Here are notes I took on David Greene’s seminar about how does the BRRRR Strategy work (the BRRRR investment strategy broken down). I actually purchased David’s book a while ago called Long-Distance Real Estate Investing that provided actionable steps towards getting your first out of state rental property. I was excited to attend his talk to hear more about his strategy around BRRRR, a strategy that’s talked a lot about on Bigger Pockets.
How Does The BRRRR Strategy Work? (BRRRR Investment Strategy Broken Down by David Greene)
The BRRRR strategy is one of the most efficient ways to build wealth in real estate and is a great way to supercharge your success through efficiency and mastery.
The 5 elements of BRRRR include:
- Buy
- Rehab
- Rent
- Refinance
- Repeat
The secret to success in real estate is buying right. With every deal we buy, we want to pay less than what the property is worth.
The core four people you need on your team include the agent, lender, property manager, and contractor.
Buying a Good Deal
Buy
- In areas with job growth
- In areas with limited supply
- In areas with healthy economies
How to recognize a good deal:
- Make sure it is under market value
- Have it cash flow positively – but cash flow matters less. Having it under market value is the most important.
- Make sure it is not in a bad neighborhood
How to evaluate a good deal
- Buy properties under market value
- Know your ARV – after repair value.
- Evaluate the deal based on comps
- Add value
- His goal is 75% of ARV, all in
How to create a good deal
- Add value through rehab
- Add bedroom bathrooms and square footage
- Make your property compare to better and nicer, more expensive properties
- Put your property in better condition that it was in when you bought it (remodeling)
David likes to look for 900 sq. ft. houses with 2 bedrooms / 1 bathroom (nobody usually wants it). If it has a utility room and a big deck in the back, you can convert that into living space and ultimately make the property into a 1,500 sq. ft. 3 bedroom/2 bathroom residence.
Understanding how appraisals work
- Based on comparable sales
- Price per square foot
- Adjust for quality of materials (upgrades)
- Functional obsolescence – a reduction in the usefulness or desirability of an object because of an outdated design feature
- Improving the design of the property improves its value
How to find a good deal – Look for distress!
- 3 types:
- Market distress
- Personal distress
- Property distress
Rehabbing Your Property
Choosing a contractor
- They want to hide their costs. We want to know exactly what we are paying for.
- Goal of interviewing is to look for a good fit
- What is your value that you are bringing?
How to format your contractor bids
- Itemized list of scope of work
- Every item the contractor is going to perform comes with a price. I can read it like a menu at a restaurant and order only what I want
- By creating this specificity the contractor can’t hide costs or fees
- Ask how long a task takes a complete to determine if you’re being overcharged
Break it down with your contractor – figure out how much the labor will cost (by asking about the cost of the actual items), then ask how long it takes for them. That way you can figure out the price per hour and see if it makes sense.
Renting Out Your Property
How to determine market rents
- Rentometer.com
- Craigslist
- Property managers
Rents like property values, are determined based on comparables
How to increase rents
- Bring rents up to market value
- Improve your property’s desirability through the rehab
- Home values, and rents, increase in proportion to wages
Refinancing Your Property
How to find good lenders
- Rockstar referrals
- Your core four referrals
- Other investors
- Other lenders
Lenders won’t finance (or refinance) if you got a loan on the property within 6 months. Seasoning 6 months because lenders don’t want others to lose their commission (assuming you got a loan).
How to know what you’ll be paying for the loan
- Loans are expensive
- Closing costs
What you want to refinance
- Recovers your capital
Repeat – BRRRR enables you to create a business not a job
The power of systems
- Anything done more than once should have a system created
- Prevents you from making errors of commission (mistakes you’ve missed)
- Makes you more efficient
- Allows you to someday train someone else to run aspects of your business you don’t like
On average any new house he buys gives him an extra $25k in equity.
Why you should care about ROI
- ROI – is a metric used to determine how hard your money is working for you. It is a common metric because it makes it easy to compare an investments performance over several different vehicles
- ROI = profit you make in a year / the amount of money you invested
Comments 1
That’s an interesting idea to get a house that you could renovate and then rent out to people. I could see how renovating it could make it possible for you to charge more on the rent, so that could definitely help if you are using the rent to pay for the loan you took out to pay for it. That sounds like it could be a pretty good strategy, so I might have to look into trying that out if I decide to invest in real estate.