0-38 units in 10 months using the BRRR strategy effectively

102 Replies

This is a brief overview of how I went from a family business employee (with 7 children), only earning 60k/yr, filing bankruptcy in early 2016, to someone who will be completely financially free 18 months after I purchased my 1st property May 15 2017.

I began my Real Estate Study in late 2015, I mostly read books. All the Rich Dad books (but they are full of motivation and mindset, but don't have any actual substance), I read and listened to many podcasts, while driving for my regular job, or while working on my "side gig" where I cut, split, and delivered firewood after work hours. The idea of financial independence when you are working that hard, is incredibly inspiring. So I listened, learned, and saved money. I saved money as much as I could out of my paycheck and saved all of my proceeds from my firewood sales. I found some great podcasts, Joe fairless has a good one, along with Rod Khalief, and BP had a great one. I found it eventually then realized BP had this great website. I found the BRRR method and I was hooked. I live in Rural Illinois and while few podcasts cover rural investing, the principles remain the same. So I began talking about it with friends and family, and when it became apparent that I knew what I was talking about. I had 2 people that wanted to start the biz with me. They both invested $20k each for 1/4 of the business and I kept 1/2 (400 shares) and 1 non-paying, voting share (so that I remained in control, of the final decisions). So now I "owed" my new business 28k dollars, but we had enough to get started.

We purchased a vacant 6 unit building that needed 4 units completely remodeled, and a large old house that we planned to convert into a Triplex. Even though we floundered for almost 6 weeks with a contractor that did horrible damage, We finally found the right guy, ended up finishing 25k over budget and tied up over half of our initial 52k we had to invest, with no way to BRRR out of that messup. Fron there on out, I found much better deals, a SFH that I bought at auction for 12k, it appraised for 40k, we refinanced it, put a 25k lien against it, and it rents for 650/month, pays it's mortgage, and cashflows. Plus we created 13k out of thin air. We also did this with one other house, and a 10 unit building. Altho the 10 unit refi is coming up in May/June. There were growing pains in learning how to use systems (we use "Rentec Direct"). There were growing pains in how to manage tenants, But, all in all, we've been very aggressive when we find a deal. I and my partner @John Hagen have learned a lot, been a little surprised by the speed of what we were able to do. I can say this, you can't do it alone. 

I built a great team. That started with my partner @John Hagen, but continued with my wife who works tirelessly for our rehab crew, which is also headed by our maintenance man, and he's been amazing. My mom (who is the other investor that owns 1/4 of the business) is more of a silent partner, but she has done some small loans from time to time to our business to help it get thru cash crunches that come with growing and rehabbing nearly every dilapidated unit we buy. But I am extremely proud of this team. We currently own 29 multi-family units and 2 SFH's (95% occupancy). We have 7 more multi-family under contract for April, and we are steaming forward. I am proof that even tho u may be middle class and have a lot of things going against you. You CAN DO THIS!!!!

*I "Dave Ramsey'd my budget, and "Robert Kiyosaki'd my investment mind.  You can too!!

@Lee Lockhart   Thank you!!!   It's been a crazy ride, but I'm loving it. I just got off the phone with an estate manager that is handling an estate sale and had an 8 unit building that we have struck a deal on, well below market value. by June 1, my plan is to have close to 50 cashflowing units. 

Awesome, good job!

Have you had any issues getting banks to do the refi part of brrrr?

You are well on your way, brother! Keep up the good work!

@Michael J.    I seem to have found the right banker locally.  And we haven't pushed it to the max, nor have we tied up all our cash in one deal. But he will typically refi as soon as we have the units rehabbed and rented and he can get confirmation of the new appraised value of the building..  It's pretty awesome. The 10 unit building that we purchased and it needed 4 vacant units rehabbed and rented, He's already told us when we have our plan finished and he can get the appraiser back in to confirm the new value of the building, he will be able to refi to 75 or 80% of the appraisers value. This has been a common theme with this particular bank. 

Outstanding work.  That’s what massive action looks like!

@Michael Beeman that's great! Do you generally use Hard Money or some type of conventional financing with the initial purchase and rehab?

@Kerry Baird   Thank you!!  It's been a lot of work, and it's been very exciting watching it grow. I can't wait to see what the next chapter holds!! In less than a year, we have become the largest landlord/rental property owner in our small community. We are still reinvesting 100% of our proceeds and we plan on doing so until June 1st 2019, where our goal is 120 cash-flowing units. Then our plan is to leave our regular 9-5s and semi-retire into property management and acquisition. Our final goal is to be able to basically step away from the business in 5 years and have enough units that we simply oversee our property management company, that runs itself. 

good work.. bottom line still takes capital and you were smart enough and persuasive enough to get it.. this does not happen with out MONEY in some form or fashion.  also your market is one that allow this as well.. other markets not so much.  Very regional.

@Michael J. I have generally used this one bank. But what we have been doing is going in with a business plan from the BRRR calculator here on BP, then we have the property appraised.. as is.. and .. as improved. We put 20% down on the purchase, use our own money/crew for the rehab, then we go back to the bank for the cash out refi. Once the bank sees that the appraisal is confirmed. They will refinance us. One trick i learned was that when telling the bank what i was going to do for the rehabs, i would highly overestimate the costs drastically, then the appraiser tends to evaluate the building much higher. (this works very well on 1-4 unit buildings) 5 units and above I get specific with my cost analysis but i also show what I will be renting them for, my expected expenses and my business plan.. I show all this to the appraiser, and it greatly enhances my after rehab appraisal, and i save money on getting a second appraisal.

