You need 3 things for a deal; hustle, knowledge, and money. I am a newer RE agent who found bigger pockets at the beginning of this year and have really found a passion in the investment side of things, particularly the brrrr strategy. I don't feel confident enough to invest in deals just yet but through networking I came across someone who is willing to fund my deals once I am able and confident. My question is how do I go about structuring a brrrr deal to payback my investor and also make myself money? Is there even a middle ground for that or should I just hold off on my profits till my investor is paid back in full with interest? Hopefully this makes sense.
@Jordan Solomon this is how you do it:
1. Find a property well under market value.
2. Buy it with your friends money or with hard money.
3. Rehab the property with your money or your friend’s money.
4. Increase the value of the home, yet make sure your “all in” is only 70-75% of what the increased value is now.
5. Refinance the house with a long term loan.
6. Pay back the principle and the interest to your friend from the refinance.
7. Keep the property and get monthly cash flow.
*I would suggest having a reserve of 20k or more if you are doing this on a house of 150k or less and having more for reserves if the house price is higher.
If you have the investor side worked out, I'd get in touch with the wholesalers in your area. Get on their buyer lists and start with the first deal that looks feasible for you and your skills. After you've worked a few, look into 1031 exchanges to keep your profits from getting hit with too much capital gains tax (see a 1031 exchange expert for more details).
Reach out if you have any more questions!
@Kristel Knittel I thought 1031x’s only applies to when I sell, does that apply to the refinance part as well? I plan on buying and holding most. Or are you referring to when I eventually do go to sell one of my properties?
@Jordan Solomon - only when you’re ready to sell!
There's no exact formula to how you should structure. It's all going to depend on who you plan to use for the refinance and what they like to see. Find a lender that does cash-out refi's and just ask. I literally learned about BRRR strategy just by asking my mortgage broker what I should do. You'll find PMLs are a dime a dozen, but a good mortgage broker is priceless.
As for how to cash out and still pay your private lender interest...you make your money when you buy. Find deals with enough built-in equity, or value-add potential.
@Jordan Solomon , the 1031 exchange will come into play when you sell an investment property that has significant gain or unrecaptured depreciation. It is only used when you sell. A refi doesn't impact.