{"id":72319,"date":"2020-11-06T14:30:38","date_gmt":"2020-11-06T21:30:38","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=72319"},"modified":"2024-02-19T14:07:51","modified_gmt":"2024-02-19T21:07:51","slug":"make-100k-year","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/make-100k-year","title":{"rendered":"How to Make $100k a Year with Fixer-Upper Rentals"},"content":{"rendered":"\r\n\r\n\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4808463426&#038;light=true\" width=\"100%\"><\/iframe>  \n\n\r\n\r\n\r\n<p>Some people work so hard to make money. Whether it&#8217;s a nine-to-five job they hate or a thousand side hustles that go nowhere, it&#8217;s easy to see why the path to making $100,000 (or more!) per year can be long and winding\u2014and making that kind of money feels impossible. At BiggerPockets, we think building wealth through real estate is the smartest strategy. But still, it&#8217;s no slam dunk. Investors can flip dozens of homes and deal with hundreds of tenants\u2014and don&#8217;t forget the endless fires needing put out.<\/p>\r\n\r\n\r\n\r\n<p>Sounds exhausting, doesn\u2019t it?<\/p>\r\n\r\n\r\n\r\n<p>There&#8217;s an easier way.\u00a0<strong>Within five years, you could be making $100,000 annually from just two real estate transactions per year<\/strong>.<\/p>\r\n\r\n\r\n\r\n<p>Sound too good to be true?<\/p>\r\n\r\n\r\n\r\n<p>Today, I want to teach you about the BRRRR strategy and the power it can have in your real estate investing. I\u2019ll also walk you through a step-by-step plan for making $100,000 per year using this powerful investing plan.<\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">First: What do you need to make six figures?<\/h2>\r\n\r\n\r\n\r\n<p>Making $100k a year doesn&#8217;t require years of experience\u2014or even a college degree. It doesn&#8217;t require signing up with an affiliate marketing company, or starting an online business selling homemade goods on Etsy&#8230; or drop-shipping via Amazon. Yes, all of these strategies could build you wealth, but here at BiggerPockets, we believe there&#8217;s no better source of\u00a0<em>long-term<\/em>\u00a0wealth than real estate.<\/p>\r\n\r\n\r\n\r\n<p>So what do you need to get started?<\/p>\r\n\r\n\r\n\r\n<p>Drive.<\/p>\r\n\r\n\r\n\r\n<p>That&#8217;s it: Drive. We can break that down into a few sections.\u00a0<strong>First, you have to want to succeed<\/strong>. Killing it in real estate probably requires more effort than your nine-to-five\u2014at least in your first year. But that hard work pays off in dividends, creating a truly four-hour-a-week career after a couple years of dedication.<\/p>\r\n\r\n\r\n\r\n<p>You also need to take charge of your personal finance. Why does it matter if you make a six-figure income if you&#8217;re bogged down in debt, or struggling to curb a dangerous spending habit? And when you&#8217;re investing in real estate, personal finance is\u00a0<em>doubly<\/em>\u00a0important. Lenders care about how much debt you have\u2014and if your debt controls you, not vice versa, they&#8217;re less likely to lend you money.<\/p>\r\n\r\n\r\n\r\n<p>Can you bounce back from difficulties quickly?<\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">Understanding the BRRRR strategy<\/h2>\r\n\r\n\r\n\r\n<p>The simplest, easiest\u2014and fastest way\u2014to drive your real estate investing business into the six figures is with BRRRR. No, it doesn&#8217;t mean buying properties in chilly locales\u2014it&#8217;s an acronym for a popular investment strategy that&#8217;s easy enough for first-time investors to follow&#8230; but advanced enough to create serious cash flow. You don&#8217;t need a bachelor&#8217;s degree, and you can start while still holding down your day job.<\/p>\r\n\r\n\r\n\r\n<p>Let&#8217;s get to know BRRRR\u2014or:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>Buy<\/li>\r\n\r\n\r\n\r\n<li>Rehab<\/li>\r\n\r\n\r\n\r\n<li>Rent<\/li>\r\n\r\n\r\n\r\n<li>Refinance<\/li>\r\n\r\n\r\n\r\n<li>Repeat<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>This strategy involves buying fixer-upper rental properties, repairing them, leasing them out to great tenants, refinancing to get your money back&#8230; and then repeating the process over and over again. With this strategy, you can acquire numerous properties\u00a0<em>without<\/em>\u00a0running out of capital to invest. At the same time, it combines the benefits of house flipping with the wealth-building characteristics of rentals.