Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment

by | BiggerPockets.com

This post is going to be a little bit long—but I want to give you a real life case study of a deal I recently did—and show exactly how I made $40,000 on this investment.

Here on BiggerPockets (especially on the weekly webinars and on the BiggerPockets Podcast), I talk a lot about the BRRRR strategy and how powerful it can be for investors—especially those without a lot of money to put into deals.

For those unaware, BRRRR is an acronym for:

Buy
Rehab
Rent
Refinance
Repeat

Therefore, the rest of this blog post is going to divide itself up into those categories, so you can see each part below.

I’d also encourage you to ask as many questions as you’d like in the comment section below, and I’ll do my best to explain anything in further detail!

Finally, while case studies can be helpful, you are not going to be able to perfectly copy what I did. Every property is unique, every location is unique, and your skills are unique. Therefore, throughout this case study, I step aside and offer you some tips based on my story—things that you can start doing immediately in your own business.

refinance

Buy

“I found a great deal.”

This is, ideally, how every BRRRR case study should begin—with a great deal. If you don’t buy a “great deal” at the beginning, nearly every other part of the BRRRR strategy will be difficult or impossible—thus unprofitable. The foundation of a BRRRR investment is a great deal; never settle for less.

So, here’s how I found this great deal.

It was in early spring of 2015, and in typical fashion, I was checking the latest email to come from my real estate agent with new listings in my area. This property immediately stood out to me because it was located in the town on Montesano, WA and was listed below $100,000, which is unusual. Most properties in this town sell between $130,000 and $200,000—so my interest was immediately piqued.

Investor Tip: Talk to your real estate agent and have them set you up with automatic email alerts for properties that meet your criteria. If your agent can’t do this, find an agent who can (and remind your former agent that we live in the 21st century!). For example, I have an automatic email sent anytime a property under $100,000 goes on the market in my town of Montesano. In a competitive market, it is often the fastest investor who proves to be the most successful.

Of course, just because a property is cheap does not mean it’s a good deal; usually, it means there is something really wrong with the house. However, every once in a while, you stumble across a true diamond in the rough, which this property proved to be.

After looking at the photos and description in the email, I ran some preliminary numbers. At the time, I thought this house was worth around $135,000 if fully fixed up. The home didn’t appear to need a ton of work (see photos below), but it wasn’t without it’s own set of challenges.

Related: How I Bought a Fixer-Upper Fourplex for $1 Down: A BRRRR Case Study

Among the repairs needed were:

  • New paint inside and outside
  • New windows throughout
  • New flooring throughout
  • New or Painted cabinets
  • New bathroom shower (it was cracked)
  • New appliances (there were none)
  • A new garage door
  • New exterior doors and patio door
  • Some drywall repairs
  • General landscaping

My original budget was $30,000 to complete all these items, and I planned on doing none of the work myself—I would hire it all out.

But first, I needed to finance this property.

As I mentioned earlier, when doing a BRRRR property, there are actually two different financing methods involved.

  1. The initial purchase
  2. The refinance

Right now, we’re going to focus on #1—the initial purchase.

Now, I don’t generally keep a lot of cash around, but if I did, I might have just used my own cash to buy this property. Instead, I needed to obtain a loan. But I couldn’t just go to a local bank and ask for a mortgage, due to the condition of the home. Most banks do not like to lend on properties in “unlivable condition.”

And even if I wanted to just go to bank, and even if the home could have passed the bank’s “livable test,” I would have been faced with putting down 20% AND coming up with all the repair money out-of-pocket. Therefore, my initial cash outlay COULD have looked like this:

  • Purchase Price: $70,000
  • Loan Down Payment: $14,000
  • Closing Costs: $2,000
  • Repairs: $30,000
  • Total Potential Cash Outlay: $46,000

Once again, maybe you have this money lying around, but when I purchased this home, I didn’t.

So I decided to use “private money.”

Private money is what we call funding from individuals with whom you have a personal relationship. It differs from hard money in that private money lenders are typically just normal people who are looking for a good return—not companies who lend money for a business.

In this case, I called up “Jerry” and discussed the deal with him. (Name has been changed to protect him from 500 BiggerPockets members slamming him for funding!)

Months earlier, Jerry reached out to me on BiggerPockets. He was a regular user of the BiggerPockets Forums, where he had read numerous posts I had made. We initially built a relationship via the BiggerPockets Private Message System, discussing our investing goals and strategies. Later, we spoke on the phone several times, and Jerry mentioned that he would be interested in private lending on a deal some day.

So, when this BRRRR deal came up on the market, I called up Jerry and told him about the deal and what I was looking for. Because I had run the numbers on the BiggerPockets Rental Property Calculator, I emailed him a link to the PDF report I had generated that showed all the details.

(At the time, the BiggerPockets BRRRR Calculator did not exist, so I used the Rental Property Calculator. Today I use the BRRRR Calculator instead for any potential BRRRR property. Also, the reports generated from these calculators were designed to show a lender/partner/spouse all the details about the deal. If you haven’t tried out the calculators, check it out today.)

Back to the story.

Jerry agreed to fund the deal at 12% interest with no points (a point is a fee equal to 1% of the loan amount). I would make interest-only payments to him. Jerry agreed to fund $83,000. In other words, Jerry’s loan would cover the entire purchase price ($70,000), plus the closing costs ($2,000), plus another $11,000 toward the rehab costs.

That’s right: After closing on the deal, I left with a check for $11,000.

Sure, that means I would need to come up with the rest of the rehab money out-of-pocket (about $19,000 in total), but I had this money. Had I not had $19,000, I could have done a number of different strategies to fund this, such as:

  • Using credit cards (not a fan, but I’ve done it)
  • Getting a second mortgage from another private lender
  • Bringing in a partner to fund the $19,000 and splitting the deal with them at the end
  • Using a personal loan from the bank
  • Obtaining a Home Equity Loan or Line of Credit from the bank
  • Getting a business line of credit from the bank
  • Negotiating stronger and getting Jerry to fund the entire thing—maybe for a higher interest rate

The point is, don’t let money stop you. When you have a good deal, you have options. If you don’t have options, you probably don’t have a very good deal.

Investor Tip: Let’s take a minute here to talk about funding. A lot of newbies struggle with getting the funding for a deal, whether it’s a rental, flip, BRRRR, or something else. I know some of you reading this just saw that I put $19,000 into the deal and scoffed, saying, “Sure, must be nice to have $19,000. But I’m broke. So I’m going to go back to watching ‘Two Broke Girls’ and painting my nails.” But here’s the thing: Are you going to always find a private lender to fund 100 percent of your deal plus a sizable chunk of the repairs? Maybe, maybe not. Every deal is different. But if you find good deals, there are always ways to finance deals. That’s what my entire book, The Book on Investing in Real Estate with No (and Low) Money Down is all about. The more strategies you understand for creative finance, the more deals you can do. It’s that simple. So read up, son!

OK, after this, the story is pretty boring until closing. The title company handled all the paperwork, I had to get insurance, and we closed on schedule. So, let’s move onto the next segment in the “BRRRR” strategy—the rehab.

flip-supplies

Rehab

“He stole $5,000 from us.”

Those were the words I was too scared to say to myself, to my wife, and even say in my own head—but I knew it was true.

The very first contractor I hired to do some of the rehab was not returning phone calls, was not coming back to the house, and was, in fact, heading to Vegas (we anonymously stalked his Facebook and watched him spend our money).

But I’m a little ahead of myself, so let me back up and tell you how this came about.

All my normal contractors were booked up or otherwise unavailable, so I needed to find someone new. Rather than following the advice I generally give people (ask the Pro desk at Home Depot, get referrals from other investors, etc.), I decided to go the “easy route” and place an ad on Craigslist.

I received several responses to my ad, but two stood out—Ryan and Richard. I called Ryan first and was instantly impressed. He spoke clearly, said all the right things, and had an opening for the next month, so the timing was perfect.

I met Ryan at the house, and we walked through together. I asked him to give me a bid on doing all the windows, the painting, and some other minor work. He gave me a number of around $10,000 and asked for one half down for the cost of the windows. I said “sure” and wrote him a check for $5,000.

After a few days of him not starting, I started getting nervous. I just paid a guy—whom I didn’t know—$5,000. “Nah,” I thought, “I’m just being paranoid.”

So I texted him to find out how things were going.

“Things are great! I’m just wrapping up another job, but I’ll be there soon,” he texted back. “Windows have been ordered, they will be here next week.”

But next week the windows didn’t come—and neither did Ryan.

After another week of excuses (“The windows were delayed, but they’ve been shipped now”) and still no Ryan and no windows.

So, just to put my paranoid mind at ease, I drove to the lumber store where Ryan purchased the windows. But rather than being reassured that all was OK, my worst suspicions were confirmed. No window order had ever been made.

And that’s when Ryan stopped communicating.

At that point, I decided to do some research on Ryan.

First, I discovered that Ryan was NOT licensed and bonded, despite what his hat, business card, and truck said. His license had been revoked a year earlier. A five-minute Google search could have told me that before he started, but I was in too big of a hurry so I just trusted.

Another thing a Google search would have told me was that I was not the first person Ryan stole from. Several contractor review websites online listed eerily similar stories to mine from the same company.

Ryan was a professional con man. I’m just thankful I only lost $5,000.

Others had it much worse.

I was out $5,000 and almost a month behind schedule, so it was time to get serious.

So I called up Richard, the second contractor who had responded to my Craigslist ad. This time, I vowed not to pay anything up front. I would cover all the material purchases myself, and I would create a DETAILED scope of work on exactly what needed to be done and when someone would get paid.

This time, the story turned out much differently.

After verifying that Richard was, indeed, licensed and bonded, I hired him to finish the project. And he started right away, working diligently on the project five to six days a week. Of course, nothing is ever perfect. In this case, Richard preferred to work alone. He had no employees, no subcontractors, no grunt help. He did everything.

While his work was fantastic, the time it took was longer than I would have liked, and Richard spent the next 80 days or so finishing the project. At the end of the day, the house looked amazing.

Related: How We Got a Million-Dollar Property Portfolio for (Almost) Free

I actually ended up spending almost exactly $30,000 fixing up this house with Richard, including holding costs, so with the $5,000 that was stolen from me, I spent about $35,000 on the rehab phase.

Investor Tip: In the past several years, because of this experience, I changed a lot about how I hire contractors. In fact, I continue to learn and adapt this vital area of my business. But to summarize a few things I now do differently that would have made a big difference:

  1. Create a DETAILED scope-of-work before looking for a contractor. Know exactly what you want, and get the contractors to bid that.
  2. Only hire contractors who you get from referrals—or at least get numerous referrals before hiring anyone. And check their license/bond/insurance.
  3. Don’t let contractors work “by the hour.” Get everything in a bid, so you can keep better track of your expenses.
  4. Don’t pay anything up front to a new contractor. If they insist it’s for materials, pay for the materials. Once you build up trust, you can hand over money.
  5. For more of my contractor tips, see “The Ultimate Guide to Finding an Incredible Contractor” and “8 Simple Tips for Managing Contractors Without Losing Your Mind.”

Before

After

Rent

In my experience, weird houses attract weird people; the opposite is also true: Awesome houses attract awesome tenants.

Therefore, one of my favorite things about the BRRRR strategy is the quality of tenant the home attracts.  Because the house has been rehabbed, it can demand higher rent and better tenants.

In this case, we found a family before the property was even finished. Through word of mouth, this family heard we had a vacant house being remodeled and jumped on it. When they called me, I wasn’t even sure how much it should rent for, so I just took a guess and said, “Rent will be $995.00 per month.”   After all, it had been four months since I had last “run the numbers” on the rental, and I assumed that rents had not climbed significantly.

The new tenants were ecstatic at the news of $995 and agreed immediately. So although it took nearly four months, from beginning to end, to rehab the property, the new family (a local church pastor and his family) moved in the day after the rehab was finished.

Of course, after telling the tenants $995 for rent, I decided to just double check my numbers and I was SHOCKED to see that I was way off. Apparently, the rental market had heated up so much and vacant properties were so hard to find, I could have likely rented that property for closer to $1,400 per month. Of course, I wasn’t going to go back on my word—especially to a church pastor—so we signed a one-year least for $995 per month with a $995 security deposit.

At this point, keep in mind, I’m still losing money. Let’s do the math real quick:

  • Rental Income: $995.00
  • Loan Payment: $830.00  ($83,000, 12% interest-only payments)
  • Taxes: $150/month
  • Insurance: $50/month
  • Total Fixed Expenses: $1,030.00 per month.
  • Base Cash Flow: $-35.00 per month.

Of course, that wasn’t all. As any landlord knows, there are more expenses than just the “fixed” monthly expenses I outlined above. Although the tenant paid for his own utilities, I still have to pay for things like repairs, capital expenditures, management, etc.

Which brings me to another thing I love about the BRRRR strategy: Because the house was totally rehabbed, other than a few small things that were forgotten during the rehab and discovered immediately (a couple light switch covers, some trim that wasn’t nailed good enough, etc.), we had no major repairs while the tenant lived in the home.

Now, I know what you are thinking: Why would someone buy a rental property to LOSE money each month? Well, remember, the reason I’m losing money is because I’m paying 12% interest on the money. I know that I had equity in the property, and I know I will begin to cash flow once I get the property refinanced.

This brings us to the next part of the BRRRR strategy, the refinance.

Investor Tip: For this property, I decided to manage myself. While you don’t have to manage yourself (there are professional management companies out there), you can make a decent amount of extra cash flow by doing so. The key, however, is learning how to manage properties. If you don’t know what you are doing, tenants will walk all over you and/or you’ll end up with a trashed house and possible eviction. That’s not good for building wealth. So, if you plan to manage yourself, only do so if you learn how. Read blog posts on managing properties (like “How to Be a Landlord: Top 12 Tips for Success“) or pick up a book on managing rental (like The Book on Managing Rental Properties, which I wrote alongside my wife.)

tenant-screening-tips

Related: How I Bought, Rehabbed, Rented and Refinanced 14 Properties at Once

Refinance

Now, some of you might be wondering: If you are losing money every month by holding the property with the private money loan, why not just refinance right away?

Good question, and here’s the easy answer: seasoning.

No, not like “steak seasoning.” A properly-cooked steak doesn’t need seasoning.

The seasoning I’m referring to is the time period that the bank requires before they will refinance a loan. Typically, banks want the property to “season” between six and twelve months after a title change. In other words, they don’t want to let you refinance right away.

Why? I have no idea. I suppose it’s to limit the possibility of 2008 rearing its ugly head again.

(Caveat: It is probably possible to refinance before six months, but the bank will only be able to use the “purchase price” of the property, rather than the new value. We’ll talk about why it’s important to have the latter, not the former, in a moment.)

Regardless, seasoning is a real thing, and it sucks, but we deal with it. When I first bought the property, I was told by several lenders that the seasoning requirement was six months, but after six months of seasoning, I was told “Nope, the rules changed, and now it’s 12.”

I don’t know if I buy “the rules changed”—I’m guessing they didn’t understand the rules to begin with (when they told me “six”) or they were incorrect on the 12—but either way, I waited 12 months and then obtained the refinance.

As with all refinances, the bank wants to see a lot of information about me and my personal finances, such as:

  • Credit report
  • Loan application
  • Personal tax returns for two years
  • Business tax returns for two years
  • Profit/loss statements for all my properties
  • My favorite kind of breakfast cereal (Cinnamon Toast Crunch)
  • My underwear color (grey?)
  • My IQ
  • The names of my still unborn (and “un-conceived”) children
  • And whatever else they can demand.

It truly is a frustrating experience, and someday I’ll be rich enough to simply tell them to “talk to my people,” but for now, my wife and I have to get all this information together in a nice little packet for the bank. So we did.

Now comes the most important part of this BRRRR strategy, something that if we messed up could cause a lot of drama—the after repair value (ARV.)  The ARV is simply the fair market value of the property after it’s been fixed up.

The reason I say this is the most important part is because if the property does not appraise high enough, I’m going to struggle getting a high enough loan to pay back my private lender (and pay myself back for the money I put into the deal).

As is typical with rental property refinances, the bank was only going to let me get a new loan that is 75% of the new, appraised value. So, if the property only appraised for $100,000, they would only give me a new loan of $75,000. Yikes.

And this is the biggest danger of the BRRRR strategy, so let’s take a moment to discuss this more in-depth.

Investor Tip: Like house flipping, the BRRRR strategy relies heavily on the after repair value (ARV). You need to have some serious equity in the property after you fix it up, or you’ll struggle getting the house refinanced. So how do you ensure you get the ARV right? One word: comps. (OK, that’s not even a full word. It’s short for “comparable,” and it basically means “your house is going to be worth what other similar houses have sold for.”) The easiest way to get “comps” is to talk to an experienced real estate agent, who can either flat-out tell you the ARV (if you trust them) or they can provide sales data for the area and you can do the math yourself. For more on estimating the ARV, read Chad Carson’s awesome post, “The Ultimate Guide to Quickly Estimating a Property’s ARV” here on BiggerPockets.

So, back to the story.

At this point, I bought the property for $70,000, and I put $35,000 of repairs (including holding costs while the property sat empty) into the property. I also had a few thousand dollars in closing costs, so my total “in” for the property was $107,000.

The appraisal came back at $145,000, thus the bank agreed to fund $108,000—enough to pay back my lender, pay back myself for the money I put in, and cover almost all the closing costs for the new loan.

Bingo.

However, I actually didn’t refinance for $108,000. I decided, instead, to keep most of my money into the deal and just refinance for $90,000. I decided that, by doing so, I would keep my mortgage payment lower and that made sense to me at the time. My new loan was just $650 a month, including taxes and insurance.

Investor Tip: What if you can’t get the refinance? This is a valid question and serious concern, so let me offer a few thoughts. First, I never go into a BRRRR deal unless I’m relatively sure my credit/income/debt is at an acceptable level to get a refinance. Second, because of the nature of a BRRRR deal, if I did my numbers right, I should be able to sell the property instead if I had to. Essentially, turn the property into a flip. Yes, I might have a tenant that I would have to ask to move after their first year, but it’s an option. Another option would be to extend the loan with the private lender. I’m sure Jerry in this deal would have been more-than-pleased to continue receiving his 12%. Finally, if I couldn’t qualify for a loan, I could bring in a partner, someone who could help me qualify for the loan. (After all, who would reject the idea of being added to a property that has huge equity already, after the risk of the rehab, where they don’t need to bring any money, just good credit and income? It’s a no-brainer for any partner.) The point is, there are options IF you buy smart and get some good equity.

