor, but when you are, there is still a lot of money to be made.

Rob:
Well according to chapter seven of the BRRRR Bible you say… Well, I was hoping I would land on a really nice juicy nugget, but the whole book itself is a juicy nugget. It wasn’t going to work in this context, a bad ad lib, but it’s a good book. So as a reminder, if you guys sign up for Bigger Pockets Pro you guys are going to be getting a free copy of this. And you know what, as I mentioned, this has been the foundation for a lot of my real estate career. And I don’t even execute BRRRRs really in the same capacity that you do. It’s very applicable to short term rentals, to flipping to every niche within the real estate industry. So excited to get this in the hands of more people.

David:
Well, thank you, Rob. I’m excited to do this podcast with you. If people want to see more about what you’re about and where your amazing aesthetic insight comes from, how can they find you?

Rob:
They can always find me on YouTube at Robuilt, on Instagram at Robuilt =, on TikTok at Robuilto. And that is for all the crispy nuggets that I’m willing to unleash on the internet. What about you? If anybody wants to invest in a flip with you like this, or learn more about you work, can they find you?

David:
Great question. I actually am raising money to do more deals like this. I’m paying other people to use their money so they can go to investwithDavidgreen.com and you can invest in a deal with me, get yourself paid, not have to worry about making any mistakes or doing something the wrong way. And they can also follow me online at DavidGreen24, which I hope you do. Brandon Turner has stepped away from this podcast. He still has twice as many freaking followers as me. So I am not too proud to ask for a pity follow. Please have your mom, have your sister, have your aunts, all of them. I’ll take every pity follow that I can get. Follow me there and let me know what you thought about this show. All right. Anything else Rob, before we get out of here?

Rob:
No, man, that is all I’ve got for today. I’m on a mission now I’m going to go buy a $2.2 million house and I’m going to BRRR it. You mark my words. It’s going to happen on this podcast.

David:
All right, man. This is David Green for Rob, crispy nugget [inaudible 01:32:27] solo, signing off.

 

Watch the Episode Here

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In This Episode We Cover:

  • The first signs that a property may be a great BRRRR deal 
  • Using the BiggerPockets BRRRR calculator to evaluate deals and raise private capital
  • Financing options you have when funding (and rehabbing) a BRRRR
  • Contractor bids and BRRRR budgets (even if you don’t have rehab experience)
  • Before photos and David’s exact conversion plan to turn a single property into a cash-flowing multifamily 
  • The huge wealth-building benefits of getting creative when finding value-add real estate
  • And So Much More!

Links from the Show

Books Mentioned in the Show:

Connect with Rob:

Connect with David: