We hope to teach you how in one year, through the power of the buy-rehab-rent-refinance-repeat (BRRRR) strategy, you can own three cash-flowing rental properties, have added $100,000 to your net worth and now be receiving an extra $10K per year in passive income.
We should start with a key assumption – at the time you are reading this, you are ready to jump into BRRRR investing and have some access to cash whether it be through your personal funds, a loan or a partnership with other investors to purchase a property or two. (If you do not, no problem, we just extend the timeline a bit).
So how do you do this and what do you buy? Let’s look at it deal-by-deal.
Deal 1: Purchased within 2 months of deciding this $100K/$10K goal is for you. Purchase results in $33K in equity (i.e., value of property minus what you paid for it) and you are generating $277 per month in cash flow (i.e., rental income minus expenses) from your rental.
Deal 2: Purchased in month #9 of first year using the same funds you used to purchase Deal 1 after you have waited the typical six months required before a bank will let you refinance your purchase of Deal 1. Deal 2 purchase results in an additional $33K in equity and you are generating another $277 per month in cash flow.
Deal 3: Purchased sometime during months 9-12 using the cash you have saved over the course of the year. You find another great deal that you rehab and generate an additional $33K in equity that you rent before year end and is also providing your $277 per month in cash flow.
Net Result after one year: $100K in equity in properties purchased. $10K per year in cash flow.
There are more benefits heading into year #2 if you are still hungry for more deals: Because you purchased deal 2 back in month 9 of year number one you are going to be ready to refinance out of that deal in month 3 of year number two (after the 6 month holding period I mentioned earlier). Also, you are going to be able to refinance early in year 2 on the deal that you bought late in year 1 (Deal #2). What does this mean? This means that before the six month mark in year number 2 you are going to be able to acquire at least two additional properties without taking any additional money out of your pocket and just using the refinanced loan amounts from the properties bought in year 1. Execute two additional refinances and purchases in year 2 on top of those and you have now been able to in total acquire an additional 4 properties in year 2 without taking another penny out of your own pocket (the power of compounding!).
*What we are saying above can move even faster with the right lender. We have been able to refinance some of our properties immediately after closing the purchase without having to wait on the six month holding period. This means less money out of pocket and doing deals much quicker because your cash is not locked into a property. Finding the right lender can be one of the best things you do to expedite your investing and success.
Back to the point: Would 7 properties in two years give you a start to your investing path through BRRRR that you could be happy with? Remember, you did not even invest any more money out-of-pocket in year 2! Buy your deals right and consistent with the metrics we described above and you are looking at over $200K in equity and $20K per year in current cash flow in just two years. Powerful stuff.
Can I find deals that give me $33K in equity and cash flow of $277 per year? I would say, from experience, absolutely. At the time of writing this blog, we have a property that we just purchased in distress (deceased owner with out-of-state child heir of the property) for $91,600. The property required $23,000 in rehab and we are conservatively estimating an after repair value of $160,000 – that is $45,500 in equity. This house is a 4-bed, 2-bath that we will rent for $1,700 a month, about $300 more than estimated expenses – so $300 per month in cash flow. These deals are out there and available to you as well, especially now that you know what you are looking for!
How realistic is this? We have done it ourselves. If you have some cash to get started, are able to find a bank that will refinance properties for you every six months (which is standard), are buying undervalued properties that you can rehab and will cash flow strongly, and are conservative in your spending such that you can buy that additional property in year 1, then all of this is possible – it simply comes down to the mathematical equation we presented above.
Thinking bigger? Awesome. There are a few ways to go about it – save more so you can buy more. Work with partners. Find lenders (banks, hard money) that will lend to you on a faster timeline than six months – in other words, recycle your cash faster. Be creative – there are lots of ways to scale and do massive things in a short period of time – we present this article to you so you can see how modest investing over two years can produce big results. Oh, and we never even mentioned the long-term benefits of owning this number of rentals that will appreciate each year and will have increased rents annually!
We hope you start now! Let us help you find those right deals. Sign-up for our All-in-One Solution for the BRRRR investor to make sure you are analyzing deals accurately and engaging your contractors, property managers and tenants on terms that are favorable to you with our attorney-prepared, buyer-friendly contracting solution.
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