Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple

By David M Greene

PART ONE: Introduction to BRRRR

• BRRRR is an acronym that stands for Buy, Rehab, Rent, Refinance, Repeat. It is a way of describing the order of buying a rental property and then pulling your capital back out in the most efficient way possible.

• My goal is not just to teach you to grow your wealth at a consistent rate. I want to show you how to do it at an exponential rate.

CHAPTER ONE: Getting to Know the BRRRR Method

• BRRRR is the best way to buy a property if your goal is to own more than one or two.

• The single, most important act a real estate investor can do to grow their wealth is to add value to a property—be it through purchasing below market value or adding value through a rehab. The problem with the traditional model is you leave so much equity in the deal when you are done that you can’t access this capital to buy the next property, and the next property is where you always make the most money!

• The BRRRR method works the same as the traditional method, but in a different order. That one small difference leads to a radically different result. When an investor utilizes the BRRRR method, they start off by paying cash for the property, rather than financing it.

• In real estate, investors can add value to their property in two ways. They pay less than what it’s worth, “buying” equity. They increase the value by improving the property’s condition, “forcing appreciation” or “building” equity through the rehab process.

• It’s important to note, in the BRRRR method, these are the first two things the investor does. With BRRRR you are adding value before you are financing anything. After the rehab portion, the investor puts the property up for rent and immediately starts collecting cash flow. This cash flow is higher than in the traditional method in the beginning because there is not yet a mortgage on the property. Once the property is bought, rehabbed, and rented out, then the investor refinances it. The amount financed is based on the value of the property after it has been fixed up (when it’s higher).

• When the bank is evaluating the property to give you a loan, it’s valuing a property that’s fixed up and worth more with the BRRRR method. With the traditional method, the bank is evaluating the property before it’s been fixed up, making it worth less.

• A loan can be secured by an asset at any time, not just upon purchase.

• In the traditional method, you finance it first. In the BRRRR method, you finance it last. This one seemingly insignificant difference in the order in which you finance your property is the difference between someone like me buying two houses a year or buying 24 houses a year. It’s insanely impactful. Small hinges swing big doors, and BRRRR is the ultimate small hinge.

• There are several ways to increase your profit. The most basic way is to earn more (raise rent) or spend less (decreases expenses).

• While many believe in putting as much down on a property as possible (to increase cash flow by lowering the mortgage), this is a too-simple way to look at investing that doesn’t consider enough of the facts.

• If we make sure the ROI we make on our money is higher than the interest rate we are paying to borrow the money, we come out on top.

• Velocity of money is a cool term used to describe how many times you can make the same source of capital work for you. The faster you send out money and recover it along with a profit, the faster you can build your wealth. I like to think of it as how many houses I can buy with the same dollar. There is a stark difference between saving up a dollar to invest, and investing a dollar, getting it back, and investing it again. That difference amounts to massive savings when compounded over time. If I buy a property that earns me a 10 percent return each year, I have to wait ten years before I can get that money back and reinvest it again. If I buy a property and pull out 100 percent of the capital I put into it, I can then immediately buy another property.

• The BRRRR method is the most efficient way to buy property, period, and that is why it’s a game changer when you learn how to harness its power. It’s so powerful, in fact, that I often advise newbie investors not to buy their first property until they’ve saved, found, partnered with others, or otherwise secured enough capital to buy a fixer-upper property with cash.

• If you can BRRRR on your first purchase, your next deal will come that much faster. If you BRRRR that one, the third will come even faster. Your learning curve will be so radically steeper, so incredibly better, that it will be worth it to take longer to get started in order to move so much faster once you begin.

• Mastery is more than just being able to copy a movement over and over. It’s understanding why that movement works, and finding new ways to use it in different areas of your life.

• We should all expect our money to work hard for us, just as we would if we had employees. The traditional method allows your money to be lazy. The BRRRR method forces it to work hard, and serve you better.

• Rental properties on the MLS that don’t need much work typically don’t see as large of a discount.

• Every deal we buy should be for as much under market value as possible. Buying properties under market value is a foundational tenet to good investing and should be practiced as much as is practical. “You make your money when you buy” is one of the oldest and truest real estate maxims around.

• Look for ways to add equity to every single deal you buy and you’ll watch your wealth grow quickly. Adding bedrooms, bathrooms, square footage, and other tricks are great ways to do that.

• Fear is healthy. It can prevent us from making mistakes and sometimes protect us. But as an emotion, we can’t just follow it blindly. Like a sign on the beach that says caution: high tides can cause dangerous conditions, we should take note of the warning and look to see if the ocean is at high tide. If it’s not, we should enjoy a great day of surfing. If it is, we should wait until the tide goes low. If we can’t tell the difference, we should educate ourselves before jumping in.

• Volume amplifies your results, both positive or negative. When you are losing money, volume can cause you to lose a lot more. When you are making money, you can make a lot more. Use volume as a tool when you’ve found a good thing, but only once you’ve found a good thing. Move slowly until you know the process you’re using is leading to the result you want—then you can step up your volume.

PART TWO: Buying Great Deals

CHAPTER TWO: Buying Under Market Value

• There are three kinds of distress we target as investors, and we are going to touch on all three at different times in the book. They are: Market distress, Personal distress, and Property distress.

• Market distress is when an entire market, economy, or area is in a rough time.

• This is the easiest time to find deals, but the one you have the least amount of control over. If you rely on market distress, you will spend the majority of your time waiting and not investing.

• Personal distress is how professional, full-time investors target deals. It’s how most wholesalers find deals. Personal distress is when the owner of a property is in some form of distress in their personal life that is affecting their finances. Examples would be a divorce, a lost job, a death in the family, trust sales, sudden medical expenses, etc. Personal distress is the best form of distress to target if you want to find deals with the highest margin. It is also the most difficult.

• Property distress is when the property itself is in such bad condition that its value is affected. Properties that need large amounts of work to be livable are a form of property distress. Examples include leaking roofs, foundational problems, significant pest problems (termite damage), obsolete floor plans, etc. Property distress is the form of distress that involves the most work, but it is also the easiest form to target and the one you have the most control over finding. As a BRRRR investor, this is the type of distress you will typically find yourself targeting the most.

• The 1 percent rule is a very simple maxim that states if a property will rent for 1 percent of the price you paid for it, it’s likely to cash-flow positively. This is a very important metric for us as BRRRR investors are those looking to keep properties as rentals, not sell them as flips.

• Additionally, I’ve found the more expensive a property is, the less likely the need to conform to this standard. A $500,000 property would not need to rent for $5,000 a month in order to cash-flow positively, whereas a $50,000 property would need to be really close to $500 a month in order to make money. The 1 percent rule tends to apply more strictly to lower priced properties—which is where most investors operate.

• In times like now (2018) interest rates are at historical lows. Money is very cheap, and therefore mortgage amounts are abnormally low. This means you can borrow more money and collect less rent than normal but still cash-flow well, all because your mortgage expense is exceptionally lower than usual. This gives you more slack when it comes to not meeting the 1 percent rule, but still being able to make money.

• The 1 percent rule is a preliminary screening procedure meant to save you time.

• This rule states that I want my total expenses for a property (acquisition plus rehab) to add up to 75 percent of what the property will appraise for when I’m finished. It is essentially saying I’m willing to pay 75 cents on the dollar for what I buy. If you’re curious where I came up with the 75 percent number, it wasn’t by coincidence. I’ve found that most banks are willing to lend at a 75 percent LTV (loan to value).