So, the refinance went through without any major problems, and one year after I bought the home, my private lender Jerry was paid off, allowing me to use his money again. Which brings me to the final “R” of the BRRRR strategy…

succeed-vs-fail

Repeat

After one year of ownership, I refinanced this BRRRR house and paid off my lender, Jerry. Now, because of this, I was able to use his money again for another deal.

This is where the final “R” comes in—”repeat.” While this “R” is optional (some people don’t want to do it again), the benefit of the BRRRR strategy is the ability to get your money (and your “short-term lender’s” money) back so you can do it again and again and again, as much as you want. Well, within reason.

One of the things that could stop you from doing this over and over for years is the simple fact that most banks have a limit on how many loans you can get. If you are obtaining conventional loans, which are “sold” to Freddie Mac and Fannie Mae (pseudo-government agencies that buy loans so banks can get their money back to re-lend out—kind of like banks are playing the BRRRR game too), you can only have 10 loans in your name.

Of course, there are many ways to work around this. For example:

  • You could put 10 in your name and 10 in your spouse’s name.
  • You could use a partner and put the properties in their name.
  • You could use a portfolio lender (a bank that doesn’t sell their loans to Fannie Mae/Freddie Mac).
  • You could use the commercial loan department at the bank (they have different rules—no limit of 10).

Or you could figure something else out creatively. But I’m guessing at this point you don’t have a huge problem with that limit of 10, so let’s move on.

Investor Tip: Although at the time of this writing the limit for both Fannie Mae and Freddie Mac loans are 10, it used to be four total loans. Many banks are unaware that this number has risen from four to 10, and many are just stuck with the old rules. So, if a lender tells you the limit is four, find another lender—someone who knows what they are talking about.

So, back to the final “R”—repeat. As soon as we finished this project and I paid back Jerry, he was excited to see the project completed successfully, but he also really enjoyed that 12% interest I was paying him. So he said, “If you have another deal, let me know!”

Related: How I Made $575k From One Deal In Five Months — And How You Can, Too

And within a few weeks, I did. I went under contract on a single family house in a great area that I decided to fix and flip. I used Jerry to fund a flip, and my partner and I cleared $52,000—but that’s a story for another day.

What Happened to the BRRRR House?

OK, so I titled this post “How I Made $40,000…” but up to this point, I haven’t told you how I made $40,000.

So far, you’ve seen me:

  • Buy the property for $70,000 plus $2,000 in closing costs
  • Rehab the property for $35,000 (including holding costs and the $5,000 stolen from me)
  • Rent the property out for $995 a month
  • Refinance the property for $90,000 (but I have $110k into it, total)
  • Repeat the process and use my lender’s money on the next one

Now, the final piece of the BRRRR puzzle—and perhaps my favorite aspect of BRRRR investing—is the ability to control when I sell.

You see, when you flip a house, you have to sell it right away. You are in a rush, and if you don’t sell fast, you could lose big.

When you buy a rental, you typically make money on the looooong haul, and it could take years to see anything.

But when you BRRRR, you are put in control. After the refinance, you can sell it whenever you want or whenever it is most advantageous to you. You could wait two years or 20 years. In the meantime, you are paying off the loan slowly, you are getting cash flow, and you own a great property in a great area with great tenants. Not a bad deal to me.

Now, after the tenant (the pastor) had lived in the home for 12 months, he let me know he would not be staying. He and his family would be moving out of the area, and suddenly I had a choice: Should I rent the property out at the higher rent that the property could get? Or should I sell?

After looking around at the market and talking with my real estate agent, we decided to sell. We spent a few thousand dollars finishing a few things at the property (such as new countertops, something I was reluctant to do when we placed the tenant in the home) and listed the home for $165,000—and received an offer within 24 hours.

Two months later, we sold the house, spending about $15,000 on closing costs (mostly real estate agent fees). So the final numbers looked like this:

  • Purchase Price: $70,000
  • Closing Costs: $2,000
  • Rehab/Holding Costs: $35,000
  • Refinance Fees: $3,000
  • Total In: $110,000.00
  • Sales Price: $165,000
  • Minus Closing Costs/Final Repairs: -$15,000
  • Minus Total In: -$110,000
  • Total Profit: $40,000.00

In addition, remember I had left nearly $20,000 in the deal, as my refinanced loan was for only $90,000. So I actually walked out of closing with a check for almost $60,000, which I am using TODAY to purchase a flip for all cash—but that’s also a story for another day.

productive-2017

Summary

So there you have it.

Normally, I like to take time to draft up a nice long “summary” at the end of an epic blog post. But I’m tired of writing, and at 5,028 words, you are probably tired of reading.

If you made it this far, do me a quick favor: Leave me a comment below. I’m happy to share more info if I can or clarify anything. Besides, comments make me feel good! 😉

Thanks for reading. Now go out and get your next BRRRR deal. Or spend some time with your family, because you’ve been reading this post for WAY too long.

Oh, and be sure to sign up for this week’s BiggerPockets Webinar workshop that I’ll be teaching LIVE. It’s going to be awesome.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Any questions about this strategy? Have you done something similar?

Let me know your questions, comments, and stories below!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.

104 Comments

  1. Audrey Ezeh

    Awesome and inspirational post Brandon! I’ve learned a ton from your posts and webinars and your book on managing rental properties was delivered yesterday so i jumped right in!! Anyway, I am looking at BRRRRing as well but with my own funding and I guess my only question is…property was listed at 70k and you paid 70k, any reason why you didn’t offer less? Fear of losing the deal maybe?

    • Brandon Turner

      Hey thanks Audrey! And I think it was actually listed at, like, $77k or 80k or something. But I got it for $70k (if I said otherwise – oops! Typo!) It was a HUD deal, and I knew there would be a lot of interest in it, so I offered a bit lower and offered FAST. I think I had the deal locked up within 24 hours, which is probably my #1 best tip on getting deals. Work fast!