<\/p>\r\n\r\n\r\n\r\n<p>Let\u2019s break down the strategy for you and look at each step. And don&#8217;t worry: We won&#8217;t leave you stranded. We&#8217;ve highlighted the best BiggerPockets resources to take your knowledge to the next level.<\/p>\r\n\r\n\r\n\r\n<p><em>Ready to learn more about BRRRR? Check out BiggerPockets detailed guide: <a href=\"https:\/\/www.biggerpockets.com\/guides\/brrrr-method?itm_source=ibl&amp;itm_medium=blogad&amp;itm_campaign=guide\" target=\"_blank\">How to Invest in Real Estate Using the BRRRR Method<\/a>. Here, we break down the method&#8217;s advantages and disadvantages\u2014and walk you through each step in detail.\u00a0<\/em><\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">1. Buy<\/h3>\r\n\r\n\r\n\r\n<p>The first step in the process is to buy a great deal. Not just any deal\u2014a great one, in a great location and neighborhood. But it needs to be a fixer-upper, and for this strategy, we&#8217;d recommend a single-family house, not a duplex, triplex, or apartment building.<\/p>\r\n\r\n\r\n\r\n<p>BRRRR investing is very similar to house flipping. In fact, it is house flipping\u2014but rather than selling, you rent it out after fixing it up. But you need to understand the same principles that go into house flipping.<\/p>\r\n\r\n\r\n\r\n<p>The 70 percent rule is used by many house flippers, and it&#8217;s key to getting a good price\u2014and leaving room for the unexpected. This rule states that the most a flipper should pay for a property is 70 percent of the after repair value (ARV), less rehab costs. The ARV is what a home\u00a0<em>should<\/em>\u00a0be worth when it&#8217;s all fixed up.<\/p>\r\n\r\n\r\n\r\n<p>So a house that has an ARV of $150,000 and needs $30,000 worth of rehab could be bought for $75,000 because:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>$150,000 x 0.7 = $105,000<\/li>\r\n\r\n\r\n\r\n<li>$105,000 \u2013 $30,000 = $75,000<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>Think that\u2019s impossible to achieve? Just ask most successful house flippers, and they\u2019ll tell you that their entire business model is built on similar margins.\u00a0<strong>So stop saying, \u201cI can\u2019t do this\u201d and start asking \u201cHow can I do this?\u201d<\/strong><\/p>\r\n\r\n\r\n\r\n<p>Because I can teach you how.<\/p>\r\n\r\n\r\n\r\n<p>Finding good properties may require direct mail. It may require Craigslist. It may require driving for dollars. It\u2019s going to take some hustle. But you can do it.<\/p>\r\n\r\n\r\n\r\n<p>To finance this first purchase, it&#8217;s unlikely you&#8217;ll be able to use a traditional lender, because most lenders are unwilling to loan money for a fixer upper. This means you are probably looking at options such as hard money, private money, cash, home equity, and other strategies that I outline in\u00a0<em><a href=\"https:\/\/store.biggerpockets.com\/collections\/all-books\/products\/investing-in-real-estate-with-no-and-low-money-down\" target=\"_blank\">The Book on Investing in Real Estate with No (And Low) Money Down<\/a>.<\/em>\u00a0If you haven\u2019t read that yet, start there. It\u2019ll change your life.<\/p>\r\n\r\n\r\n\r\n<p><em><strong>Related: <\/strong><a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-metrics?itm_source=ibl&amp;itm_medium=related&amp;itm_campaign=opt\" target=\"_blank\">Investors: Memorize These 11 Real Estate Metrics Now<\/a><\/em><\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">2. Rehab<\/h3>\r\n\r\n\r\n\r\n<p>The next phase in the BRRRR strategy is fixing the property up. Unlike with traditional house flipping, this property will be rented out for a period of time. The materials you use should reflect that reality.<\/p>\r\n\r\n\r\n\r\n<p>Let&#8217;s use a BRRRR property I&#8217;m currently working on as an example. When my crew tore up the carpet, we discovered beautiful hardwood floors underneath. While this seems great\u2026 I\u2019m actually not going to refinish them, yet. That would cost me around $3 per square foot\u2014or $3,000 total. Someday, when I\u00a0<em>do<\/em>\u00a0want to sell the property, I\u2019ll probably have to refinish them again because of the heavy tenant usage. And that\u2019s if I can refinish them again. After all, you can only refinish floors so many times.<\/p>\r\n\r\n\r\n\r\n<p>Therefore, I\u2019m going to use laminate wood floor throughout the entire home. This will protect the floors, cost around $2 per square foot, and look amazing. Before I sell, I\u2019ll remove the laminate and finish the floors to sell for top dollar.<\/p>\r\n\r\n\r\n\r\n<p>The key to rehabbing a BRRRR property is to make the property as \u201ctenant-proof\u201d as possible by using long-lasting materials. When rehabbing, aim for the highest ARV and monthly rent possible. If you can turn a two-bedroom home into a three-bedroom home, do it! This can add hundreds of dollars per month in cash flow and thousands in equity.<\/p>\r\n\r\n\r\n\r\n<p>You could do all the work yourself or you could hire it out. That\u2019s up to you and dependent upon your skills, availability, and desire. DIY saves a lot of money, increasing the odds you\u2019ll find a deal that has numbers that work. But it will also take a lot of weekends and evenings.<\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">3. Rent<\/h3>\r\n\r\n\r\n\r\n<p>Next, it\u2019s time to rent the property out to great tenants. Luckily, you just bought a property located in a great location and rehabbed it to look brand new. It shouldn\u2019t be hard to find incredible renters.<\/p>\r\n\r\n\r\n\r\n<p>And because the property was rehabbed at the start, your repairs and capital expenditures, like roof, siding, and paint, should be fairly low for the next few years. Everything has already been fixed! Of course, you\u2019ll still need to budget for repairs and maintenance, but it should be much less than you thought.<\/p>\r\n\r\n\r\n\r\n<p>Then, it&#8217;s time to rent the property out. You might choose to hire a property manager, but because you already rehabbed the property and because you are renting to high-class, great tenants, managing a BRRRR deal shouldn&#8217;t be too hard. I recommend saving the money and doing it yourself.<\/p>\r\n\r\n\r\n\r\n<p id=\"caption-attachment-125930\"><em>Purchasing your first rental property is just the beginning of your real estate journey, because being a good landlord is almost as important as making good deals. BiggerPockets\u2019 free guide\u00a0<\/em><a href=\"https:\/\/www.biggerpockets.com\/guides\/landlord-rental-property-management?itm_source=ibl&amp;itm_medium=blogad&amp;itm_campaign=llguide\" target=\"_blank\">How to Become a Landlord: Managing Rental Properties for Real Estate Investors<\/a><em>\u00a0will teach you everything\u2014from setting rent to handling evictions.<\/em><\/p>\r\n\r\n\r\n\r\n<p>Now, to say something a little controversial: The goal of the BRRRR strategy is not to make a ton of cash flow. I know, I know\u2014that goes against almost everything I\u2019ve ever preached. And I\u2019m\u00a0<em>not<\/em>\u00a0saying to buy something that won\u2019t cash flow. I won\u2019t ever accept long-term negative cash flow. Ever.<\/p>\r\n\r\n\r\n\r\n<p>However, properties that only cash flow a little bit might be okay with the BRRRR strategy. The power of the BRRRR strategy is in the long-term \u201cflip\u201d\u2014the equity built. I\u2019ll explain this more in a bit.<\/p>\r\n\r\n\r\n\r\n<p>But first, let\u2019s talk about the next \u201cR.\u201d<\/p>\r\n\r\n\r\n\r\n<p><em><strong>Related: <\/strong><a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-rent-your-house?itm_source=ibl&amp;itm_medium=related&amp;itm_campaign=opt\" target=\"_blank\">How to Rent Your House: The Definitive Step-by-Step Guide<\/a><\/em><\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">4. Refinance<\/h3>\r\n\r\n\r\n\r\n<p>Like I said earlier, it&#8217;s tough to get a conventional mortgage on a fixer-upper. However, conventional mortgages are really nice\u2014low interest, long term, easy. You likely won&#8217;t be starting with a conventional mortgage, but\u00a0<strong>the goal of BRRRR is successfully refinancing\u00a0<em>into<\/em>\u00a0that nice, conventional mortgage&#8230; and getting all your money back<\/strong>. (Woo hoo!)