• If you want to know how your single-family property will be valued, you look at the surrounding homes and find the “comps” that are closest in size, number of bedrooms, and condition. This is what an appraiser will be looking at when determining the value of the property you purchased. Multifamily properties are different. Multifamily properties are assumed by lenders to be purchased for the purpose of running a business. Lenders know multifamily properties are bought primarily for the purpose of making money, so they are valued as a business. Without me taking too much time to explain, just know that multifamily properties are valued based on the amount of profit they generate, not what other nearby multifamily properties sold for. If you want to increase the value of a multifamily home, you increase its profitability. If you want to increase the value of a single-family home, you improve its condition to compare to other, more valuable single-family homes nearby.

• First off, it’s important to recognize that appraisers in different areas use different formulas to determine the values of single-family homes. They are all still comparing them to other single-family houses, but they give weight differently depending on certain aspects of a home. For example, a California-based appraiser is much more likely to give more weight to the proximity and condition of a home than to the square feet of the home. In other areas, like the South, appraisers are more likely to use the price per square foot of a home than the condition it’s in. Understanding your area, and how homes are valued there, is a terrific way to make sure you are adding as much value as possible to the properties you buy and rehab.

• If I want to add value to a property that is undersized, adding square feet to the floor plan of the property is the fastest, cheapest, and most efficient way to do that. The reason is because in the Southeast many appraisers will look at the average price per square foot for other properties in the area. They will take that number (let’s call it $100 a square foot) and multiply it by the overall number of square feet in the home (say, 1,100). This would give them a number of $110,000. They would then make their adjustments, up or down, based on the condition of my property compared to other nearby properties.

• I look for three things in a deal. To be all-in for 75 percent of ARV, to cash-flow positively, and to be in an area that won’t cause me a headache.

• I also end up buying in areas that appreciate faster than the surrounding neighborhoods, so I can refinance several times over the period of time I own the property and reinvest the money I pull out.

• “Overcome fear with math.”

• Learn to analyze properties and you’ll find yourself feeling much better about the decision to be made regarding whether or not you should buy. The best way to get good at analyzing deals is through practice. Repetition (and practice) builds mastery!

• When you first start to analyze properties, there are two things you should focus on. The first is how much you are buying a property for under its value (how good the deal is). The second is if the property will cash-flow positively or not.

• Learn how to find comps and compare them to the property you’re evaluating. Other people like agents, appraisers, and wholesalers can help you with this. You can also do some of this research yourself using listing portals like Zillow.com or Realtor.com. The next thing to understand is rehab costs. Learning how to estimate rehab costs is really beneficial. Talking to contractors, handymen, and other investors is a great way to build up your confidence in this area and know if you’re overpaying. You want to see the projects from their eyes. If you’re using the BRRRR method, you’re very likely to be doing significant rehabs.

• The last thing to learn is being able to determine whether or not a property will cash-flow. My favorite method is what I call “the napkin method.” You are basically taking the five different inputs involved in just about every purchase, and quickly calculating them by writing them down on a piece of paper—or a napkin. The five inputs in deals are: Rent, Mortgage, Tax, Insurance, and Property management fees

• When I look to buy in a new area, my first priority is to find my “Core Four.” The Core Four are the four people I need to invest in any market, any time. These are the people who will be running my business for me, making me money, and helping me become successful.

• Agent: A rockstar real estate agent would be a top producer, the type who knows everybody and is well liked. They are the agents who find deals before anyone else, know how to negotiate the best, and have the brightest minds. They have the most talent on their teams, the best mentors in their corner, and they demand excellence from everyone around them. Rockstar agents have the best referrals because they only work with top lenders, contractors, handymen, and property managers. These agents are never hurting for business, don’t lower their commissions, and know real estate like the back of their hand.

• Lender: A rockstar lender is one who doesn’t throw in the towel easily. They have access to the most loan programs, and when a loan doesn’t work, they know how to go find one that will. Rockstar lenders know how to help you repair your credit, how to find ways to manipulate data to get you better rates and terms, and can solve problems when they arise. They are tenacious, resilient, and they hustle! Finding a stellar lender can open up financing doors for you that a regular lender cannot.

• A rockstar lender won’t say “no” without proposing an alternative solution.

• Contractor: Rockstar contractors may not look like what you think at first. They may not answer your calls right away or be the best communicators. That’s not what makes a great contractor, at least not for an investor. An ideal contractor for an investor is someone who understands what needs to be done, how to do it, and how to save you money on it. They are a contractor who understands your business goals, not just their own. These are people who can tell you what the best plan of action for your property is before you even look into it.

• Great contractors can communicate with the city for you to get permits approved and can provide you with recommendations that other contractors wouldn’t think of. Great contractors know the best roofers, HVAC services, plumbers, electricians, and more.

• Property Manager: A first-rate property manager is someone who knows the areas you’re investing in. They manage many rental properties in the area you’re investing, and they have a large sample size of properties they’ve learned from.

• They have access to the best handymen or repair crews because they have been looking for them for their own properties.

• “How do I get the best to work with me?” The answer is simple—become someone worthy of working with them.

• Learn to give value first. Learn to find what these rockstars need in their business or their life and bring that to them.

• What I’ve found is before I could learn what others need, I had to first learn how their job worked. Once I figured that out, it became apparent how I could help each person. Trying to bring value to someone before you recognize their business model is an exercise in futility.

• Give them great reviews online. Giving your agent a great review on Facebook, Zillow, Yelp, or Google can earn you some major brownie points. Call your agent’s boss and tell them how great they are. Find out who supervises them and give them a great review.

• The search for talent should be No. 1 on your list when looking for great deals in the acquisition stage of your investment cycle.

• It’s a well-known fact in real estate that cash offers are the strongest offers.

• One of the main reasons cash offers are stronger is because they come without the financing contingencies. A cash buyer doesn’t need a loan contingency, because they will not have a loan. They also don’t need an appraisal contingency because there is no lender requiring an appraisal. A cash buyer would have the option of including an appraisal contingency, but it wouldn’t be required. To a seller, this is very appealing.

• Because I am looking to pay as little as possible for a property, I make my offer stronger in more ways than just the offer price. By significantly reducing the amount of time I need to do inspections and making the title company aware that we want to close in ten days, I can write all-cash offers to the seller, with little or no contingencies, for ten days or sometimes less.

• Challenging the way you look at something can have a profound effect on the types of decisions you make. For instance, most people look at money like it’s made to be spent. Money is something we earn, then consume. When we adopt this mind-set, it feels it’s unfair to hold ourselves to a budget. Our subconscious rebels against the concept because we believe it is our “right” to spend that money, and enjoy what it brings. I’ve learned to look at money like it’s a seed for me to plant. My seeds are used to produce more seeds, as my money is used to produce more money. I have told myself the purpose of earning money is to invest it, and spending money is really just eating into my future. This attitude helps me not to feel entitled or discouraged about not being able to spend what I make.

CHAPTER THREE: How to Find Deals

• You can get everything in life you want if you will just help enough other people get what they want. —ZIG ZIGLAR

• If you want to be successful, get in the habit of asking yourself: “What is my most important next step toward executing this technique?” and write down the answer.

• By breaking big tasks (e.g., finding an agent on a top-producing team) into smaller ones (search Zillow.com for top agents with teams, email the team leader, ask for agents to interview, then come up with a list of questions for the agent, etc.), you can make it much easier on yourself to come up with a strategy to start taking action.

• Having an agent looking for deals for you is great. Having several is even better. By seeking out multiple agents, you’ll be able to tap into different networks with sources that you can use to find great deals.

• There may be some agents who network with investors and hear about deals before they hit the market, while others network with attorneys and know about sellers in distress due to divorce or death. There are tons of agents out there who have different specialties. What’s important is to understand that diversifying the people you talk to will increase the reach of your network, and increasing the number of connections you have will help you find more and more new deals.

• Although wholesalers can get you incredible deals, there’s no guarantee that they know what they are doing or that the information they are providing you with is accurate. Remember, they are not licensed and do not owe you a fiduciary duty of responsibility. The biggest risk with wholesalers is inaccurate information, or in some cases, a complete lie.