  2. Brian Hernandez

    Hi Brandon, Thanks for the awesome insight! I am planning on starting my RE investing journey soon and I have been listening to the podcasts and have found them to be extremely beneficial especially for younger investors like myself. The question I have is regarding your private lender and the specifics on the deal you presented to him which motivated him to give you most of the property’s value. Thanks.

  3. Jack Knochel

    Love the BRRRR! We have used it a couple times in the past year, in fact we closed one loan on Sat morning to get our money back to then buy another house this past Wed. We found a bank that if you own the house outright(buy with cash and rehab with cash) and its in your own name, they will refi the house at 4.25%, 65% of the arv anytime. You don’t have to wait for seasoning, for a total, are you ready, $300 processing fee! HA HA can you believe that?! No big closing/refi fee, just $300. They are ready to do this next one when we are done with the rehab. For the one we refi on Sat we purchased the house for $32k and put $16k into the rehab and the bank offered us a loan for $51,350, which we turned down and asked to only be given a loan for $45k. It rents out for $795. With the $45k we purchased the new house for $45k and will put $25k into it and hopefully get $70k back out once we are done. YES, its easier when you have your own money laying around, but like Brandon said, I could of brought in a money partner to make it happen also. Oh, and we won’t be leaving the houses in our personal name, we’ll pay $100 for our lawyer to do the paper work to deed it to a trust,

  4. Good Post Brandon. I have both of your books and they are fantastic. I am SHOCKED, SHOCKED that you set your rent without looking at comparable rents. Please tell me this was a long time ago, because this is not something that a seasoned landlord would do. To me this is a bigger mistake than your $5000 to your bogus contractor. Do you think you could have sold the house for more $$ if your renter had been paying market value?

    BTW, thanks for admitting your mistakes so we can all learn. I hate the authors that say everything is peachy and oh so easy!

    Also HUD houses have an owner occupant bidding window and investors cannot bid before OO, non profits,etc. get their chance. I assume you meant that you bid fast after the property went to \”All Bidders\”?

    Loved the fact that you painted the kitchen cabinets. The new counters look nice. When I am selling, I spring for stainless appliances. The total cost is like $250 more for the kitchen and it looks really sharp. That seems to be the style here in our market. (Chicago metro)

    You can also do the BRRRR! strategy with your self directed IRA. There are non-recourse lenders out there that loan on the cash flow and the ARV. You have to pay a minor amount of Unrelated Business Income Tax when and if you sell, but the debt helps you buy more properties.

  5. AWESOME blog Brandon! I know you mentioned that most banks will lend up to 10 mortgage loans per person normally, however how do you get around the DTI factor after having 1-2 mortgage loans (including your own home) if you have no job (maybe just do real estate) and or maybe just have an average $45k income job? Is there a way to still do this without having to find a partner/hard money/private lender?

  6. Tony LaCoste

    Thanks for the read! It is great to hear about experiences (good and bad) because each one has at least some small lesson to be learned no matter how much experience you have.
    If you put properties into an LLC, this gets you around the 10 loan rule right?

  7. Jerry W.

    There is also a plus in holding and renting the property for a year after 4 months or more of rehab, when you sale it is likely you can pay long term capital gains, not short term capital gains taxes. As to the guy who took your $5K if it was for materials and he never ordered any materials it is quite possible he could be prosecuted for fraud or theft. Here we call it larceny by Bailee. If there is a pattern of it, it becomes easier to prosecute as he cannot claim accident or mistake.

  8. Tom Doherty

    Awesome post. I have yet to pull the trigger on a BRRRR because I was unsure about the process as well as what could go wrong ( sounds like an easy concept ) but this post helped clarify everything.

    These case studies are great!

  9. kyle callahan

    Thank you Brandon for the year chock full of wisdom and encouragement. This was an inspirational, albeit lengthy 🙂 post – worth the read, glad to hear it worked. In my market, $165k gets something that is quite less charming than the bright and delightful reno that you did on this home. Congrats, hope your new year with your growing family is spectacular!

  10. shouldn’t that 40k be much less? If sales price is 165k bank will let you refinance at 75-80% LTV. If you take the cash out then you only get 7k cash back @ 80%. plus your own 20k. which your final check should be 27k. 20k of which is negligible. if you factor in the time it took for 7k at 6 months seasoning is it worth it to put your time into the project? You’d better make sure you have another job while you’re doing this project. Because if you can afford to do one you can do max 2 a year and then you would need more capital to do more. IF you can find more capital. With the right deal you can always find capital I guess but the next question is if you can even find the deal fast enough to do more. Also after checking the irr if it’s even worth your time. I like the BRRRR strategy but I still think it’s for people who have lots of money who are not employed and don’t want to just have that money dwindle down every year. No matter what people say you need to have some money to do real estate investing. Work at dennys or mcdonalds for 3 years and live like a bum and then consider this option. This is a good strategy to do only on the side. Unless you got some type of inheritance money and want to create some passive cashflow so your bank account isn’t just going down.

  11. Brandon Jackson

    Awesome post Brandon!! Can you share more information about the agreement you had with your private investor? I’ve successfully used private money before, but would like to know how you structured yours and how the actual paperwork and agreement was drawn up. Were the private funds backed by the property to where if something went wrong, the private investor would get the house? Thanks in advance.

  12. Michael Braswell

    I appreciate you posting the details of your BRRRR strategy. I talk to investors all the time about this strategy. This is the key to building long term wealth. In my humble opinion, fix and flip is a fad that comes and goes based on the market but buy and hold is tried and true and works no matter the market.

    Keep the blog posts coming!

  13. Blake Anderson

    Hi Brandon! Congrats and Happy New year!

    What I have “struggled” with understanding/planning to scale our real estate investing ops is debt to income. (We currently are owner occupied in a duplex and live mortgage free) But I’m trying to plan/figure how we can scale this up. But debt to income/debt to equity is what I struggle with.

    With the BRRRR strategy it’s still an issue right? I mean, the loan is still counting against you. What do you suggest?

    Thanks!

  14. Gustavo Munoz Castro

    Wow, awesome post. Was a breeze to read for me, it was THAT interesting. Loved the nuggets of what went WRONG for you, like the contractor and charging too little for rent. Also loved the pitfalls like the limits of refinancing an investment property. Quality post, thanks!

