My daughter's most recent BRRRR deal. Step by step Breakdown
**Hopefully some motivation for anyone just starting out.** I posted this on the BP Facebook Group and was asked to post it here as well.
Growing up we never talked about money. It always felt like a taboo discussion. It made people feel uncomfortable. As a result, I never understood money. I spent most of my life working really hard and getting really good at the game of “Earning Money.” At one point, that was the most important game to understand and I got really good at it…And then, almost overnight I discovered that I was playing the wrong game altogether. Earning money does not matter. Creating money. Now that is the real game.
I have come to understand that money is somewhere between, on one side, a living and breathing organism capable of exponential growth. It reacts to outside elements like a science experiment, it grows and atrophies like the used and unused muscles in our body…and then on the other side it barely even exists. It is an idea… Crazy, I know. But if you understand these concepts then the game of creating money (not earning) becomes so easy.
In the Casey household I talk about money all the time with my kids. We play board games that teach us concepts about money. Not because money is important (because its not), but because the ultimate freedom that comes with the understanding of money is important. This post may make some feel uncomfortable, and I apologize for that. But I am committed to talk openly more about the science and the business of money creation (like I do with my kids at home) in hopes that it might become a more common topic at the dinner table in our community. There is no better vehicle or tool to assist you in the game of creating money than real estate. That is the tool that we have been focusing on for a long time.
Below is a detailed breakdown of one of 38 properties that we have purchased so far this year (on our quest to purchase #52PropertiesIn52Weeks ). Every property is different and has different potential and a different strategy. This strategy is by far one of my favorites and is always my preferred method. Earlier this year we bought a vacant duplex in the Northern Virginia area. It needed work and potential structural issues scared off the average buyer. We were able to get the property for $130k cash. (Pro tip) We actually made the seller several different offers with different price points and different terms and they chose the lowest priced offer because the all cash, as-is, quick close terms were the most important to them. This is also a property that Brookie hand picked as she has skin in the game on this deal as well. (we don’t do traditional college funds…we use real estate for that as well). We were able to have our contractors confirm that the structural issue was not a major issue and was isolated to a few rotten floor joists in the back room. Easy fix. We refinished the hardwood floors where they were salvageable and added new floors where they were not. We moved a few walls around to take a poorly designed 2/1 and 1/1 duplex and made it into a much better flowing 3/1 and 2/1 duplex.
New paint, new appliances and new lighting made this property sparkle and it quickly became the nicest rental on the market. All in the renovations cost just under $30k. We now have $160k invested in this project. We put it on the market for rent and in one day had over 30 applications come in. We found two amazing sets of long-term tenants and are now bringing in just under $3000 a month in rent. Before factoring in any appreciation in value or tax benefits through depreciation, this would be a 16-18% ROI. Not bad, but we are not finished yet.
We had it appraised and the new appraisal value came in at about $298k. If we sold it, after closing costs and getting our $160k investment back we would walk away with $117k (pre-tax). That would be a 73% ROI. Better. However short-term Capital gains taxes are a pain and that would eat up about 37%! Not good. After taxes it would be closer to a 46% ROI. That is why we love the BRRRR cycle and rather than selling to someone else for a profit, we "sell it" to ourselves for a profit through a cash-out refinance. We were able to pull out 75% of the new appraised value and after lender closing costs that gave us about $210k, which is what we did. (This picture below is of Brookie before she took it in to the bank to deposit it
) This pays us back our full $160,000 investment and gives us $50k TAX FREE gains. Yes, the $50k is only a 31% Tax free ROI but being that we got 100% of our investment back, and we still own the cash-flowing property (that we plan to keep forever) everything that we make from that property moving forward is an infinite ROI which is "Created money" (not earned money). After paying the mortgage, taxes, insurance, property manager and setting aside money for repairs and reserves every month there is about a $1200 a month PIFL (Passive Income For Life). Start to finish, (because I hired a great team at every step) I only spent about 15 hours on this deal (Analysis, offer, settlement, design, contractor set up and check ins, rental stabilization, BRRRR refinance paperwork, BRRRR settlement (at Starbucks before work), Selfie with Brookie
and this post.) I don’t share this to brag. We are actually a very private family and up until now we have gone though great lengths to be anonymous investors through LLCs and corporations. This post will actually get me in trouble with my wife
…. However, there are too many people, too many family members, too many friends that are struggling at the game of “Earning Money”. I am committed to help as many people as possible stop NEEDING to EARN money, and start down the path of CREATING Money. Start down the path of Passive Income For Life. I do not charge for my help (because that would be called earning money…and I hate earning money
). I will help anyone for free if you reach out and ask. This is my passion, and I feel this is my purpose. On to the next deal...Ps if you are going to the BiggerPockets convention in 2 weeks, I will be there and would love to connect!