• Alternative Methods of Finding Deals

  • Direct mail:

    • These cards state you are looking to buy houses in any condition and usually spell out what you can offer (cash, quick close, no Realtor fees, no closing costs, etc.).

    • Sending a wave of direct mail isn’t likely to get you a result, but sending several waves, consistently and over time, is much more likely to work.

  • SEO:

  • Personal networking:

  • Professional networking:

    • The key is to find people who are more likely to come across distressed sellers than the average member of society would be. Examples would be divorce attorneys, probate attorneys, bankruptcy companies, and morticians/ funeral homes. Make a list of these companies and follow up with them regularly.

  • Auctions:

    • These are typically foreclosure auctions where banks are trying to sell properties to the public before taking them officially on their books (at which point they would become REO, or “real estate owned”). Foreclosure auctions like this can provide great deals, but also can be incredibly risky. Most of the properties are sold with no contingencies, cash only, and very little opportunity, if any, to conduct any due diligence.

  • Tax liens:

    • Generally, you are buying the right to foreclose on a house by paying the money they owe in taxes to the government for them. By paying their lien, you are compensated by the government with the right to take the house (the item being used to secure that lien).

    • The caveat here is there are different laws that govern how this works in different areas. Some areas give the owners a certain period of time to pay you back the money you paid the government for them, and if they pay it back on time they can keep the property.

  • Driving for dollars:

    • Just like the name implies, you simply get in your car (or bike, motorcycle, or moped) and look for obviously distressed properties.

    • Some signs of obvious neglect are: An overgrown lawn, Newspapers piled up in the driveway, Neglected landscaping, Dead grass, Boarded-up windows, Rotting wood, A roof with plants growing on it, and Broken windows.

    • Receiving a letter in the mail can be annoying for the recipient but delivering a letter to someone in person puts a face to the name and lets them know how serious you are.

PART THREE: The Rehab Process

CHAPTER FOUR: Rehabbing Like a Pro

• If buying right is the most important thing you can do to make money in real estate, getting the rehab right is the second most important part.

• When you don’t put the time and effort in on the front end to find high-quality candidates, you’ll pay for it on the back end through shoddy work, lackluster results, and a terrible experience.

• If you found a rockstar for every member of your Core Four, you could just follow their advice and direction, let them do their thing, and watch as your net worth and passive income grows on its own.

• If you want to make the talent search easier, take a bit of advice from me—start looking for team members who invest themselves.

• Becoming likeable is one of the fastest ways to becoming successful. In many ways it’s more important than being smart, hardworking, or experienced. Likability makes everything easier.

• While there are many definitions of what constitutes a “handyman” vs. a “contractor,” it can be boiled down to that a contractor is licensed, and a handyman is not.

• Sometimes using an unlicensed handyman can save you a lot of money over using a licensed one.

• Now, when I hire a handyman to say, put in the floors, I ask them how much money they will need and how much time they will need. Once they give me the answer, I ask them if they accounted for materials not being delivered on time, employees not showing up, dump fees to haul off old material, tools, etc. It’s often the case they did not account for these fees and didn’t realize they needed to. If you’re going to use a handyman, you need to do so with the understanding that you are taking on the role of general contractor, and you are hiring them as a subcontractor. You can’t hire a handyman to do a job and expect them to also be able to manage the logistics of that job.

• The key to having a bid work for you is to make it as specific as possible. By requiring the contractor to write their bid in a manner that makes them justify every expense, you can see exactly what you are paying for, and how much you are paying for it. This alone takes away massive amounts of uncertainty, simply by requiring the contractor submit an “itemized bid.”

• You want your bid to look like a menu, where you have the option of adding items, removing items, and choosing the items you feel are a good value while removing those that aren’t.

• One trick I’ve learned to determine if I’m overpaying for an item of work is to ask the contractor how much the materials will cost them for a job, then ask how many hours it will take for the labor. Once I have these two points of data, I can pretty easily tell if I’m overpaying or not.

• If the contractor knows he’s making $200 in labor per door, he could have been smart and told you it takes four hours just to make it look like you’re only paying $50 an hour. How can you tell if that’s accurate? The answer is simple. You call another contractor and ask them on average, how long it takes one of their subs to hang an interior door. It’s always a good idea to ask around and get multiple bids.

• The first thing you’ll need to add to the bid is the timeline for the job to be completed.

• My solution has been to ask the contractor how long they think it will take them to finish the project. I don’t want them to feel pressured to agree to my timeline (which would always be aggressively short if it was up to me), I want them to give me a time they believe they can get the job done in. Let’s say Carl Contractor agrees to finish the job in eight weeks. After I’m told eight weeks, I ask them again, “Are you positive you can do eight weeks? It’s okay if you take longer, I just need to know up front so I can plan around it.” Carl Contractor reconsiders and says nine weeks might be a better bet, just to be safe. At that point I would once again confirm nine weeks is a number he truly believes he can do, without much problem, and Carl Contractor agrees he can. I then say, “Okay, Carl, I’m actually going to give you ten weeks to get this job done, and we’ve already agreed on the price for the job. Here’s the thing, if you get it done in ten weeks, I’m going to add a bonus of 5 percent of the total job cost onto the last draw I send you. That’s my way of rewarding you for doing a great job and hoping to build upon our business relationship for the future. Does that sound good?” Carl, of course, is usually ecstatic about this. I then follow up with “But here’s the thing, if you go over ten weeks, I’m going to subtract 5 percent of the total job cost from the last draw. And for every week above that, I’m going to subtract another 5 percent. I need to be very sure you’re being real with me here, and not just telling me what I want to hear.”

• Once we’ve got these dates worked out, I spell out what the time frame will be on the bid we’ve agreed to. Then I put in a quick blurb detailing the bonus and penalty clause and I have both parties sign the contract.

• A few of the more common items involved on most of my rehabs are: Paint, Flooring, Shower and bathroom remodels, Landscaping, Dry rot repair, Countertops, Painting cabinets, Removing trees, Roofs, HVAC installation, Adding closets, Hanging doors, Installing slightly used appliances, Installing ceiling fans, Installing new vanities, Installing new toilets, Installing new light and bathroom fixtures, Installing new baseboards, Replacing windows, and Cleaning.

• Upgrade hacking is all about making a property worth more, for less money than it would normally cost. It is a mind-set of looking for ways to get the most value for the least money, and it involves an understanding of how properties are valued as well as an understanding of what materials cost. When we marry these two pieces of information, we are able to look for relatively cheap ways to add value that wouldn’t have been apparent to us if we weren’t educated.

• Spending too much money on hardwood floors, granite countertops, or top-of-the-line cabinets and baseboards is usually a big mistake. The reason is twofold: Those are items that can be easily destroyed. Those are items that usually cover a large surface area—meaning you need to pay for a lot of them! The reason this works in bathrooms is because tile is extremely durable (taking care of reason No. 1) and the surface areas of most bathrooms are on the smaller side (taking care of reason No. 2.).

• Bathrooms are a big “bang for your buck” category when it comes to the impact they make on the value of a property.

• The thing that makes adding a rainfall showerhead affordable is if you already have to rip out the existing shower and expose the plumbing. The rainfall showerhead itself can be bought for under $200. The additional plumbing and valve you need can be purchased and installed for under $200 as well. For less than $400, you can add a luxurious item like a rainfall showerhead, as long as you’re tearing out the existing shower and exposing the plumbing in a way that makes it easy for your contractor to put in.

• The last area I look to upgrade hack in a bathroom is the sink or vanity area. If you already need to replace it, consider spending a couple hundred dollars more and getting a vanity with a granite countertop and upgraded faucet. For a couple hundred bucks, you can get much more durable materials and a big wow factor—assuming those items needed replacing.