  15. Adam Ulery

    Brandon, thanks for the awesome blog post! I’m a new buy and hold investor who is using the BRRRR strategy. This post answered some questions I’ve had, such as if it is ok to have low or no cash flow during the private money part of the process. I have been wondering how to make the numbers work when borrowing with high private money interest rates. Your post helped clear this up for me.

    I also really appreciate you sharing the challenges and issues that you had and how you dealt with them. Thanks for everything you and Josh and the BP team do for investors!

    Adam

  16. I’m still working full time so I’m looking into being ‘Jerry’ for a while. 12% sounds good to me considering what my money is currently earning sitting in the bank. Really need a private money mentor before I get started though.

  17. Manuel Prado

    Brandon thanks for sharing your experiences. Something that inspires me the most about BP and your person is the enthusiasm you put into your real estate. It’s very contagious and it pushes me to continue teaching Spanish in elementary (full time job) and it pushes me even harder to continue doing more BRRRR deals which is what’s going to help me get to my financial freedom number and go into real estate full time. I do have one question, I have done 3 BRRRR deals so far and am in the refinance process on 3 more (trying to get 3 properties under one loan and save some in closing costs and loan origination fees, etc.) Therefore, my question is: when do banks start rejecting or saying no to more refinancing? Or, is there a certain number of houses you stop refinancing before going with a different bank to avoid burning out the same institution? Thanks a lot and happy new year to everyone.
    Manny

  18. Cliff Harrison

    Hi Brandon,

    Thanks for the great post. I have done several BRRRR and most have turned out very well, and I am still holding all of them.

    I do think you should have included your specific accruals for repairs, capex, vacancy, and PM items either in the first section when you had the $=35 negative cashflow or when you refinanced out and had the PITI of $650 and were getting $995 in rent. It sounds like a cashflow property but depending how you account for the extras it may not be much at all. Of course, if you were getting the market rent instead of the $995 it would be a great cash flow property. Congrats.

  19. Rick Santasiere

    Great post Brandon. You always have a great description of the “deal.” I have done some similar deals to this one. I love your description of your monthly “loss,” and how you used the power of all your tools and experience to convert it from a loss to a small monthly gain, and eventually a nice large gain. I am in the process of one (I hope I am sealing it u as we speak) that is similar to yours, in which I have 4 ways to dispose: 1. Light Rehab and quick flip, 2. Major Rehab (8 week timeline) and full flip, 3. Lease Option (with the major rehab, or 4. the B&H (or “accidental rental” I like to say) with the mild appreciation play for long term. I am partial to option 3 because it presents the greatest amount of income (monthly and at disposition), and I find that L/O’s HELP someone who couldn’t buy right away. This makes it a home run for the purchaser/renter. I think my #’s will be similar to yours in this next one, although, I will save some $$ on the holding costs (due to the use of HELOC $$0), as well as the deferral of some labor costs (trusted contractor). Can’t wait to share my story, and hope it can be as animated as yours 🙂 Happy New Year Brandon to you and your family!

  20. nick jackson

    Hey Brandon, good read. Just wanted to check in with you and see if you could enlighten me or provide some advice for a deal that I am currently in. I recently closed on a property that I feel I got a pretty good deal on. 3/2 1500 square feet in a relatively good neighborhood, absentee owner that used it several times a year. I acquired the property for $75,000, a subsequent bank appraisal came back at $110,000 as is. The home was taken care of and in really good condition, although needs a new roof, some exterior work due to rot, new exterior and interior paint. Initially I acquired this project looking into it as a flip, but the more I looked into the BRRRR, the more interested i became in this particular strategy. So naturally, my rehab budget went from about $30,000 to $15,000 seeing as it would be used as a rental and not resold on market. So I have just had a new roof put on the other day and will be having paint done within the next week or so after exterior repairs made. I expect to be done with all repairs in about a month and already have a renter in a smaller property i own expressing extreme interest in this one. I am using a commercial bank loan and HELOC for acquisition, down payment, and rehab. The rental market in this area suggests I should be able to get between $1100-$1200 for this property. I have already spoken with my banker and informed him of my strategy and plan to refinance after 6 months. So here are my questions concerning your second loans or what you may think of this situation; first, I was advised that when it came time to refinance the loan, I would only be able to amortize at a 15 year maximum. Obviously this cuts into my cash flow which is a huge factor, although, i would still have positive cash flow. I have a full time job which is my main source of income so i don’t necessarily depend on rental income, so in 15 years this property would be free and clear. Do you find yourself doing a 30 year on most of your properties? It seems the only way I would be able to do so is to have a retail loan on the property, but then I would lack the protection of the LLC I have created to shelter the properties in. I am only 30 so i won’t nor want to quit my day job anytime soon, but it would be nice to have that extra cash flow from rental properties. It just seems that would be hard to achieve on a 15 year schedule. I appreciate any advice and can’t tell you how much of an education BP has provided me. Thanks

  21. Tom Chen

    Great article Brandon.

    Quick question…for those that are starting out brand new that don’t have private investors ready to back them…how would you have done this deal?

    For instance, say in this same deal, I have enough for the down payment and possibly rehab costs, how would a new investor work on a new deal after their initial start up cash is used up?

  22. Rob Urban

    This BRRR strategy is exactly what I have been planning to do before I read about it here or even knew it had a name. It’s nice to see you cover it so thoroughly.

    The reason this strategy makes the MOST sense of all RE investing is because the downside is nil, especially for me because I can buy multiple properties all cash, then refinance/cash out to improve ROI after I find a great tenant. If I can’t find a tenant, the market implodes, lending dries up, 2008 returns, etc I can sell the property at break even or lower rent to keep it occupied. Heads I win, tails I don’t lose. So, rather than getting 1.4% from my bank I should get a minimum of 5% after expenses with nearly no downside risk.

    Thanks for writing about this strategy.

  23. Joshua Ashcroft

    Brandon,

    Thanks for laying that all out there for us!

    One question, is there a reason you choose to use an agent rather than act as your own agent? It just seems like your moving properties fast enough there’s a lot of money on the table there I’m curious where you find value in an agent with your experience.

  24. Nicole Campbell

    Hi Brandon
    This was great! The information was extremely helpful! I have one question ( excuse me if you’ve stated this) how did you make the payments monthly for the “interest only” loan to your private lender before renting it out?

