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The BRRRR Investment Strategy (1)

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Jonathan Cook: On today's episode of The Investing Revolution, we're going to talk about the BR strategy, talk about what that means, and we're going to take a deep dive into making sure that you're buying the right property and that you're working the right strategy.

 

Speaker2: This is the Investing Revolution, a podcast designed to help your real estate investment strategy. On this podcast, we'll teach you the actionable steps to take and pitfalls to avoid so that your real estate investing can thrive.

 

Jonathan Cook: Welcome to the investing revolution. I am your host, Jonathan Cook. Today, we're going to talk about the Burr strategy and some other previous episodes. We discussed the different real estate investment strategies that there are and we quickly went over BR and what the acronym itself stands for. So that is buy, rehab, rent, refinance and repeat. That's what we're going to discuss today. We're going to take a deep dive into how to find the best property to operate this strategy with what you need to do to set that up so it's going to work and how to maximize. So the first step in building a maximized BR property is finding the right property for you. Not all properties are going to work buying something in a really nice area that has good stabilized rents and has a decent amount of appreciation. Your typical B class type of property is not likely going to be the best option for a BR. Most of these properties typically look like your average cash flow and property and that's that is a really important step is that it is going to cash flow that's going to help you in your refinance later if your actual debt service goes up a little bit. So the first step in finding a property is looking for something that is distressed, distressed in a way that when you're looking through your numbers, you recognize that your after rehab value is still going to be right around the median.

 

Jonathan Cook: And you have some room between your expenses and what that median price point is going to be. That's going to make sure that this is maximized in a way that when you refinance, you're able to take some cash out and restart the process. That's where your last are, the repeat stage. So the properties that you're looking for. Typically when I am hunting a good BIR property, I am looking in the $100,000 price range. And don't worry, if your market doesn't have a lot of those invest out of state, it's not very difficult. You've got to build your team. If you build a team in a different city that you can't do the actual management and the operation of it yourself, that's fine. That's where building your team really comes into play. So if you've decided that you're going to do a BR look for an area that you can find distressed properties around, that, you know, 100 even up to 150,000 I've seen being able to work on a br strategy. But, but in that range you should leave enough meat on the bone for the refinance to kick in, take some capital out, repeat the whole process. In South Georgia, for instance, we have an area called Gryphon. We have another area called La Grange. We have a lot of these typically C class, lower end rental properties. These are areas where the median income is under 50,000 a person, they are large areas of renters.

 

Jonathan Cook: Most of the people in these areas are renters instead of owner occupants. But there are several distressed properties kind of scattered amongst the properties where there are renters and occupants. And the trick to a BR is finding one of those properties that still has enough room between what you can buy it for, put the renovations in there, and then still have a a big gap between your all end price points and what you're looking to refinance out in a couple of months looking at your median price points. So look, in areas where you are already seeing median price points at that 150 to 180 price range, even close to 200. But there's still a large number of properties that are under 100 or right around 100,000. And to kind of give you some real numbers, I was looking at some properties in Griffin the other day with a client of ours that's looking to do some BRS and Griffin, Georgia. The median price point is around 130, 140, and there are a lot of properties that are built in the fifties and sixties, some even as old as built in the forties. That because this part of Georgia has so many older homes there, they're really small, 1500 to 1800 square feet. That's all going to help in the numbers. Every bit of what you're looking to purchase is just going to have to fit inside your formulas for your cash flow and your RV later.

 

Jonathan Cook: Math is one of the most important parts of making sure that all of these numbers are going to shake out. So when I am looking for one, I'm trying to find something that in what I'm looking at, I can I can ballpark some numbers here. We all roughly know what an HVAC is going to cost about 5500 bucks. Nowadays, a roof is going to be around $200 a square. And you can kind of ballpark some of that paint. It's going to be $2 a square foot flooring can be between three and $5 a square foot. And the way to maximize a BR is not to go in and throw down your carpet, put your beige paint on the walls, and just make this base level livable. Because, yeah, you might be able to rent that. You might be able to buy it and rent it and cash flow it. Great, but you're not really increasing the value all that much. You're not maximizing that refinance in the end. So what I think is the most effective way to handle a BR is in these areas. These older homes are very unique. And right now in America, we see that there's a large amount of. You know, there are several cities that have such massively low income finding a rental property. It's very difficult. Finding a place to live is very difficult nowadays.

