The HyBRRRRid Method - Kind of.. It’s not all or nothing

The BRRRR method a great strategy but sometimes it feels like it has to be all or thing.

So, what do we do when we cannot find any properties that perfectly fit that method?

Give up, wait, compromise?

We adapt the strategy to fit the property, not the other way around. 
Also, let’s just get this straight. Real estate investing just takes money. It might not require a lot of money but it does require you to be financially astute, responsible and have good stewardship over what you make and obtain. 

Here are a few things to remember..

1. Adapt the strategies to the property, not the property to the strategy.

2. You don’t just find a deal, you make a deal. 

3. Building a strategy on a firm foundation is key.

  - Proverbs 13:11 ‘Whoever gathers money little by little makes it grow’

  - You are the “X-Factor” in every deal.

  - Compounding interests in a forgettable account is best. 

4. A silly plan fully executed is better than no plan and no action at all.   

5. What you compromise to get you have to compromise to keep.

6. You CANNOT spreadsheet your way to rental property success. 

7. Stay in the game.

  - This goes with number 4. Resolving to do ‘the thing’ means that you will be ‘in the game’ and being in the game WILL return results. Resolve to never quit and you will find your way.

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All that being said, let’s talk about the strategy. 

In order to have a successful BRRRR property one or more of these things must be true in the deal. It must be bought at a discounted rate, it must need significant repairs or updates, the ARV must be substantially higher than the purchase price + repairs and/or you have to know where to find them.

These are hard to find because if they have all of these qualities then it will become a feeding frenzy and getting at a discount will not be possible.

If you find it off market and it has all of these qualities, you will more than likely need to have cash ready to acquire and update or a hard money lender ready to go. Most of the time the seller or wholesaler will not allow you an option period to vet the property, making the purchase very high risk. 

I don’t prefer either of these options so here is what I do when I want my money in the market protected from inflation in a ‘land bank’.

The HyBRRRRid Method:

Here’s a quick summary a of how this might play out. It doesn’t have to be all or nothing.

Find a property on the market or FSBO where the seller will allow you to properly vet the property, negotiate a deal that works for you (a deal that will return you a few hundred dollars a month) that you can hold for 2-5+ years. Slow growth is key here. 

Buy the property using a regular mortgage (be sure there is no ‘pre-payment’ penalty and ask the lender if they will do a refinance for you for free with 3 years), do the repairs, get it rented near top of market… here where you adapt the strategy to fit the market. 

[Side note: you need a good realtor here because you need to really know the rental market in order to be sure it will cash flow when you buy it day 1 or so]

If you have not purchased the property at enough of a discount to refinance and pull you any cash you need to be okay with the current cash flow and wait for appreciation, increased rents, and/or rates to go down. At the time one of these things happens, you pull out as much cash as possible while keeping the cash flow at a rate that is sustainable. 

Holding the property is better than never buying, especially if it does make some cash for you. 

Rental income coupled with W2 income is exponential. 

Another things you can do with this rental income is NOT LIVE ON IT for at least 10 years as you grow your portfolio. 

Put some or all of it (depending on your risk tolerance) in a high interest bearing account and let that account act like another tenant at the property, paying you every month. 

After a year or two you will hopefully have still been making money at your W2 to save for another property, you will have had your renters pay down the mortgage on your rental and I bet it will be time to refinance and pull out ‘some’ money in order to supplement your next purchase.

The next thing I suggest is act like you will keep this property forever to pass down to your kids or future kids. Whether you do or not this will cause you treat it differently. It will build in more margin to deal with things that happen instead of selling it when trouble arises because trouble will arise. 

So the BRRRR method doesn’t have to be a 6 month process to be successful, it can still be successful even if it takes 2-3 years to get your cash back. 
Here are some quick numbers:

Purchase price: $300,000

Rehab Cost: $40,000

All in Cost: $340,000

Down payment: $68,000 (20%) you can do this same scenario at 15% or 10% down.

Loan Amount: $272,000

ARV: $425,000

Payment: $2,829 (8% on 30 years - P&I: $1,996 - Tax: $667 - Ins: $167)

Rent: $3,000 (assuming a duplex $1,500/sign or good rental market) This is where a good realtor comes in handy.

Repairs/Maintenance: This should be very minimal if you do the reapairs correctly and vet your tenant properly. $50/m

Cash flow: $121/m

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REFI: Let’s say this took 24 months.
Appraised Amount: $425,000 

75% of Appraised Amount:$318,750 (remember you found a lender who would do the refinance for FREE)

Loan Amount: $272,000

Rental Income in the meantime: $2,904 ($121 * 24 months)

Cash Out of Refi: $46,750

90% of this for ‘costs & repairs’ = $42,000

If you repeated this process and did the exact same numbers you would only need to come up with $26,000 of your own cash this time. 

This is a nice bit of help for the next deal. 

It is possible to do these deals but remember the 7 nuggets up top as you get going. 

If you can house hack a BRRRR then you will really be in the money. If you can house hack a duplex, triplex or quadplex BRRRR then your efforts will be exponentially, exponential.

Checkout my profile for proof and message me if you want to test the theory in the DFW area.