• The kitchen is the next place I look to upgrade hack. This is because it is another area that is highly likely to need many renovations—or a total gut job—during a BRRRR remodel. Kitchens are the biggest “bang for your buck” area of a property.

• One way to accomplish a quick and easy upgrade hack in the kitchen is to purchase stainless steel appliances instead of standard white appliances in situations where the appliances need to be replaced anyway.

• When landscaping, consider using items that won’t likely ever need to be replaced. Pouring concrete is more expensive than putting down sod, but it’s very difficult to mess up concrete. Sod can die pretty easily and your tenants aren’t likely to take as good of care of it as you would. Using mulch can be another great hack, particularly because it’s so cheap. Mulch can be bought for a couple of dollars a bag and can be replaced with every vacancy for a very low amount of money. If you put in a yard that relies on a complicated sprinkler system, you are adding more things that can break and unnecessarily increasing your repair costs.

• If you buy a property with carpet that needs to be replaced (this will happen often, trust me), consider replacing it with a very tough and durable laminate instead of more carpet. Carpet is the cheapest option, but it’s also the least durable and easiest to be ruined. You are almost guaranteeing you’ll be replacing it with every new tenant, or at least every other new tenant. While laminate is more expensive at first, it will save you lots of money in the long run.

CHAPTER FIVE: Common Rehab Strategies

• One of the best ways to make your property more valuable is to add square footage to a property that is smaller than ideal. This works especially well when your property has less square footage than the average surrounding properties.

• If this is an option for you, consider looking for parts of the addition that are already in place. For example, it may cost $30,000 to build an entire new master bedroom. However, if you find a property that already has a concrete pad poured, has an overhang (roof extension), has electrical run to it (outdoor patio fan), or is very close to indoor plumbing, you can likely make this part of the square footage of your property for very little extra money.

• Another way to add value to your property is increase the numbers of bedrooms or bathrooms it has.

• The biggest value jump is from two to three bedrooms, as there are more people looking for three-bedroom homes than two-bedroom homes.

• A great upgrade hack is to take an area of the house that isn’t providing much value and convert that into a bedroom. In most cases all you need to pay for is some drywall, a closet, and possibly some French doors. This is an extremely cheap way to add a large amount of value to a property.

• This same concept works for homes with one bathroom.

• Adding a second bathroom to a configuration like this can add quite a bit of value to the property and make it much easier to rent out.

• Going all out on crown molding in the family room or designing and installing a super fancy fireplace structure may be elegant, but it isn’t likely to add much value to your property—both from an appraiser’s standpoint or a renter’s.

• Both appraisers and renters are going to give the most value to the kitchen and bathrooms—especially the master bathroom.

• You can save on remodeling your kitchen by painting kitchen cabinets rather than replacing them. Many investors make the mistake of assuming they need to replace cabinets in every property they buy. This isn’t true!

• In most modern-day kitchens, people are opting for either very dark cabinets or white/light gray cabinets. I’ve found that it’s one extreme or the other. You want to avoid the old brown oak style, and if you have those types already in there, stain them a darker color.

• Once you find a tile you really like, you’ll probably start ordering the same one for every job. This hack saves you time and effort in that you don’t have to go looking for a new tile every time you work a rehab project. Experienced flippers and fixer-upper investors tend to use the same materials, over and over, on every project.

• Many of the hacks that work in a kitchen will also work in a bathroom. Just like painting kitchen cabinets, you can paint bathroom cabinets as well.

• Though you can save money on—and add value to—bathroom remodels by tiling a shower, don’t put in a glass shower door. The reason is pretty simple—glass shower doors are extremely expensive, easy to break, and easy to get moldy. They need to be cleaned frequently and your tenants often won’t do this.

• Another bathroom remodel strategy is to consider replacing your standard toilets with low-flow toilet and sink options in your rentals. This is an obvious choice when you are paying for the water in your rental.

• The trick to getting landscaping done for cheap is to use cheap labor to accomplish as much of the project as humanly possible, and use skilled labor to finish up what cheap labor couldn’t do.

• One of my favorite landscaping hacks is to hire cheap labor to rip out the existing problems (weeds, broken up concrete, rocks, etc.) and replace them with options that are easy enough for cheap labor to handle.

• Another trick for backyards is to put a cheap chain link fence in if you have a narrow side yard that isn’t being used for much. This creates a cheap “dog run” (if you allow your tenants to have pets) and gives you an entire feature you can advertise and boast about in your property listing without requiring you to spend a lot of money. By taking advantage of the existing narrow area that wasn’t being used for much, you can get by with putting a cheap gate up and advertising your unit as having a dog run.

• When it comes to front yard landscaping, you want to stick to two things: Make sure you don’t put in any plants that die easily, and you want to pay cheap labor to keep the bushes, weeds, and front lawn trimmed. Don’t make the mistake of buying expensive plants to put in the front yard of the property, because your tenants won’t be likely to take care of them.

• So, to sum it up, when reviewing flooring options your best bet is to shoot for: Tile in bathrooms and kitchens, Laminate everywhere else, and Carpet in bedrooms if it’s already in good shape. A few things to keep in mind: If you leave carpet, you’ll probably be replacing it later. If you choose laminate, you’ll be using a lot of it, so find something on sale or cheap that is also durable. If you choose tile, only use the expensive options if it’s for a small surface area and you don’t need to spend much on it.

• Ceiling fans are another great item you can put in a property to make it more desirable and not break the bank. The trick is to do this only if there is already a light hardwired into the ceiling. If there isn’t, it can be very expensive to have an electrician run wiring to the required part of the ceiling in order to power the fan. If this is the case, it’s probably not worth paying for. However, if there is already a light in the room, the majority of the work is done for you!

• I love buying properties and replacing the roofs! Here’s why: I specialize in buying properties that won’t qualify for conventional financing, and even target them specifically, so this is a hurdle I’ve already overcome. I use cash to finance every part of my deals, so needing enough cash to replace the roof doesn’t scare me. I just budget it into the bid my contractor gives me.

• In some areas, a new roof will lower the insurance premium and save me big money over the period of time I own the property.

• If a roof needs replacement, do yourself a favor and get it done before you finance the property, so you can recover your investment and put it back into the next property instead.

• If your relationship with your PM isn’t established yet, consider paying them to check on the work your contractor is doing and making sure it’s done right. Paying someone to check on work may seem unwise at first, but consider all the reasons this could help you. It saves you time by focusing on your work and building wealth. It improves your relationship with your PM and gets them more directly involved in your business. Your PM may have a more experienced eye than you. It lets your contractor know to stay on the straight and narrow as other people are monitoring them. When you have members of your Core Four checking on other members, you add multiple layers of security to your investment business.

• To check up on the work, have the PM take pictures and video of the work on their smartphone. This way, you have proof of the status of the project and can make sure things are being done as you intended.

• Another thing to keep in mind is you should never, ever, ever pay for an entire project up front.

• Your contractor could skip town, someone could steal the money from them, they could quit before the job is finished, etc.

• My favorite method is to send the money in 25 percent draws, and ask them what work they will be doing with each draw. After they have finished the work with the money from the first draw, this is when I send someone to confirm the work was completed. I include the scope of work that should have been done so my team member knows what to look for, and I have them send me pictures and videos in return.

• Another way we can learn from this story is to consider buying the materials ourselves the first time we work with a contractor. This is a really simple tweak to put into the system and can save you money in the end. When you have the contractor write up the itemized bid, ask them to separate the materials from the labor. This way you see what you’ll be paying for labor only. Then, ask the contractor to call the store where they’ll be buying things from and put in their order. Once the order has been placed, you will call and pay for the order over the phone. Then, either have the materials shipped to the property where the contractor will receive them, or have the contractor go pick up the items themselves. This way, you solve two potential problems. You don’t have to worry about the contractor overcharging you for materials. You don’t have to worry about the contractor stealing the money that would have been used for materials. Doing things this way can also give you the opportunity to find materials on sale or build up your credit card points.