@Jay Hinrichs    Yes, not everywhere is this possible. I was resourceful at obtaining capital, but by doing a side hustle to come up with the initial capital, and by doing massive amounts of homework and being able to show exactly how things work on spreadsheets, and with a full business model, I was able to find a couple investors.  It's also difficult to do this in some markets, but if you drive within 90 mins of nearly any major market and start searching, it can be done. (I personally know quite a few people who have done it). I'm sure you do too tho. It's a trade off, if they would like to do it that way, they just have to put more time into it. 

@Michael Beeman   not to get totally off topic but what I see you did that is the key is you raised capital first.. we see so many we start with your post  I have no money I have this problem that problem. How do I make money at real estate because this is what I want to do as it will set me up and etc etc .

Well the first thing you do is figure out how to get capital.. either investors or work harder or your parents or inherit it or something.. but at some point NO money and real estate simply does not go together..  even if your doing the wholesale gig you need tools you need marketing you need a car etc etc it takes something.. NOT I am broke please help me.

@Jay Hinrichs   Absolutely!!!   You have to get off your butt and get the money to start it. I researched listened to the stories of people doing it, and all the while I heard how they started.. always with some form of money either in equity (I had very little, I bought my home in 2014), Or through a loan from a family member (I figured no1 was loaning me money until I had some skin in the game too), or like u said inheritance or savings. So, I decided I was going to Dave Ramsey my budget, and start a side hustle splitting and selling firewood, and I was going to put as much money together as I possibly could. It was only about 6 months after I made that decision, that I had 12k of my own money, I started researching deals, and talking about why they would or wouldn't work with some of my friends, and one friend @John Hagen was very interested.  And I showed him my spreadsheets etc. and he bought in, my mom decided she wanted in too after wanting to hear more,

yes, I was very lucky to find them. But if I had jumped on a forum and said  "I don't have any money, how can I start with no money" instead of going out there, seeing a problem, and creating my own remedy, it would have never happened.

@Michael Beeman   LOVE your story  congrats....  @Steve Vaughan   would be proud of you as well.

to me Steve is must reading for anyone working there way up in this game.

keep up the good work.

@Jay Hinrichs   I will be doing a short interview next week on Joe Fairless' Best Ever podcast.  I'm not sure when it will air, but It'll be my first interview. I will have to check out what Steve has written!  Thank you for the tip!

@Jay Hinrichs I think the key was Michael being willing to take on partners. Way back in 2006 I started looking at real-estate investing as a good investment but I'm in the financial sector, son of a banker, I knew that land lording took some carpentry skills I just did not have. When Michel started talking serious about real estate and he had some  experiences and skills I lacked, I asked about partnering and he was willing to give up some ownership.

I know for sure if he didn't take me on as a partner I would not be in this business. I'm willing to bet there are more people like me out there than you think, who have the money but not the needed skills to start, who would be willing to partner.

It has worked out well for us, we both lend our abilities to the venture and fee up the other to do what they do best. I do the books and back end, Michael does the deals and works with the contractors. Plus we neither one get burned out doing stuff we don't like.

Originally posted by @Michael Beeman :

@Jay Hinrichs  I will be doing a short interview next week on Joe Fairless' Best Ever podcast.  I'm not sure when it will air, but It'll be my first interview. I will have to check out what Steve has written!  Thank you for the tip!

I am sure Joe will put you on // he put me on   and my story is not as cool as yours.. you guys are insperations to all those looking to make their way in the business.

@Michael Beeman Amazing story! How do you value the arv of the properties you buy and how do you estimate the amount of money to repair? Also to what extent are you rehabbing these properties?

@Michael Beeman @John Hagen Congrats guys! That is awesome. This is the type of plan I'm shooting for. I started last year and, like you mentioned, I wanted to be able to already have a starting point before looking for other peoples money. I found a non-listed 4 plex in my area that the numbers made sense and I knew was under market rent and value and I did some creative financing to get it, borrowing from my 401k for part of the down payment. But that was the best decision I've made to get me started. I've since raised rents, trained the tenants, and it is going great so far. I am looking to expand and would love to get similar massive results like you're getting. I'm in process of trying to solidify a deal with other partners/investors to build an 88 unit apartment complex in a rapidly growing area. Total in would be about $5.5M but will appraise for about $8.5+. Best of luck to you! I'll watch for that podcast of yours. Who knows, maybe you'll be on the BP podcast as well.

@Bill E. calculating ARV on 1-4 unit properties is tricky. But, I just had to research my market and find out what things were selling for etc. Talk to brokers (now I am a broker, got my license in November '17) about what similar properties were selling/renting for etc. On 5 unit+ properties generally all appraisers use the income approach on appraisals, so it is simply knowing your local cap rates and knowing how to calculate NOI.. Furthermore, you MUST know what the units will rent for, what expenses will be etc. . But yes, I prefer 5 units+ because I can pretty well get within 5% of the appraised ARV, just by knowing my market and my numbers.

@Don Spafford   Thank you, I hope you will listen to the podcast. I'll let you know when It airs.  We do hope to be on the BP podcast someday. It is on the "Goals list"

Great story keep grinding and congrats on your success so far!

@Michael Beeman congratulations! It sounds like you've moved incredibly fast, especially for having a day job. I know you were mentioning markets- I currently invest in a city of 60,000+ people and a market where cheap houses go for 80-90k and a cheap multifamily is still always over 100k, however less expensive multi families can be found further out as you said. I've been nervous to invest in places with low population due to fear of vacancies- what is the population of the city you invest in?

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