The BRRRR Real Estate Strategy Broken Down

We tend to love presents, surprises and certainly free things. If you are like most people I know, you may value or cherish the things you’ve worked so hard to achieve or obtain.

I recently saw a video of a young kid in a mall asking people if they wanted a $50 scratch ticket or a $20 bill and literally no one would take either. People kept moving along and many whispered the canned response, “I am all set thanks”.

Now let me ask you, if I offered you a turnkey five unit mixed use building that generated $100,000+ a year in top line revenue would you accept? You may say yes, or duh.. But I find most people like the example above would start to ask what the catch was or it may be too good to be true.

Think for a second before we move on, would you have taken the $20 bill, the $50 scratch ticket or would you have kept walking?

                               The BRRRR Real Estate Strategy Broken Down

Now that we’ve gotten you thinking, let's bring that back to why you are here today. To learn more about the BRRRR Real Estate Investing Strategy -

                                 Buy, Renovate, Rent, Refinance, Repeat

Let me assure you, no one will be walking up and offering you a free house like the example above. What I can promise you is if done correctly, you can have a cash flowing investment portfolio up and running with little to no capital invested within a reasonable timeframe using the BRRRR strategy.

I can make this promise because we have done this successfully twice in the last two years accumulating nearly $2,000,000 in Real Estate with only a few thousand of our own dollars still in the deals today.

Deal 1 - Off the MLS

Asking Price: $525,000

Purchase Price: $445,000

10% Down Payment: $44,500

Renovation & Holding Cost: $110,000

Refinance Appraisal: $710,000

75% LTV = $525,000

There are a lot of numbers about so let's break things down in the BRRRR fashion.

Buy - We found a MLS listing that had been on market for almost six months and had already made two price reductions but hadn’t in about 45 days. We offered $425,000 and after a few back and forth, we dug our heals in at $445,000 and they accepted. After the initial building inspection, we were able to renegotiate another $5,000 credit applied towards closing cost.

***Relocate - This “R” you would not traditionally find in the BRRRR strategy but it is important to touch on. If you are buying a building that needs a lot of work and you need to transition tenants, this can absolutely suck. Remember, be human and always try your best to be flexible without putting you or your business at risk.

Renovate - This part is straight forward. You should know when you make your initial offer what the highest and best use for the building will be and what needs to be done to get it to that level.

For us, we put about $90,000 into the building with another $20,000 consisting of holding costs over the six month renovation. Renovations consisted of exterior paint, roof repairs and paint, multi zone heat pumps for every residential unit, electrical panel upgrade, new LVP, carpets, appliances and landscaping. Holding costs consist of utilities, taxes, insurance, interest and more.

Rent - Once the renovations came to a close we pushed to get our Occupancy Permit as soon as we could to fill the space. This particular building has a Salon in the commercial space which helped us prefill a number of the units on paper before they were even finished. The other two units we filled using a free Zillow Rental Manager account.

Monthly rent for the five units before we purchased the building totaled just under $3,500. Today, after the BRRR steps, the building generates over $8,500 a month.

Refinance - Now the project is done, we wanted to pay off our high interest lender that helped fund the deal. The bank came in to evaluate the new financials and an independent appraiser came in to give their opinion. After a valuation of $710,000 came back, that meant we could pay off the $110,000 LOC for the renovation and holding cost and even take out a bit of our initial investment (the 10% deposit). After two years of successfully managing the property, we have been able to take out the rest of our initial investment and only owe $500,000 leaving us with a few hundred thousand in equity that we can utilize down the road.

Repeat - Seems too good to be true… so we tried again.

Deal 2 - Driving for Dollars

Asking Price: Not for Sale

Purchase Price: $420,000

10% Down Payment: $42,000

Renovation & Holding Cost: $195,000

Refinance Appraisal: $790,000

75% LTV = $592,500

Buy - A restaurant near our building above closed its doors so we sought out the owner to see if he owned the entire building. After a few emails and calls he responded and we met up for the first of many interactions.

After a number of months and a bit of back and forth we closed on the building. Even cooler, the prior owner agreed to owner-finance us the building with an interest only loan driving our monthly payment down during renovations.

***Relocate - This again, sucked but was necessary. After a rough start, we actually made a few friends out of it. A few people got better places or moved closer to family. It may have also helped that we paid them handsomely to move.

Renovate - Renovations consisted of four apartment full remodels, a restaurant gut job.

For this project, we put about $165,000 into the building with another $30,000 consisting of holding costs over the ten month renovation. Renovations consisted of a hot water upgrade, electrical panel upgrades, new LVP floors, bathrooms, kitchen cabinets, counters and appliances. New paint, trim and doors also helped aesthetically. Holding costs consist of utilities, taxes, insurance, interest, paying tenants to move and more.

Rent - Again, our Occupancy Permit was the most important piece to this as it was a major renovation. As soon as we got that, we listed two of the four units on Zillow and were able to fill three of them from the candidates we had. We moved onto filling the restaurant and had five strong applicants. We chose the candidate with a good track record (three other restaurants) and the biggest renovation budget coming in at $150,000 over the first six months of the lease.

Monthly rent for the five units before we purchased the building totaled just under $2,000. Today, after the BRRR steps, the building generates just over $10,000 a month.

Refinance - Now the project is done, we needed to get some of our initial investment back as we went about 50K over our initial budget. The bank came in to evaluate the new financials and an independent appraiser came in to give their opinion. After a valuation of $790,000 came back, that meant we were able to pay ourselves back for the initial investment and gave us a free building to look after for years to come.

Is BRRRR for everyone? Absolutely not.

Will someone offer you a turnkey, cash flowing investment property? Probably not…

But what you may find if you are actively looking is the house that needs a bit of TLC. A property in a good area that has simply been let go, or my personal favorite which is a good building with a bad landlord. A property like that could be your ticket to finding your next “free” investment property with a bit of hard work, imagination and knowledge of BRRRR.