<\/p>\r\n\r\n\r\n\r\n<p>Of course, you don\u2019t need to refinance the property to get your money back. Perhaps you make great W-2 income and can afford to let your down payment and rehab money stay in the property. This does mean better cash flow, and perhaps even a better ROI. However, most investors want their money back so they can do it again and again.<\/p>\r\n\r\n\r\n\r\n<p>Here&#8217;s how.<\/p>\r\n\r\n\r\n\r\n<p>Let\u2019s go back to those numbers from earlier. Our property that had an ARV of $150,000. We purchased it for $75,000 and put $30,000 into the rehab. At this point, we have $105,000 into the purchase.<\/p>\r\n\r\n\r\n\r\n<p>Most lenders will allow you to refinance a property for 70 percent of the ARV. In other words, they will lend 70 percent of the property&#8217;s loan-to-value (LTV) ratio. Well, it just so happens that 70 percent of $150,000 is $105,000\u2026 so we could theoretically get back 100 percent of our invested capital.<\/p>\r\n\r\n\r\n\r\n<p>That&#8217;s right\u2014we&#8217;re going to refinance this property with a low-interest, 30-year fixed mortgage for $105,000. This will pay back any loan we took out for the original purchase and rehab costs. In this example, closing costs are the only out-of-pocket funds required.<\/p>\r\n\r\n\r\n\r\n<p>After the refi, you should have a completely stabilized rental property with a little bit of cash flow\u2014and 30 percent equity. Plus, you\u2019ll have all your money back, so it\u2019s time to\u2026<\/p>\r\n\r\n\r\n\r\n<h3 class=\"wp-block-heading\">5. Repeat<\/h3>\r\n\r\n\r\n\r\n<p>It worked once, and we got all our money back, so why not do it again? And again? And again&#8230;<\/p>\r\n\r\n\r\n\r\n<p>Sure, at some point the bank will stop refinancing the properties for you. And maybe you\u2019ll need to find another solution, like a portfolio lender or a partnership. But it CAN be done.<\/p>\r\n\r\n\r\n\r\n<p>With each new deal, you gain 30 percent equity\u00a0<em>and<\/em>\u00a0get cash back in your pocket.<\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">How to make $100k per year in real estate<\/h2>\r\n\r\n\r\n\r\n<p>Now that we\u2019ve covered the five steps of the BRRRR strategy, let\u2019s see how someone could make $100,000 per year using this process.<\/p>\r\n\r\n\r\n\r\n<p>Historically, real estate prices climb around three percent per year, on average. Yes, some years are better and some worse\u2014but over time, this holds true. Still, let\u2019s be a\u00a0<em>bit<\/em>\u00a0more conservative and say two percent per year.<\/p>\r\n\r\n\r\n\r\n<p>Say we bought a property today with an ARV of $150,000&#8230; but at a purchase price of just $75,000. Nice going, us! Then we rehabbed it with $30,000 and refinanced it for $105,000. Then we rent the property out. At a two percent increase per year, this property could be worth $165,000 five years from now. At the same time, our tenants&#8217; rent payments would help pay down the loan, decreasing the balance to just $96,000.<\/p>\r\n\r\n\r\n\r\n<p>In other words, after five years, we would have $69,000 in equity.<\/p>\r\n\r\n\r\n\r\n<p>Of course, if we went to sell the property, it would likely need another coat of paint and maybe some other minor fixes. Plus, we\u2019d have to pay the real estate agents about $10,000 as commission. And then we\u2019d pay a few thousand in closing costs. So that $69,000 in equity would look a lot more like $50,000 in profit.<\/p>\r\n\r\n\r\n\r\n<p>Therefore, to make $100,000 per year using the BRRRR strategy, you simply need to buy two deals each year\u2014and starting in year five, begin\u00a0<em>selling<\/em>\u00a0two each year. You&#8217;ll never have more than 10 properties using this strategy, which is a pretty manageable number. (Many conventional mortgage lenders also limit borrowers to 10 loans.)<\/p>\r\n\r\n\r\n\r\n<p><em><strong>Related: <\/strong><a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investor-financial-freedom?itm_source=ibl&amp;itm_medium=related&amp;itm_campaign=opt\" target=\"_blank\">Quit Your Day Job and Find Financial Freedom: Here\u2019s How to Become a Real Estate Investor (Full-Time!)