    Thanks

  25. Jeff Dulla

    Not sure if it’s in every area but for contractors I would check out thumbtack. It is an app that allows you to describe a job and then have licensed contractors reach out to you and bid the job. The interface helps provide info on each contractor, reviews, contact info, etc. Like a free Angie’s list. I have used it ten or so times and haven’t had a bad experience with a contractor yet.

  26. Awesome post! I am in the process of seasoning a property I bought and rehabbed. Bought the property in April, completed rehab in July and moved in, a tenant in August.
    To your point, I made about three attempts to refinance early but quickly learnt most lenders around me, are heavy stickler to the 12 months rule. My goal is to refinance in Sep 2017. I hope to share my experience then.

    • Jeff Dulla

      You can finance but you have to look for properties that don’t have safety or structural issues. Looking at his place as an example, you might be able to finance up front as long as there isn’t mold, water issues, roof needs to be replaced immediately, major foundation issue, etc. Also you can by a single unit investment property for as little as 15% down these days.

  27. Ramon Cuevas

    Great post, Brandon and happy new year!
    Looking back do you think it would have been better to sell instead of refinance saving you around $3,000 in costs and replacing those countertops from the start. I have read a couple of your posts on this strategy and the decisions on value add items. If you rehabbed property using nicer finishes, wouldn’t that result in higher rents and ARV which means more cashflow and more money when you ultimately decide to sell?

  28. Thank you Brandon. I appreciate your strategy and details, with examples.

    I get frustrated with banks & lenders and their process. I’m nearing the end of a refinance loan, but received an appraisal, for 40k less than comps my real estate agent found & what I expected and the process has taken twice as long as initially stated. My lender locked my mortgage interest rate, 2 weeks after we started the loan, but the mortgage interest rate had increased .5%. I am yet to find a lender I like. I would love to not have to use a bank someday.

    Do you think private money lending will become more main stream, affordable and accessible?
    Do you ever do a renovation loan?
    Thank you

    • Jeff Dulla

      Adam – I am a lender with a mortgage bank but also an investor. I have been through full boat construction loans and rehab loans. There is no easy solution. Fannie and Freddie loans may need to fit a certain box but there is a reason why they are the most popular routes for financing a property for both borrowers and banks. For banks, the ability to sell to Fannie/Freddie mitigates a lot of their risk. Keep that in mind when looking for other options and ask yourself – if a bank is going to do a loan that they must keep in house, where they cannot sell to mitigate risk – like a rehab loan – will the bank make the process easier on a loan they have to take more risks on? Not likely. There are routes like the one the author took that are quicker and less bureaucratic but they definitely come with a price. For the right situation, like the authors, that made perfect sense.

  29. Mike Conner

    One item always throws me off when anyone posts their numbers on here and it’s closing costs. What exactly is being included in the $3,000 closing costs on the refinance? The last refinance I did on a $100k property, the closing costs were $7,300 which included inspections, survey,title work,etc

  30. Theresa Lim

    This came at the right time! Just closed on my 1st rehab property on Dec 30th. Initial intentions were to rehab and flip. But after reading this, I think I may just BRRRR instead! I do have a few questions though:

    1) Property is held in my Corporation’s name. If I were to hold on to it for rental, should I change ownership to an LLC instead?

    2) If property is in Corp or LLC’s name, would that affect the refinance 1 year later? Or should title be in my name?

  31. Kris Seelbach

    Great article Brandon!

    You have a rare ability to convey core concepts but also accompany these with small situational case specific details that allow the reader (myself being a newbie) to understand the experience and indirectly gain knowledge from you. Just truly great educational writing.

  32. Rodney Williams

    Great job Brandon,

    Instead of just renting, I would have used one of my owner financing strategies and accelerated future equity for two years (10 to 15% in my world) while teaching the new owner how to properly maintain their new home at heir expense.

    They can cash me out anytime they want or I will continue to hold paper.

    (Private lenders love to see contractual paper if executed properly knowing they could take over and recoup the balances or for that fact insurance proceeds if something happens). Always take care of your lenders.

    Good lesson to check out all your numbers before selling. Even though I get higher than market rents most of the time with the number you presented I would not have rented less than $1300 using the one percent rule.

    Again great post,

  33. Sedriah F.

    Great article, it helps to read all the details to help me get ready to do my first deal in 2017.

    You stated that you changed the countertop when you sold it, but in the pictures it looks like you had already updated them with the original rehab. What did you do different when you sold? Did you change the material to granite or some other material for the sale?

  34. Sharon Yoo

    That was an amazing post and I’m so glad you mentioned it in your webinar. Your daughter is so beautiful by the way! Thanks for the informative and easy to read guide through what a BRRRR is and it’s really piqued my interest. I look forward to reading/hearing more from you.

    Thanks again!

  35. Great article.
    I want to revisit the topic of 10 loan limit.
    Does income or other items play a factor on the limit?
    Would a person with a full-time job salary 200K/yr be able to get more loans if loan average is 50K each VS a person with a full-time job salary of 60K/yr ?

    I want to determine other dependencies on obtaining more loans.

    • HI Hernan, For traditional banks like Chase, Citi, etc that sell their loans, the rule is 10 loans per person. They don’t care if you make a million dollars a year or 50 grand. The logic of Dodd Frank is that landlords with multiple properties are more likely to default. Never mind that a novice investor with 3 rentals is far more likely to fail than somebody with 25 houses.

      The 10 loan rule does not apply to small community banks or any bank that keeps loans in their own portfolio. After I got shut off from traditional banks in 2008, I have used a small local bank and currently have 17 properties with them. The traditional banks are cheaper, but once you hit 8 or 10 loans, they are going to shut you off. The smaller banks are likely going to charge a little more and want you to have a smaller LTV. They are still cheaper than hard money or private loans if you are going to hold the property for many years. Shop around if you go this route.

  36. Thanks for the article and the in depth description of each phase of a BRRRR. Finally an article that really shows the process and has tips along the way if something did not go exactly like yours went. Also how loss added to the equation pecan turn out as a success. Very helpful!

  37. Chris T.

    Excellent article, thank you. And we all now know you wear grey? Underwear

    In all seriousness, this is as detailed as someone who needs to know what “brrrr” means.

