How To Get a 200%+ Return On a Rental Property

What if I told you that you could put down less than 10% on a rental property and get that money back plus some in a few months or less? AND have positive cash flow on top of that! AND get over 200% cash-on-cash return! You'd say I was crazy right? Read on to see how crazy I can get.

It blows my mind why anybody would put 25% down on a performing rental property when with a little more work and time, you can actually get paid to buy a property. To me, the most important way to measure profit on a property is cash-on-cash return. How much cash are you getting back in your first year compared to how much you initially put down? Keeping that number high will ensure that you keep more of your cash on hand while investing, which will grow your wealth very quickly. I've figured out a way to get well over 200% cash on cash returns using hard money loans and Brandon Turner's coveted BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). See below.

I bought a duplex in a little town called Upper Darby, PA, right outside of Philadelphia using hard money. I bought it for $63,000 and got a hard money loan for about $81,000 to buy and renovate it. It was worth about $125,000 after renovation, so I'm all in for 65% of ARV (after repair value). I negotiated for the seller to pay some of my closing costs, and at closing I ended up putting down about $8,000 to buy the place. Fast forward about 4 weeks and the place is rehabbed and ready to rent. Thanks to marketing during renovation with using pictures of similar properties, I was able to get leases signed the day the property was done to ensure that no time was wasted. Each apartment rented for $725 and a garage attached to the property rented for $200 with each tenant putting down first, last and security to move in. So, 30 days after purchase I had $3,300, which is about 41% of my original investment back (not counting the security deposits because they're technically not mine). I found a small bank, AKA a portfolio lender, that does refinances without any seasoning requirements, which means that I don't have to own the property for a year or 2 years in order to refinance like most banks require. I ended up selling the building, but if I refinanced, I could have done a cash out refinance with that bank for 75% of the value ($93,750). So, after I paid off my hard money loan, I would have walked away from the table with about $10,000 tax-free after closing costs.

So, let's recap... I put down $8,000 to buy the place. 30 days later I got $3,300 back. Then, when I refinanced (let's say 3 months later) I would have gotten about $10,000 in tax-free money. That's a total of $13,300 that I'm receiving 3 months after an initial investment of $8,000. Why do people not invest in real estate again?

Oh wait! I forgot about the cash flow! That building would have made about $750 per month in net profit after mortgage, taxes, insurance and expenses were paid. Let's add that in and calculate the cash on cash return.

Down Payment and Closing Costs: $8,000

Cash Out Refinance After 3 Months: $10,000

Profit From Rents Received In 1 Year: $8,250

Total Net Cash Received In 1 Year: $18,250

Cash-On-Cash Return: 228%.

How's that for great returns?

If I were to buy that building at market value, I would have SPENT close to $35,000 including down payment and closing costs and would have profited about $750 per month. That's a pretty good return. With using hard money and a cash out refinance I would have GAINED about $2,000 (cash out refi minus purchase costs) tax-free for buying the building and still profited the same $750 per month. That's a ridiculous return!  Do you see why BRRRRing makes sense? Buy, rehab, rent, refinance and repeat your way to financial freedom.