BRRRR Investing Basics: Step 1, Buy
At Boise TurnKey, we’ve been BRRRRing before it had a name. While there are many ways to invest in real estate, BRRRR is the simplest way to get started with limited funds and resources. BRRRR is an acronym that stands for Buy, Rehab, Rent, Refinance and Repeat. Most people get stuck on the refinance part (we’ll get to that!) but in order for the process to work, you have to understand each step and how it influences the next step in the process.
For today, we will discuss the B- buying. When you BRRRR, the goal is to have the property cash flowing with as little of your own money left in the deal when you are done. In order to do that, when you are done with the second step, the rehab, you need to have created approximately 25% equity in the property.
For now, let’s forget about the next steps, just focus on the purchase. For simplicity’s sake, let’s say you buy a property for $50k, you spend $25k fixing it up. The goal should be that when you are done, the property is worth around $100k.
Here’s the simple equation in reverse for a bit more clarity:
Finished value of property (ARV)= $100k
Cost to purchase: $50k
Rehab expenses: $25k
Profit (Equity): $25k
I’ll explain why this is important and how LTV (loan to value) will effect your investing career later in this BRRRR blog series- but for now, take a few minutes and look at some properties in your local market and practice applying these ratios to see if you can get close to these ratios. Reach out to our team if you have any questions or want to review numbers with us!
Finally, you might be thinking, "sure, this all sounds great, but I don’t have the $75k that this scenario would require." First of all, these are just simplified numbers- it’s likely that if you found a house for $50k, you probably wouldn’t want to buy it under any circumstances anyhow…but I digress. At this top of this post, I mentioned that there are many ways to invest in real estate- one of those ways is through funding deals like this. There are many people and companies out there who solely provide cash to investors to do these types of deals. Search our blog for more information on private money loans (PML), hard money loans (HML) and portfolio lenders. You might even have friends or family members who want to lend you a few bucks and get in on the fun too!
