BRRRR strategy steps for buy-and-hold investing
Hello BP,
This is my first official post here, and I would like everyone's feedback. I am new to rental buy and hold investing. I have listened to dozens of BP podcasts and read the following BP books:
- The book on Rental Property investing
- The book on Flipping Houses
- Long distance Real Estate investing
- The book on investing in Real Estate with no (and low) money down. (will complete this week)
I am convinced that the BRRRR method, using hard or private money lenders to acquire property, is the best strategy for me. I am big proponent of systems and lists. It is how I learn to make complex things a bit more simple for me. With all of the information I have gathered from BP podcasts and books, I put together the following list of steps for the BRRRR strategy. I will be using the final version of this as a guide and general checklist for each deal I pursue. Please review this and let me know if I missed any steps or if you have some ideas on how I can make improvements. Any feedback is appreciated. Thanks in advance!!
Here are the steps:
BUY
- 1. Set your buying standards for your target properties, and overall investing strategy. MFR or SFR, or both? Cash flow requirements, how much forced appreciation can be added, etc.
- 2. Collect members of your investment team (Lenders, Agents, Property Managers, Contractors, etc.). Ask for referrals. Make them aware of your strategy and goals, and that they align with them. Interview them and ask questions.
- 3. Determine if an entity (LLC, etc.) is needed and fits into your strategy. Set this up in advance. If needed, set up a business checking account.
- 4. Gather forms: Rental minimum qualifications form, application, annual lease form, etc.
- 5. Locate target property for sale.
- 6. Analyze target property:
- Run numbers. Account for all expenses. Verify rents (rentometer.com, Craigslist, property managers, etc.).
- Look at comps to compare.
- Estimate rehab including holding costs from lender (if applicable).
- Determine grade of neighborhood (A+ through C-). Also factor distance to schools, nice shopping centers, crime, etc. and other important data.
- 7. Submit offer with inspection contingency.
- 8. If not using your own cash, shop for lenders. Use the information you gather for approval for hard or private money lender for the acquisition, and a conventional or portfolio lender to refi.
- 9. Your offer accepted, enters escrow:
- Have property inspected. Compare scope of work with multiple contractors.
- Complete due diligence. If unit(s) are occupied, complete tenant due diligence.
- Identify a general design idea for the renovation, including materials.
- Determine if a bedroom and/or bathroom can be added to increase rent and ARV. Adjust numbers, if additions can be made.
- If needed, revise offer or ask for credits based on inspection, etc.
- Receive hard or private funds to close escrow.
- 10. Escrow closes. The property is sold. Buy insurance, etc.
REHAB
- 11. Select contractor to rehab the property. Create payment schedule to disperse funds at agreed rehab intervals. Communicate often and ask for pictures and video at each stage of rehab.
- 12. Select final design and materials for the rehab. Consult with your property manager about tenant tastes and the contractor on rental rehab styles for the area.
- 13. Have your property manager also check on the quality and status of the work. Ask for their stamp of approval before releasing final payment to the contractor.
RENT
- 14. If already occupied, have property manager direct tenant payments to you. If vacant, property manager should market to tenants based on your criteria.
- 15. Once a target tenant is found, collect deposit, first/last month’s rent and make sure to cover all policies and expectations. Tenant moves in. Vigorously dance in celebration.
REPEAT!