PART FOUR: The Rental Process

CHAPTER SIX: Understanding Rent Prices

• Rentometer.com uses an algorithm that considers rental properties near the subject property and plugs their rent amounts into a secret formula. This formula then spits out the numbers we need for our preliminary rent analysis.

• I want the average rent to be at or near 1 percent of the sales price of the property, and I want to see the average rent is close to the median rent. If there is a huge discrepancy between the average and the median rent, that could be indicative of potential problems.

• BiggerPockets has a feature you can find at www.BiggerPockets.com/calc that takes all the work of analyzing a deal and does it for you. Most of the work we need to do as investors involves finding the right numbers to plug into a formula. With the BiggerPockets calculators, you don’t need to actually do the math! Just find the numbers, plug them in, and the analysis is done for you. BiggerPockets has several different calculators you can use depending on the type of project you’re doing. They have calculators for flipping, wholesaling, cash flow, and yes—even BRRRR.

• Asking property managers is, in my opinion, the hands-down best way to get accurate numbers for your potential rental property.

• Consider also that the health of the employment sector can have a huge effect on your home’s value. When wages in an area rise, home prices tend to as well.

• Markets known for only having one industry like oil fields, fishing, automobile manufacturing, etc. are all very vulnerable to a huge collapse in demand if something disrupts that, and a loss of demand will result in a lowering of value.

• The next reason people choose where to live is the desirability of an area. This is why we often hear people talk about school districts, crime, and “walkability scores.” Things like proximity to parks, shopping, and nearby freeways all become a factor.

• If I found properties were being rented out in seven to ten days from the time they were advertised, I would know it’s not important I fix them up substantially. A bare bones rehab job would do the trick as far as getting the unit occupied.

• On the flip side, if properties were taking more than 30 days to find a tenant, I would consider a larger rehab to attract more people.

• Another huge indicator of a lack of supply is when you see big construction equipment in the skyline when driving through the downtown of an area.

• New home builds are an easy way to know there is limited supply, as most new home builders are very careful they don’t overbuild and only build when there is very strong demand with insufficient supply.

CHAPTER SEVEN: Tenant Tips

• Without a doubt, the two biggest expenses that hurt your bottom line when it comes to real estate investing are repairs and vacancy.

• The one and only metric that affects the price a home sells for is how many people want it. Every single thing I do to market a home, every decision I make, is geared toward drawing multiple offers.

• Traveling employees taking part-time positions in hospitals who know they will be leaving in a matter of months or years aren’t very likely to buy a property to live in when they know they’ll be leaving the area soon. So what are they going to do when it comes to looking for somewhere to live? They are going to rent. Where is the first place they are going to look? As close to the hospital as they can get! Many successful investors have raved about the success they’ve had buying near hospitals. If you ever have the opportunity to scoop something up near one, I highly recommend you look into it.

• When you notice the tenant is keeping great care of the lawn, reward them! One easy way is to wait for the lease renewal, and if the property is kept in good condition, tell the property manager to talk with the tenant and only raise their rent by $50 a month instead of the usual $100.

• As mentioned earlier, properties near the best schools tend to appreciate the most. This leads to higher-priced homes attracting wealthier families, which oftentimes leads to more well-behaved children attending those schools, increasing the school scores even more.

• If you have a tenant move in during the winter, don’t assume you need a 12-month lease that will also expire during the winter. Consider a 15–16 month lease for the first run, and time it to expire in the spring when other people are all looking to buy or sell. This way, when you get a winter vacancy, you’re primed to have a house to sell or a rental to advertise when everyone else is already looking! This one simple move can decrease your vacancy by thousands of dollars over time.

• When I interview a property manager, I want to see a trend of several character traits that are going to make me feel more comfortable entrusting them with my properties. These trends include: Blunt honesty, Pickiness with who they take on as clients, Specificity regarding how they handle problems or which of their employees handle problems, Details regarding the systems they have in place, A proactive, rather than a reactive, approach, A specific market knowledge about real estate, and A flexibility to learn better ways or get better at their job.

• The most common cause of unmet expectations is poor communication of those expectations in the first place. Lack of communication takes place for several reasons. Sometimes one party is too shy, other times they get too busy. Sometimes one believes it is “common sense” and they shouldn’t have to say anything about it. Other times we know in our hearts the expectation is unreasonable so we just avoid mentioning it. In some cases, we are so afraid of conflict or not being liked that we won’t say how we feel or what we want or need. Regardless of the reason, if we don’t communicate our expectations, we have no one but ourselves to blame when things go badly because of it.

PART FIVE: The Refinance Process

CHAPTER EIGHT: Choosing Your Lender

• There are several things you need to make sure you cover with your lender so you don’t end up in big trouble. Some of the big ones are: How much you are able to borrow (pre-approval amount)? What the current interest rates are for investment property? How long the “seasoning” period is before you can borrow money against the property (how long you need to own it)? What your LTV (loan to value) will be? What your closing costs will be? How much it will cost to buy down the rate? What is your “cash out” refinance rate? Does the lender work with out-of-state investors?

• Here are a few of the big reasons why you should get two pre-approvals: Lenders have rates that fluctuate. The lower lender today might be the higher one six months later. Not all lenders have the same closing costs.

• Some have the skill and ability to solve problems, while others (like online lenders with great rates) will cave as soon as one thing goes wrong. If your loan falls apart, you don’t want to start the entire pre-approval process over from scratch. You want to be able to jump right in with the backup lender—especially if you’re using the loan to buy the property and have a limited escrow period. If a lender knows you are comparing them to someone else, they are more likely to give you a better rate or closing costs.

• Asking a lender for the length of their seasoning period is crucial. You don’t want to get involved in a project assuming you can take a loan on it two months after it’s completed, just to find out later it has a six-month seasoning period and you can’t access your money until then. Different lenders have different seasoning periods, and different types of loans do as well. Portfolio lenders tend to have more flexibility with these periods while conventional lenders often do not.

• Your loan to value (LTV) percentage is a huge thing to find out right away because it has such a big impact on your ROI. The best lenders will have programs with a 75–80 percent LTV. Some of the mediocre ones will do 70 percent, and anything less than that is typically considered not ideal for investors. The higher LTV you can get, the more of your money you can get back out of a deal. This leads to higher ROIs and more money to invest later.

• You want to ask the lender specifically about lender closing costs. Lender closing costs tend to be broken up into names like origination fees, underwriting fees, points, application fees, credit report costs, etc. Different lenders charge different fees for each type. Some lenders will try to bury their fees among all the other title/escrow/tax related fees and tell you to expect “2 percent” of the purchase price in closing costs. You don’t want this—ask for specifics. Many lenders are trained to quote you one specific closing cost—say, for example, the origination fee. Don’t get fooled by this. Ask for a “net sheet,” or a list of all the closing costs you’ll be paying, and compare these costs between lenders.

• In some cases, lenders will offer you the option to “buy down” your interest rate. This is basically an opportunity for you to pay more in closing costs so you can get a better interest rate. Sometimes this is a good idea, sometimes it’s not. My advice is to ask how much you’ll have to spend to buy down the rate (in dollars), then look to see how long it will take for you to recoup that money in loan savings.

• So be sure to ask your lender what their rate is for cash out refinances as they may be assuming you are getting pre-approved to purchase a house, not refinance one you’ve already purchased.

• When a bank is considering offering you a loan, they have to consider the “opportunity cost” of giving you the money—just like you have to consider it when choosing to buy one property over another. If a lender gives you a loan, they will make money on the closing costs. If the lender is low on funds, they will have the problem of not being able to lend this money to someone else.