 

Jonathan Cook: The housing market is is super high right now and people just can't afford to buy. But a lot of people are still out there looking to rent a nice home for a low price range. And that's where BR doesn't just make you a lot of money, it can actually make a renter a very nice home to live in. This is, when done properly, is a very ethical way to make a whole lot of money because you're able to provide a high quality living experience for your renter because you're buying it at such a distressed price. That's that's kind of the sweet spot that makes BR really, really successful. So if you're buying a property in an area like Griffin, Georgia, where the median price ranges are over 100, but not not at 180 yet. So 120, 130 ish thousand, you're able to snatch up a property at that 50 or $60,000 price range that when you look through it, the foundation is okay, the layout is going to be perfectly fine. But if it's a 1200 square foot house, when you actually do your math, the less square footage, the less paint you're going to have to do, the less floor and you're going to have to do the smaller the roof is. Those things are all going to add into your overall rehab cost. So you want to make sure that you're finding the property that you have the most opportunity to improve to a median level.

 

Jonathan Cook: I like to use LVP for the flooring options in these houses because LVP is relatively cheap. It is pretty heavy duty. It lasts for a long time. It can last for multiple renters and it's an easy option for your tenant. For your tenant to keep clean. It's really easy to clean lvp floors, they're waterproof, they're stain resistant, easy to mop and sweep and clean. And so when you give a tenant the opportunity to have a nice home that they can keep clean and make it continue to look really nice, they're going to be better tenants to begin with. So once you found this this property in that 50 to 60000 price range, you've got to do your math. Look at your square footage, do your pricing for paint $2 a square foot, get that added into your flooring if you're going to use LVP, about $5 a square foot, sometimes a little bit higher for installation. Look through and make sure that your systems, your major housing systems are also taken care of. First, go ahead and handle the HVAC. If it's old, if it's on its last leg, go ahead and replace it. It's going to be about 5500 bucks to replace the thing. But go ahead and do it because it's going to save you money in the end. The whole concept of the BR strategy, it's a buy and hold strategy, guys.

 

Jonathan Cook: This is something where you're going to keep this property for a long time and because of that you want to make sure that it is set up for success. If the roof needs to be, if it's got a bunch of patching and stuff all over it, go ahead and replace the roof. Go ahead and set these systems up to wear your time frame on having to replace these is ten plus years away. Go ahead and replace your water heater. Those are about 1200 bucks. Once you've got the painting, the flooring, all of your systems calculated in, you're buying this property at 50 to 60000. You're all in around 100, 110. And we know that the median is between 120 and 150. So you're able to then have a major gap between everything that you have in there and where your RV is going to be. If you're using hard money, you might want to refinance early, but if you're not, let that depreciate or let that appreciation take over and you don't have to refinance in the first six months, you could wait even a year to after you've placed that tenant in there, because you've you've found a really high quality tenant at that point. After you've rehabbed the property, made it look really nice, you are now going to price the rental at just above median or just around median price point for the rentals. So and you have the room you now are able to rent that property that you bought at 50 or 60 and you have around 100,000 total into it, at least in Griffin, you're able to rent those for around 1200 dollars a month and that's a pretty strong cap rate right there that's going to cash flow right off the bat.

 

Jonathan Cook: Once you've got that going, you can leave it as a cash flow. But that's not a full BR. Once you've got it rented, you should have a high quality renter that is looking at what you've done in this property. You've made a nice, clean, updated home with nice flooring, good paint, a nice kitchen, you've done some nice updates into it. I like to put something in that property that. Going to stand out and make like a a wow factor. We've all seen HGTV where they do the House Hunters, and they always give them three options. They always nickname the houses. Something cute that they found. Oh, the one with the porch or the one with the arches or whatever, whatever they might have seen in there, they're not calling them by the address. Renters are the same way. Anyone looking to live in a new place is doing the same sorts of things they're looking at. What is it about this house other than bedrooms and price that makes me want to live here? They're looking at, Oh, well, not only is this property look clean and safe and it's built in a decent way, if you can add something in there that catches their eye and it might just be something as simple as a kitchen island, you can take your LVP and run it up along the base of a kitchen island to to give a really neat look to it.

 

Jonathan Cook: Ship lapping has become really popular lately. It's not very expensive if you do it on a small wall. I like to put them in bathrooms. Bathrooms are a great place to add a wow factor because those rooms are very small. And so the improvements that you do to them don't cost a lot of money. You can take a bathroom that is ten, that has a wall on it that's four foot wide or six foot wide. You put chip lap up on that thing. The vanity is already going to block a lot of it. You've saved a lot of money in just material costs. There's there's little tips and tricks when operating a bird that really can stand out to where when your potential renters are coming to look at this property, they see nice LVP floors, they see the grey paint or whatever the popular color is at the time. In South Georgia, grey is the the current popular neutral color. When they come in and they see that this is going to be a place that they can picture themselves living for a long time, they're planning for their future.