    For the newer investors who might have more questions, I suggest you hit the forums as I think Brandon stopped looking at the comments after a few.

  38. Cresundo Whitaker

    Wow Brandon you make it sound so easy. I am running into so many issues with my rental property. The residents that I find are amazing. But the money is just gone. This is my first rental and I am trying to find different ways to get money. But every time I read one of the blog posts on bigger pockets it re-inspires me to keep going and don’t give up. Maybe one day I will be able to tell my story and inspire people. And I hope I can have a good deal with out all the issues I have been having with this one as well so I can tell that story too.

  39. Mo Castro

    Hey Brandon!

    My 1st Official Post on BP! Just became a pro member from your last webinar, and found my way here to this article from your webinar about BRRRR. I made it through the entire article (with NOTES may I add!) and fulfilling your request to leave a comment. Ready for it? Here it goes:

    Awesome! Thanks for the wonderful insight! My wife and I are taking your 90 day challenge serious and are educating ourselves to make something happen in the next 90 days (well, 85 days now…)

  40. Cassidy Burns

    Great article Brandon. Very motivating. Currently trying to do this now on 2 properties. Finishing up renovations now, 2 leases signed for 1 home. Have 2nd unit under contract! I actually got loans on both of these properties. What is your opinion on getting loans on BRRRR properties rather than paying all cash with investors money?

    Thanks!

  41. John Murray

    I have been successful in BRRRR. My rules are purchase at a 20-30% discount. Rehab in 60-90 days. I do all the work and spend about $100 per day in materials. My latest completion was in May and rent for $2500 per month. I purchased for $290k and the appraisal this month came in at $380K. My rent profit is about $800 per month and my initial investment was about $85K. I’m just about to complete a short I purchase for $292K and a total investment of about $80K. This year my rent profits and refinance will be just north of $260K. This is the way to make a big profit in BRRRR. You must purchase at a steep discount and complete the work yourself to make big money. Make sure you comply with the IRS tracing rules or you could end up with a disallowed passive write off.

  42. Aku Thomas

    Wow, amazing. Brandon,
    Interest rate of 12% on hard money was high, but l guess on a small loan would not matter.
    l am ready to get started, at the moment looking for financing with less money down, or Seller Carry on a 80k Property.
    l listen to u on itunes.
    You are inspiring.
    Thank you.

  43. Thank you for the detailed insight to the deal. This is definitely what I needed to see an example of the BRRRR strategy which included some hiccups that you were able to manage. Enjoyed this article a lot.

    Regards.

  44. John S Lewis

    Hi Brandon – love this blog post. I can only dream of being as creative as you. I did a BRRRR calc on BP on the cash on cash ROI came up as inf% What’d I do wrong? Also, still waiting for replied to my emails to you from previous articles – still stalking 😉

  45. david shifirn

    This may be a tough question to answer as it’s likely specific to each individuals financial situation. I get the brrrr strategy for acquisition of multiple properties and hopefully multiple cash flow positive assets. But….if you refi and pull out the equity and are left with a mortgage each deal you do also adds debt that you own. In essence, your more and more exposed to the market swings. Am I thinking about this incorrectly? Would appreciate feedback here.

    • John Murray

      David you have to purchase 20-30% below market and renovate yourself. This has to be done in a booming market. You have to know what you are doing, cash flow in the initial purchase will be about $800 to $1000 per month. On refinance cash flow will be reduced to $500 to $800 per month. The next purchase will follow the same course. Always choose a 30 year note and no points. Use others money before yours. Leverage will increase as well as monthly income. I started with $550K and now with refinance is $850K of my skin in the game. My leverage is about $3.2M and rent profit about $60K per year. The benefit is pay almost zero taxes. Make sure you pay attention to IRS tracing rules and you are good to go. Time to get to work.

  46. Matthew Gullo

    Hey Brandon! Great and informative post. I’m intrigued that you bought this home and were originally loosing money (while you were still using the private lenders money) I watch a lot of your webinars and know you prefer 12% and at least $200 over and above cap X, repairs, and vacancy. Can you explain the thought process behind this particular deal a little more based on your minimums?
    I know that once you refinanced and had you re-leased at $1200-$1400 a month rent, rather than sold, you would have likely satisfied your minimums.
    I’ve been analyzing deals and looking for things that are based on your minimums….I like seeing other options that get you to the goal.

  47. Hi Brandon! I hope you read my comment and find some time to answer (hope is a good thing). How do you find out in advance what are the rents in a particular zone? Do you ask your Broker and ask other Realtors to confirm?
    Could you write a blog post on the whole process you go through to find out what is the rental pulse of a neighbourhood, what is the home prices pulse of the neighbourhood? Thank you so much for sharing all this educational materials.

  48. Laura Sergott

    Great post Brandon! I enjoyed reading to the end. We are still searching for a deal in our area. We’ve made several offers and continue to press on. I’m glad everything worked out for you in the end despite the challenges!

  49. Tom Doherty

    Great post! One question about commercial loans. Lets say you maxed out 10 conventional loans under your name and now a commercial loan is your next option. Are all commercial loans balloon payments? or do they provide a term loan??

  50. Dylan McShain

    Good Stuff Brandon.
    Quick question about “First, I never go into a BRRRR deal unless I’m relatively sure my credit/income/debt is at an acceptable level to get a refinance.”
    Do you have a formula/calculator for this?
    Also, have you used the BARRRR method that a fellow BP’er wrote about a little while back?

  51. Neil Schlimgen on

    Excellent post Brandon! You mentioned that you did not have the money lying around so you used “Jerry” to finance your repairs. My question is, if you did have the money laying around would you still have used a private lender and used your money for another deal or have used your own money? It would have saved you 12% on your money but would have tied your money up in the deal. Thank you for your posts!

  52. Michael d'Entremont on

    Great article Brandon! I am learning lots. I live in Edmonton, AB – Canada. I have so far purchased 3 of your books and very eager to build a large portfolio! Thanks again!

  53. Sang Pak

    This is even better than all the podcast I have been listening to lately. I also forwarded this my wife(I am quite yet knowledgeable enough to explain how BRRRR work so).
    also loved your story about contractor pretty much stole your money. Any behind the story about that? did you get him to pay it back somehow?
    anyways. I’m so glad that I fund you/BP…..

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