<\/a><\/em><\/p>\r\n\r\n\r\n\r\n<p>After five short years, you\u2019ll be making six figures by just doing two purchases and two sales per year. Now, that could truly be a \u201cfour-hour workweek.\u201d<\/p>\r\n\r\n\r\n\r\n<p>If you want to take that $100,000 per year and quit your job\u2014you could. You could buy an airplane! You could go to Tahiti. Or\u2026. you could recycle that money and turn that $100,000 into millions.<\/p>\r\n\r\n\r\n\r\n<h2 class=\"wp-block-heading\">The biggest drawback to the BRRRR strategy<\/h2>\r\n\r\n\r\n\r\n<p>So what&#8217;s the catch?<\/p>\r\n\r\n\r\n\r\n<p>As with all investments, there are a few drawbacks. There is one big, looming question that you may have already asked: What if you can\u2019t refinance? This could happen for a number of reasons\u2014but most of the time, it&#8217;s because you&#8217;re not an ideal borrower. You carry too much debt, or your credit score is low. These things are easily fixed.<\/p>\r\n\r\n\r\n\r\n<p>However, if you are unable to refinance the property to get your money back out, you&#8217;re stopped in your tracks.<\/p>\r\n\r\n\r\n\r\n<p>Luckily, this problem can be proactively prevented most of the time. Before diving into BRRRR, visit a few local banks and ensure you&#8217;re a good enough borrower before you ever purchase the first deal. Fix your credit in whichever ways they suggest so you&#8217;re in ship-shape for BRRRRing.<\/p>\r\n\r\n\r\n\r\n<p>Of course, if you are still unable to refinance after rehabbing, you could always wait until the tenants&#8217; first-year lease is over and sell the property. Having multiple exit strategies is always a great thing and one of the perks of the BRRRR strategy.<\/p>\r\n\r\n\r\n\r\n<p>Other drawbacks include:<\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>What if the tenant destroys the house?<\/li>\r\n\r\n\r\n\r\n<li>What if you can\u2019t find a good enough deal?<\/li>\r\n\r\n\r\n\r\n<li>What if you can\u2019t finance the original purchase?<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p>These are legit questions, but the cool thing is that there are answers! Investors ask these questions every day in the\u00a0<a href=\"https:\/\/www.biggerpockets.com\/blog\/2013\/05\/03\/driving-for-dollars-bible-part-1\/\" rel=\"noopener noreferrer\" target=\"_blank\">BiggerPockets Forums<\/a>. Don&#8217;t miss out on one of the most powerful tools you have at your disposal\u2014<a href=\"https:\/\/www.biggerpockets.com\/signup\" target=\"_blank\">make an account<\/a>\u00a0and start learning from experienced investors.<\/p>\r\n\r\n\r\n\r\n<p>The BRRRR strategy has a lot of moving parts, but if you work it right, it can be a powerful ally in building serious wealth. This strategy combines the equity growth of flipping with the tax benefits, cash flow, and appreciation of rental properties\u2014maximizing your profit.<\/p>\r\n\r\n\r\n\r\n<p><a href=\"https:\/\/www.biggerpockets.com\/signup\" target=\"_blank\">Get started today<\/a>.<\/p>\r\n\r\n\r\n\r\n<p><em>How did you get started in real estate?\u00a0<strong>Sound off below<\/strong>.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>Making $100k per year doesn&#8217;t have to be a pipe dream. Follow these clear, actionable steps to start building serious wealth in real estate.<\/p>\n","protected":false},"author":710,"featured_media":115218,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7119,5525],"tags":[],"class_list":["post-72319","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biggerpockets-daily","category-flipping-houses"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/72319","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/710"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=72319"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/72319\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/115218"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=72319"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=72319"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=72319"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}