 

Jonathan Cook: And that's going to be a long term tenant, which is good. Long term tenants are going to save you a lot of money in that vacancy. Time frame vacancy can cost you for every two weeks. I want to say, Todd said every every week on the market or every week that it's vacant, it's costing you 2% of your annual income. So if you can cut that down by putting in a really nice property that somebody wants to live in for a long time, you don't have to site, you don't have to factor in a vacancy every couple of years. Get a long term tenant that's going to be better off in your numbers in the end. So once you've got that tenant in place, you've got that high quality tenant that is looking to stay in that property for a long time, and they're happy to pay you your 1200 dollars a month rent. You know, let it stabilize for a minute, give it a couple of months. I like to see 6 to 8 months of stabilized rent in place before you refinance. That way, you know how good your tenant's going to be in 6 to 8 months. We should be able to check and make sure that your tenants are paying on time regularly. We've done some periodic reports to make sure that they're taking really good care of the property and then you refinance after.

 

Jonathan Cook: That time frame and the markets that you are buying in should continue to appreciate at that point. Right now, if we're looking in parts of Georgia, the appreciation is 39% a year in several parts. I mean, that's that's that's a massive increase to where if you bought in targeting a 160,000 for your RV, you wait eight months in, that RV goes up to that 180 price point. That's another couple of ten grands in your pocket that you can use to go buy another property and do this again. So once you've got everything in place, you've got it stabilized. Go ahead and refinance that property, take that equity that you're gaining out and reinvest it in another property in the same area that you can find that will do the exact same process. You repeat the process over that's that's the magic of BR You've increased value here and now you're increasing your entire net worth because you still have this 100 and now 160, 570,000 property. You still own it. It's still cash flowing for you, yet you refinanced your equity out of it. Your your mortgage payment might have gone up slightly, but you are still cash flowing fantastically. Then you're able to take that equity and restart the process. You do that every couple of months, every 6 to 8 months. You can redo this process and double it almost every time, depending on what your lending looks like.

 

Jonathan Cook: I've seen several hard money lenders that are happy to lend you a 75% RV loan with only 10,000. You can get this process started several times over doing that same process. If you're making 20,000 profit on that refinance after you've taken it out of the hard money, put it into a standardized loan, you've got $20,000 in equity. Well, now go take that and do it again twice. And you're able to exponentially grow a portfolio that in a handful of years can be worth millions of dollars. And as long as you are continuing to put high quality renovations in that property to make it look really nice. And I'm not saying you have to do marble and courts and, you know, tankless water heaters and all the updates imaginable. But if you are able to make these properties that base level, median level of nice LVP floors, nice countertops, they don't have to be granite clean cabinets, clean bathroom with some really nice, clean, refreshing lines. What you're doing is we are taking these properties that have basically been removed from the inventory of the housing market. And you're rehabbing them. You're you're putting these homes back on the market because they weren't if they're unlivable because they're in such distressed conditions, that's not a house in the housing market. It's that's no inventory. You go and you make that a new, livable place and all you're doing is generating wealth for yourself that you can continue to keep and continue to watch grow in terms of value for the next several years.

 

Jonathan Cook: But also, you're making a nice, livable property for someone that they're going to live in for years. And ultimately, that's how this strategy works. It's really simple. It's really simple math, but it's a lot of math. All of the BR process is taken care of in that preparation stage. As long as you know what the steps are, as long as you know how the math works, you can repeat this process ten, 20, 50 times over and build yourself a massive portfolio of properties that are continuing to cash flow and you're leveraging these properties to buy new properties. I've seen this go really wrong when buying the wrong properties. If you buy something where the the. The renovation isn't really adding a lot of value to it. If you're buying an already nice house, a two or $300,000 house, that's plenty livable right now. And you try to flip it by adding a lot of nice new features into it. You're not really adding a ton of value there because the property was already on the market. It was it was already available inventory for someone that could have lived in it before you ever bought it. I think the most ethical way to do the buyer strategy is finding properties that are unlivable, that are not true inventory on the market. They they need our help the the investors help to turn this back into a new livable situation for somebody.

 

Jonathan Cook: Once you're doing that, you're not only generating wealth for yourself, but you're also improving an area. You're making your own new comps. You're increasing the value everywhere. It's it's a triple win for everyone involved. And that's why, in my opinion, I think BR is the most effective real estate investing strategy that that anyone right now is really heavily investing in. And that's the strategy. That's that's that's really kind of all I have to say about this. You know, I hope as simple as this episode is that you can take. The concept to heart and really dive deep into Where can I make this strategy work? If you want some more localized information on where can I find these kinds of properties? Reach out to a local realtor. Reach out to me if you would like to. You can send me an email any time. My email is just Jonathan. See at Revolution are IMDB.com. But I really hope that you can take this and build some generational wealth for yourself. Build some stuff that you hold on to that's going to make money not only for you, but for your family for years to come. And you're building a nice place for people to live. So that's it. Make sure to like and subscribe on the podcast and the YouTube channel. I really appreciate everyone for joining us today.

 

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