BRRRR…Heating Up Your Real Estate Portfolio
The BRRRR method — Buy, Rehab, Rent, Refinance, Repeat — is a major factor in how we grew our real estate portfolio from three properties to five in about a year’s time.
With our real estate business, my husband is the numbers and analytics guy. I handle networking and operations, which taps into my experience as both a communication and a construction professional. He’s the ideas man and I find the way to execute our plans.
When we started our real estate journey, we looked at a couple of different markets for our long-distance investments. These included Oklahoma City, Dallas and Indianapolis. However, we made our first investment in Colorado, where we currently live. The property was located in Colorado Springs where we purchased a duplex that operated as an AirBNB with partners. A year later, we had enough capital to purchase more properties and a few serendipitous things happened leading us to Oklahoma City.
As our networking liaison, I was tasked with going out to local investor groups that meet once a month (albeit now virtually). One group was a women’s investor group that was created by our AirBnB partners. Another was a Meetup called the Long Distance Real Estate Investors group. I met a fellow investor who attended both of those groups and had started buying homes in OKC. I reached out to her and we met for lunch to discuss her investments and strategies. She graciously shared contacts to her team in the Sooner State.
A few months later, we took our first trip to Oklahoma with our eight-month-old daughter to meet with real estate agents, some contractors and a lender. It was a whirlwind week where we were able to identify some of the core members of our long-distance investing team.
Our trip was in May of 2019. In August, we closed on our first two long-distance investments.
We bought two single family homes for $87,000 in cash from the same owner. Each home was between 700 and 1,000 square feet, around the size of the New York City apartment we shared when we first met. We thought these size renovations would be something we could handle (or err on) without things getting too haywire.
The homes weren’t in bad shape, but needed a few upgrades to create a livable and desirable place for a renter. We got new HVAC, replaced the floors and repainted both places. It wasn’t a whole lot of work and we probably agonized about it longer than we needed to. The total rehab cost for both properties was around $30,000.
We hired a property manager and within a few months, both houses were rented.
Once the renters were on the books, we started talking to the lender we met during our first visit to OKC. Some lenders require that the property is “seasoned” before you can take out a loan. This means you may need to own a property for a certain amount of time before you can qualify for a mortgage. This was not the case with our lender.
We did wait to have renters because we wanted to make sure someone else was going to pay for the mortgage. Our mortgage payments were going to be between $395 and $425. The rents we are receiving for each property are between $795 and $950. The revenue allows us to cover the loan, any additional operating expenses (insurance, reserve, etc.), and of course, yield a profit.
THE CAVEAT: The BRRRR method is very handy, but there are times when it DOES NOT WORK. One instance would be if you finance your property and the mortgage plus operating costs are more than the rent you will receive.
After all the paperwork, we were able to pull out about 89% of our initial investment, including the cost of the rehabs. The amount received from the loans was about $50,000 from each property. Basically, we owned two homes for the investment of approximately $12,000 and were able to take more than $100,000 out to use elsewhere.
In the fall of 2020, we bought our third and fourth single family homes using the proceeds from the refinancing of the two original properties. The cost of the purchases and renovations on both these homes totaled about $116,000. We only added about $12,000 of new money to complete the sale and rehab these properties.
Essentially, we recycled the money we used for our original purchases:
Two original properties purchased for cash at $87,000.
Two original renovations at the cost of $30,000
Total Investment: $117,000
Refinancing allowed 89% of funds invested to turn liquid: $104,000
Two new properties purchased for cash at $49,000
Two new properties renovated for $67,000
Total Investment for New Properties: $104,000 – 49,000 – 67,000 = $12,000
My mind was blown when I heard about this process and even more so when we were able to execute deals through it ourselves. Global pandemic aside, I’m not sure why we didn’t do this sooner!
We hope to BRRRR these investments once the properties are rented and continue purchasing more.
Hold on, you may be thinking. Isn’t this a blog about failing forward? This sounds like a success story!
INVESTOR MISFIRE: Not knowing about this methodology sooner and deploying it for our first investment property. We tied up so much money in our AirBNB that it took us a WHOLE year before we could invest again.
THE FAIL FORWARD: We have since sold off the AirBNB and we will share the details of that story in another post. That cash is now free to deploy for additional investment properties.
GET BRRRR SMART
- BiggerPockets Guide – How to Invest in Real Estate Using the BRRRR Method
- David Greene’s Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple
- BiggerPockets Podcast 327: The “Buy, Rehab, Rent, Refinance, Repeat” Method Made Simple With David Greene