A few weeks ago, I finished reading “Buy, Rehab, Rent, Refinance, Repeat. The BRRRR Method Rental Property Management Strategy Made Simple” by David Greene.
I’ve been interested in Real Estate since high school. 3 years ago, I finally got my realtor’s license wanting to begin rental investing. Due to the super high home prices in Honolulu, we have never been able to make the jump.
David Greene’s BRRRR method book is an information-packed book with lots of examples. But it is a fun and easy read.
The way he explains setting up systems for success allowed me to finally understand how long-distance real estate investing could actually work for us.
Traditional vs BRRRR Investors
What makes the BRRRR system different from “Traditional” Real Estate Investing? You buy your property first, fix it up, and THEN finance it.
Traditional Investors
David explains that “Traditional” investors usually save up just enough money for a down payment. They then get a mortgage loan to purchase the property.
After purchasing, they spend the minimum amount possible to fix it up to be rent-ready.
“Traditional” investors need less money to start but have to resave every time they want to purchase a new property. BRRRR investors flip this process around.
BRRRR Investors
BRRRR Investors save up larger amounts of money or get private money loans (like friends or fellow investors) to buy properties with cash.
It can take a bit longer to save up these larger amounts of cash than “traditional” investors. But once they start, BRRRR investors can purchase more properties to build a larger portfolio faster.
How BRRRR Works
Buy
Buying with cash, BRRRR investors are able to get better deals on homes that may not be able to qualify for conventional bank loans.
(Homes with bad roofs, missing kitchens, or sales that need to close faster than a bank would be able to process.)
Rehab
After the home has been purchased with cash, BRRRR investors then rehab the property (with cash) to increase its value as high as makes sense for the neighborhood.
They may update kitchens, fix roofs or flooring, and sometimes even add new bedrooms or square footage. Whatever would bring the value up more than the cost of completing the rehab.
Rent
Once the home is all updated and ready for a tenant, BRRRR investors rent the homes out to a well-verified tenant for fair market rent.
Refinance
AFTER the home has been purchased, fixed up, and rented out to a verified tenant for a contractual amount, BRRRR investors then go to a bank.
They take out a mortgage loan on the newly improved value of the property.
Now that the property is worth more than what the investor put into it, the amount the bank lends them should pay the investor back. The financing should be close to, if not more than, their entire out-of-pocket investment.
Repeat
Once they have their cash back in hand, they are able to reuse their initial monies to purchase another property and start the whole process over again.
All while the tenant’s rent continues to pay for the mortgage loan, taxes, and future maintenance of the current home.
Find Your Core 4
This sounds all well and good but my biggest fear as someone who would potentially be investing in long-distance properties is:
“How do I ensure my properties are taken care of while I’m on the other side of the country?”
The very first step to building a successful real estate rental portfolio, according to David Greene, is to find your Core 4.
Your Core 4 is the group of local people you need to have strong relationships with in order to be successful in real estate investing.
- Property Manager
- Contractor
- Lender
- Realtor/Deal Finder
Property Manager
It is important to build a strong relationship with your property manager. They are the person who will be running your rental when the time comes. PMs will find and vet potential tenants, collect rent, handle maintenance issues, and evict any bad tenants.
In addition to handling building and tenant management, Property Managers can also be a wealth of information.
- Discovering new investment properties– PMs work with realtors on a regular basis, some even are realtors themselves. They also work with other investors who could potentially be selling.
- Finding and Tracking Contractors– Because PMs need to work with contractors on house maintenance issues, they often know the contractors and handymen in the area. If you are going to Rehab your BRRRR, they can be your eyes on the ground to stop by and ensure work is being done.
Lender
The entire BRRRR process rests on an investor’s ability to refinance a property and pull out cash in order to buy their next property. Having a reliable lender, with a pre-approval, is a must.
Once a BRRRR investor decides on an area to invest in, they must reach out to local lenders and find a few who would be willing to do cashout-refinances to long-distance investors.
Make friends with lenders, let them know the situation, and ensure they can provide the types of loans needed for your situation.
Contractor
Rehabbing is a critical part of a BRRRR purchase. Contractors are the ones that help fix up the property. Contractors not only get it rent-ready but also increase the value needed for a successful refinance.
Finding a reasonably priced, trustworthy contractor is a must for a BRRRR investor.
Realtor/Deal Finder
The last component of the Core 4 is a Realtor/Deal Finder. This is an on-the-ground person searching for deals for you to buy.
Most people use a Realtor. Some more experienced investors use a wholesaler or other type of deal finder. BRRRR investors need people to constantly bring in a variety of potential deals for review and help execute the purchase.
Only Work with All-Stars
David suggests that BRRRR investors insist on working with the best in their field. As an investor, your job is to run your business and find your Core 4 to handle the details.
When trying to grow your investment portfolio, don’t work with newbies who are still learning the ropes. You want professionals who know their field and can get things done without you having to teach them their jobs along the way.
Always have a Back-Up
When you’re building your real estate portfolio at breakneck speeds, the last thing you want to happen is for one person to get sick or sent to prison and totally mess up your entire process.
Have at least 2 of each of your Core 4 in every city. If something doesn’t work out with your primary, you have someone already vetted and ready to pick up the job.
Wrap-Up
BRRRR was an information-packed book with tons of examples and excellent information. If you are interested in building a rental/buy and hold real estate portfolio, I highly suggest picking up a copy of David Greene’s book.
His processes do use a little bit more leverage (loans) than I would probably be comfortable holding long-term (he suggests refinancing the same home multiple times to continue using the equity to purchase more homes) but the ideas are solid.
We are currently working on building up our cash reserves and hope to make a long-distance investment home purchase in the next year. I’ll keep you updated when we start our search. 🙂