• You solve this problem by offering to put money on deposit with them. In addition to strengthening the relationship, it gives them capital to lend to someone else. When they are considering several different borrowers all applying for loans, yours will stand out since you’re willing to put money on deposit with them. It makes your loan much more difficult to turn down and offers less risk for the bank.

CHAPTER NINE: The Value in Financing

• The LTV is the amount of money they will let you borrow against the value of the property, and the LTC is the amount of money they will let you borrow against the total amount you invested in a property.

• When reaching out to find the lender you want to pre-approve you, make sure you ask right away if they lend against the value or the cost. If they tell you they lend against the cost, they had better have a really high percentage (like 95 percent!). In essence, they are telling you there is a zero percent chance you will be able to pull out more than you’ve invested, or even all that you’ve invested. For this reason, I avoid banks that will only let me borrow LTC.

• Conventional loans are what the majority of real estate investors will start off using. Although you can find conventional loans for as little as 3, 5, or 10 percent down, these are products only offered to those buying a house as their primary residence. If you’re looking to purchase a rental property, you’ll need to put a minimum of 20 percent down, and sometimes 25 percent. Keep in mind most lenders classify conventional loans into three categories: primary residence, vacation/second home, and investment property. Investment properties are considered the riskiest and therefore have the highest interest rates of all three. Vacation homes are slightly better rates than investment properties, and primary residences come with the best rates and terms of all three.

• Jumbo: Any borrower looking to borrow more money than the limit in place is considered higher risk, and with that comes less favorable terms.

• Most investors don’t make money buying at the top of a market, so jumbo loans don’t come up much for us. Be aware that if you ever want to buy a property that requires a jumbo loan, you’ll likely be paying a higher interest rate, more lender fees, and may need a higher interest rate to qualify.

• Portfolio: If you want to finance more than ten properties, you’ll want to learn how these loans work. Currently, you can’t have a conventional loan on more than ten financed properties. Because they aren’t sold on the secondary market, the terms of a portfolio loan are not as favorable as those that are. These loans are not insured by the government and that makes them riskier to the lender. If you’re looking into a portfolio loan, be prepared to see adjustable rate mortgages and higher interest rates than you’re used to.

• Developing relationships with institutions that will give portfolio loans is a crucial part of growing your portfolio over ten properties.

• Hard money lenders are primarily used by house flippers, or investors looking for a “bridge loan” to get them into a property and then later refinance into a more stable loan. Hard money loans are often used to purchase property that would not qualify for conventional financing.

• The cost of these loans is very high.

• Owner financing is when the owner of a property agrees to be the bank and hold a mortgage note against their property. This is often used for real estate investors who can’t qualify for any more loans but still want to buy more property. In the case of owner financing, the borrower will usually offer the seller some form of down payment, and then the seller will finance the remaining balance of the purchase price.

• Private financing is when one individual lends money to another. In the case of real estate investing, this is usually done for the purposes of buying or financing investment property. Private financing can be short-term (as in the case of flips) or long-term (as in the case with mortgage notes).

• HELOC stands for home equity line of credit. HELOCs are loans given against the equity in a property. They are “second place” mortgages that are usually cheap and incredible opportunities to get money to invest with at a low rate.

• HELOCs function like a line of credit. You only pay for money you have borrowed against the line, and when you pay that money back, you don’t owe anymore. Lines tend to stay open for a 10 to 15 year period. After this “draw period” is over, you have to either pay the balance in full or, in some cases, the balance converts to a traditional amortized loan in which you will make payments of principal and interest.

• An 80/10/10 loan isn’t really a loan, but more a way of structuring two loans together, usually for the purpose of avoiding mortgage insurance for borrowers who don’t have 20 percent to put down. Mortgage insurance is usually required by borrowers who don’t have 20 percent to put down on their property (80 percent LTV) because this makes the loan riskier. For those without 20 percent equity, lenders force borrowers to pay for mortgage insurance to protect the lender in the case of default. An 80/10/10 loan is a way of combining two loans together to avoid this. It’s basically stating the property will be funded by:

1. A first loan at 80 percent of the property’s value
2. A second loan at 10 percent of the property’s value
3. A 10 percent down payment

• A very underrated way to buy an investment property and own it for free is to use an FHA or VA loan (or a 3–5 percent down conventional loan) to buy a property, then rent the rooms out to others who pay you to use them. If you do this right, you can often get your entire mortgage paid, or even more!

• Buying a two-, three-, or four-unit property allows you to rent out the units you aren’t living in and use that rent money to reduce the amount you owe toward your own mortgage. If you combine this with the first method (get roommates), you can increase your cash flow even more.

• Why do I love real estate? Because real estate, in my opinion, provides the highest returns for the lower number of negative traits. Sure, real estate is risky. Every investment is. There is no investment that doesn’t have risk somewhere on that spectrum. But when you compare all the ways you can make money in real estate vs. losing money, real estate comes out way ahead. On the same token, when you compare all the ways you can control your outcome in real estate vs. other investments, real estate wins every time.

• When inflation rises quickly, you can start losing 8 percent, 10 percent, 12 percent, or more, very fast.

• Investments that act as inflation hedges rise with the tide, like a buoy. Real estate is one of these types of investments. As inflation increases, property values and rent values increase along with it. This buoy, or floating relationship with inflation, makes real estate a very appealing investment to own in times of high inflation.

• In the BRRRR method, we don’t sell the property. We refinance it. This is our “exit.” We aren’t selling the property, but it functions the same as an exit because we are recovering our capital. Capital recovery is the real reason someone exits an investment. This being the case, BRRRR investors function very similarly to flip investors, just with a different exit strategy in mind. The goal is to increase the ARV as much as possible then refinance, as opposed to selling.

• Let me propose to you that buy and hold is a better, more viable wealth-building option for the long term.

• The reason? Taxes and commissions.

• Capital gains are only assessed upon the sale of a property. If you don’t sell it, you don’t pay capital gains. Sweet deal, right? That’s one reason I’m a buy and hold investor as opposed to a flashy flipper. Want to know the other reason? I don’t like paying closing costs and commissions.

• Refinances aren’t taxed like sales are! In fact, they aren’t taxed at all! If you’re not selling your property, you’re not taxed on it. Let that sink in for a second. By not selling your property, you can keep more of your money. This is one of the most compelling reasons I’m aware of why you should keep property for the long term, not sell it.

• You make money in so many ways! You make money from the cash flow your property produces. This is taxed but it’s not taxed at the same level of your normal income (like a flip would be) as there are natural tax shelters in real estate investing (depreciation, for one). You make money from the rent increasing every year and your cash flow increasing as well. You make money from the loan being paid down every month. This is essentially your tenants paying your house off for you. You make money from your property increasing in value over time (inflation will do most of the heavy lifting for you). You make money from increasing your property’s value through a rehab (forced appreciation). You make money from buying right (paying less for a property than what it’s worth through targeting distressed sellers). With all of these ways you can make money in real estate, and the only time you get taxed is on the cash flow it produces (at a reduced rate) and when you sell.

• 1031 like-kind exchange: Section 1031 of the IRS code states an exception to paying taxes on capital gains. It’s really less of an exception and more of a deferment. This section allows you to sell a property and reinvest the money into a different property without paying taxes on it until later. While many investors think this is a way to avoid capital gains taxes, it is not. You will still have to pay them later. In addition to having to pay the taxes down the road, there are strict rules to follow as well. You only get a short period of time to identify a list of potential properties you would like to close on, and then 180 days to actually close on them. There is also a litany of other regulations that must be followed that make executing a 1031 much more difficult in practicality than it sounds in theory.

PART SIX: Repeat: Building Systems To Run Your Business Like A Business

CHAPTER TEN: Building Systems to Increase Your Success

• Questions to ask: Where are my actions not efficient? How can I reduce the number of steps to allow fewer opportunities for something to go wrong? How can I make this task simpler to complete? What opportunities do I have to “trim the fat”?

• What can I do to raise my odds? How can I improve my “batting average”? What did I do well in the past that I can isolate and amplify today to give myself more opportunity to succeed?

• Where am I slowing myself down with activities that don’t have an impact on achieving my desired goal? Where do I need to increase my sense of urgency? Where am I losing out on opportunity because I am—or my system is—too slow?

• What am I doing that someone else could be doing better than I do? What am I doing that isn’t crucial to achieving my goal? What am I doing that is slowing me down from achieving my goal?

• My guess is, if you look at your own life, the same holds true. You wear 20 percent of the clothes in your closet 80 percent of the time. You use 20 percent of the apps on your phone 80 percent of the time. In real estate sales, 80 percent of the business is done through the top 20 percent of the agents, and guess what? In real estate investing, 20 percent of your actions will produce 80 percent of your results.

• On every episode of the BiggerPockets Podcast, the co-hosts ask each guest: “What sets apart successful investors from those who give up, fail, or never get started?” The overwhelming majority of guests all say the same thing—some form of “persistence.” Why do you think that is? Because successful people understand things are always going to be tough in the beginning, and it takes persistence to get through that initial learning phase before you get to the good stuff.

• The value isn’t found in the first time we do something, it’s in the tenth. The first few times we do anything, the goal shouldn’t be to excel or even succeed at it. It should be to learn from it.

• Even when someone isn’t asking for money, they will still likely require your time, energy, and effort. Just like money, these are also finite resources. Protecting them is just as important as protecting your cash.

• I want to make an argument that our failures, when interpreted correctly, allow us to improve our systems and therefore allow us to improve our odds of success in the future.

CHAPTER ELEVEN: Scaling Your System for Increased Success

• Lenders: Hello! My name is ___________, and I am a real estate investor who buys properties in the ___________ area. I’m writing to you because your name came up through several people I know as an elite level lender with experience working with real estate investors. I wanted you to know I’m actively looking for property to buy, and willing to be pre-approved through your business for you to provide me lending on deals that pass my way. I’m hoping you can send me your loan application and we can set up a quick phone call to discuss my file, what I’m looking for, and how we can help each other’s businesses. Additionally, I know as a lender you often put in massive time on a file that for various reasons beyond your control does not close. I wanted to let you know I would be extremely grateful for you to let me know when anything resembling a great deal falls out of escrow or otherwise crosses your path. If at all possible, I’ll buy it and let you represent me on the sale, refinance, or both. I would love to learn more about how I can help you as well, what programs you offer, and what kind of clients I can refer you to. Please let me know when a good time for a follow-up phone call will be. I’ll be happy to leave you a positive review on the platform of your choice after we do. Looking forward to working together! Thanks! (Name)

• Property Managers: I know as a property manager you often manage properties, stabilize them, then have the owners sell them. I wanted you to know if you find one of your clients selling a property you manage, I would be extremely grateful if you would let me know first. If I can buy it, I’ll keep the property in your portfolio to manage, as well as any additional properties I buy. Furthermore, if any of your clients comes across a deal they cannot buy, I would be grateful for the opportunity to buy the property and have you manage it.

• Wholesalers: I know as a wholesaler you often put in a lot of time on a property that for various reasons beyond your control does not close. Whether it’s your buyer backing out or your seller being unwilling to make concessions, I would love to know about deals you come across that need a strong buyer to close. I would be extremely grateful if you could let me know if anything resembling a great deal falls out of escrow or otherwise crosses your path. If at all possible, I’ll buy it, refinance it, then buy from you again. I understand the need you have for strong buyers to follow through on their word. I am an experienced investor who can get due diligence done very quickly, close quickly, and keep my word.

• Agents: I know as an agent you often put in a lot of time on a file that for various reasons beyond your control does not close. I wanted to let you know I would be extremely grateful if you could let me know if anything resembling a great deal falls out of escrow or otherwise crosses your path. If at all possible, I’ll buy it and let you represent me on the sale, then list it if it’s a flip property.

• Attorneys: I know as an attorney your goal is to represent your clients’ interests, and I wanted to let you know I would be extremely grateful if you could let me know of anything resembling a great deal crosses your path. If at all possible, I’ll buy it and prove to you I am reliable, honest, and trustworthy. My goal is to become a resource and an asset to your business to help you serve your clients better.

• Many people have grasped the concept of compound interest. Books have been written on it, speeches given, theories created, etc. It’s a simple but powerful concept. I want to encourage you to take that same principle of compound interest and apply it to people.

• Geometric progression doesn’t happen by repeating the same act over and over. It happens by capitalizing on new opportunities, creating opportunities out of those opportunities, then creating opportunities out of all those.

• The most important reason to rely on systems is the ability they give you to increase your volume.

• Doing repeat deals with the same contractor who values your business is one of the single best ways you can save yourself money investing in real estate, primarily because rehab costs are often the biggest expense in the entire process.

• When you use the same contractor, you can develop a system with that person. The contractor knows how you want to receive bids, how soon you’ll pay them, what they need to do to keep you happy, etc.

• Once you are saving your contractor money, it’s okay to expect them to save you some money. Asking to reduce their profit margin on the jobs they are bidding for you is an accepted business practice if you are providing them with a significant number of properties to work on. The volume you provide them allows them to justify a smaller profit margin.

• One of the benefits to increasing the volume at which your portfolio grows is you have more negotiating power with property managers to get them to lower their fees.

• Once I have three to four properties with one PM, I ask for a 1 percent decrease in the fee they charge me to manage the property. Once I get six to seven properties, I ask for a 2 percent decrease. Once I hit ten or more, I ask for a three percent decrease.

• Agents: In my opinion, a much better way to capitalize on the value through the volume you are bringing someone is to let them know you expect to see the best deals first. This will make you way more money in the long run than saving a couple hundred or thousand by shaving it off the agent’s commission. Asking for an agent’s commission can actually backfire, because it makes them more likely to bring their best deals to someone else.

• Materials: This concept can work on a smaller scale in hardware stores where you’ll buy the materials for your properties. If you buy enough from these stores, you can get set up for a “contractor’s discount,” or something similar. Stores want people shopping from them over and over, so if you’re buying in volume, they want your business.

PART SEVEN: Digging Deeper

CHAPTER TWELVE: Arguments Against BRRRR

• #1. BRRRR is bad because having more equity in the property is safer.

• Remember, if we use the BRRRR method correctly, we are still left with equity in the property. The difference is, that is equity we created, not capital we put down. Even if a property does lose equity, it only matters if you are selling a property. You can avoid needing to sell if you make sure the property cash-flows positively. Cash flow plus reserves allow you to weather any storm in the market and sell at a date that makes financial sense for you to do so.

• #2. The BRRRR method takes too long. I want to get started now!

• Why I disagree: Even though you get started later, as we saw from the story of Tom vs. Mike, Mike made way more in the long run. Taking more time to start is a wise investment if it allows you to BRRRR over a significant period of time. The second reason I don’t like this argument is it assumes the only way to buy a BRRRR/fixer-upper property is with your own cash.

• Partner with someone who has money. Borrow private money. Use a hard money loan to buy/rehab, then refinance into a better, long-term loan. Take out a HELOC on a different rental property. Take out a business loan. Take a note against your car. Find someone with a self-directed IRA and borrow from them. Borrow against your own retirement plan (when applicable). Use seller financing for the short term.

• #3. BRRRR is riskier because you have to invest more money when you buy.

• If you zoom out a bit and take a broader view of the whole process, it very quickly becomes apparent the BRRRR model is actually far less risky than the traditional model.

• You end up putting much less money in the deal at the end, improving your ROI, and reducing your risk, all at the same time.

• #4. BRRRR only works if you’re willing to do a massive rehab. While it’s true more BRRRR purchases tend to be bigger remodels, this doesn’t necessarily have to be true.

• I have used the BRRRR model successfully several times buying deals from wholesalers that needed very little rehab work. I’m talking a thorough cleaning and some paint—that’s it. While these aren’t as common as the fixer-uppers, they do still occur.

• #5. BRRRR is for cash buyers and I’m sorry, but that’s just not me.

• I have been a partner on several different big projects where a group of investors all put our money together and bought a large, multiunit apartment complex together. The properties were purchased with about 75 percent “agency debt” (a bank loan), then we investors kicked in the remaining 25 percent of the down payment plus the rehab costs. The rehab money was used to clean up the apartment complexes, and in the process, increased their value. Once the apartments had a higher value, we had an asset we could borrow against again.

• #6. What happens if the appraisal comes in low and I can’t get all my money back?

• The first is to challenge the appraisal, present your comps, and try to get a better result the second time around. The second is to pay for a new appraisal (if your lender will let you) and hope for a better result. The third is to consider selling the property and hope for a higher sales price than your appraisal, and banking on the fact your buyers will order their own appraisal that will be higher than yours.

• #7. BRRRR remodels are always big remodels and that intimidates me.

• Real estate investing is all about adding value especially BRRRR investing.

• A rehab is one of the easiest and simplest ways to add value to a property precisely because nobody wants to do them. If everybody was willing to do rehabs, there would be no opportunity there for investors. People looking to buy a home to live in would be snatching up all the properties because they were cheap. Opportunity exists because a rehab can be intimidating and therefore creates a barrier to entry.

CHAPTER THIRTEEN: How You Should Expect BRRRR to Improve Your Results

• With BRRRR, I know I’ll be getting capital back after the purchase, so I don’t have to worry about “missing out” on the next deal. I can buy here, and I can buy there, because I have enough capital to do both. I cannot stress enough how powerful this mind-set is for your own ability to make progress and take action.

• Don’t sacrifice your future by not taking action today!

SUMMARY

• Chapter 1: The BRRRR model outperforms the traditional model in every relevant statistical category. There are two ways to add value to a property: buy at a low price (buying equity) or add value through the rehab process (build, or force equity). BRRRR increases your ROI by lowering the investment basis left in a deal. BRRRR builds wealth faster by increasing the velocity of your money. BRRRR increases efficiency by returning more of your capital to you and maximizing leverage. Mastering each element of BRRRR will make you an overall better investor in general. Mike’s ROI was nearly 71 percent vs. Tom’s 14 percent ROI. BRRRR made a huge difference in the end results of the two investors’ portfolios.
• Chapter 2: Buying right gives you the option to flip the property or hold it. Options keep you from making ill-informed decisions. There are three main points of distress: 1. Market distress; 2. Personal distress; 3. Property distress. Most fixer-upper properties will be found by targeting property distress. If a property will rent for 1 percent of the purchase price every month, it is likely to cash-flow. If you are all-in for 75 percent of the ARV, you will likely recover 100 percent of your capital. Multifamily properties are valued based on their NOI and the capitalization rate of the area. You improve their value by improving their NOI. Single-family homes are valued based on comparable sales in the surrounding area. You improve their value by improving their desirability and condition. My three main criteria for buying a property are: 1. Equity in it; 2. Positive cash flow; 3. No headaches/bad neighborhoods. There are five inputs that go into analyzing most deals: 1. Rent; 2. Mortgage amount; 3. Tax; 4. Insurance; 5. Property management. Your Core Four is made up of a: 1. Deal finder; 2. Lender; 3. Contractor; 4. Property manager. Rockstars know rockstars. Get in touch with one rockstar and you’ll meet others in their world. There are three numbers you must be able to crunch to know if a property will make money: 1. Acquisition cost (price to buy); 2. Rehab cost; 3. ARV. Cash is king. If you can put together a cash offer or its equivalent, it will be much stronger than competing offers. Look for properties that require a cash offer. You will find better deals by eliminating your competition.
• Chapter 3: Use multiple agents to find you deals. Use agents on large, successful teams. Call team leaders and ask who their top talent is for working with investors. Find agents through your Core Four. Find agents through BiggerPockets. Use wholesalers to bring you deals. Use direct mail, professional networking, personal networking, auctions, driving for dollars, and bird dogs to find you deals.
• Chapter 4: A rockstar contractor is a must-have. Use leverage to amplify your results. Who on your team can help you with the things you need done? Make top priorities your top priority. Don’t waste time on unimportant tasks. Memorize how talent acts and what it looks like. Find team members for your Core Four that also invest. Bring value in relationships first. Use itemized bids with contractors for an apples-to-apples comparison. Memorize and practice common rehab hacks. Use “investor-friendly contractors.” Spend the bulk of your rehab budget on the kitchen and bathrooms when possible.
• Chapter 5: Add square footage to increase value. Add bedrooms and bathrooms to increase value. Use cheap labor, not skilled, when the opportunity presents itself. Use mulch to cover eyesores in a yard on a resale. Think long-term and durable when choosing flooring on a fixer-upper. Replace roofs before the refinance to recover a big chunk of your investment. Never pay a contractor for the entire job up front. Use a team member to check on the progress of your rehab. Pay for materials yourself the first time you use a contractor to be sure you aren’t overpaying.
• Chapter 6: Find preliminary rent estimates on Rentometer.com. Use BiggerPockets calculators to run numbers. Get more accurate rental estimates from property managers. Look for an area with growing employment opportunities. Know the DOM (days on market) of the area you’re investing in. The shorter the DOM, the hotter the market. Use Craigslist.org for rental comparables. Look for signs of construction downtown. Buy in the path of progress. Look for barriers to entry. Geographic and economic barriers are big.
• Chapter 7: Have your PM notify you two months prior to your property’s lease ending. Buy near hospitals. Buy near good schools. Know the pros and cons to self-management vs. professional management. Learn how to find and interview property managers.
• Chapter 8: Find the lender first. Get pre-approved. Know your lender’s seasoning period. Ask about closing costs. Send referrals to anyone you want to win over. Find banks at the part in their lending cycle where they have money they need to lend out. Know your lending institution’s appetite for residential loans.
• Chapter 9: Know the difference between LTV and LTC. There are several types of loans. The main types are conventional, FHA, VA, jumbo, portfolio, hard money, private financing, owner financing, HELOCs, and 80/10/10s. BRRRR maximizes your ability to leverage. Real estate investing requires three things: money, knowledge, and hustle. Real estate is a hedge against inflation. Opportunity cost is the price you pay for missing out on an opportunity because you chose something else. Selling a property is expensive. Refinancing a property is tax-free. A successful BRRRR can pay you to own it!
• Chapter 10: The four E’s of success are: Efficiency, Effectiveness, Expeditiousness, and Employability. The Pareto Principle states that 20 percent of your effort leads to 80 percent of your results. Repetition creates mastery. Persistence is the key to success. Use funnels to locate talent. Talent draws more talent to it. Stick to your 20 percent!
• Chapter 11: Real estate is a “get-rich-slow game.” Sharpen your skills before you begin for better results. Systems provide opportunities. Build your network through repeat business. Systems help you master the five elements of BRRRR. Stay top of mind to get deals first. You must be either Crest or Colgate. Compound interest is key! Investing at scale gives you a competitive advantage.
• Chapter 12: Equity will not keep you safe in the case of a market correction. Cash flow and reserves will. BRRRR is not riskier than the traditional model. BRRRR is not only for fixer-uppers. BRRRR can work even if you buy with financing. Even if the appraisal comes in lower than you expected, the BRRRR model is still more efficient than the traditional model.