Buy Repair Rent and Refinance

On today's podcast episode I talk about the Buy, Repair, Rent and Refinance Method (BRRR). 

On the last podcast episode, we talked about buying rental properties and the wealth creation effect of buying and holding rental properties for the long term. 

Today, we are talking about how to employ the Buy, Repair, Rent and Refinance Method, how it works, and how it enables you to buy real estate with no money down (or with almost no money down). 

I use as a case study on this podcast episode, my student Dale who recently purchased a rental property for $94,000. I loaned him $80,000 to purchase the property which was a private lender loan (using my own funds). This is definitely one of the advantages of being a coaching student. 

At the Airbnb Boot Camp this past weekend, we covered the Buy, Repair, Rent and Refinance Strategy in detail and we showed our students how to effectively use the BRRR Strategy. We will be covering this again in a few weeks at the Buying Rentals and Building Wealth Boot Camp so make sure you don't miss that boot camp! Here is a link to that boot camp: https://www.lexlevinrad.com/buying-rentals-building-wealth-boot-camp/

At the boot camp this past weekend, we showed our students 4 different actual student case studies of the Buy, Repair, Rent and Refinance Strategy.

On today's podcast I am discussing one of those which is my student Dale.

Here are the numbers on this rental property that Dale purchased:

Purchase Price: $94,000

Loan Amount: $80,000 (from me)

Down Payment: $14,000 

Closing Costs & fees: $5,000

Insurance: $2,000

Repairs: $12,000

Dale purchased this property with the goal of making it a Section 8 Rental Property and he utilized the BRRR Method. After he repaired the property, he found a Section 8 Tenant that is paying $1,805 per month in rent. His private lender loan with me had an interest payment of only $800 so he was cash flowing over $1,000 a month even with a high interest rate loan!

After the house was rented, he went to another student of ours who is a mortgage broker to do the refinance. The house appraised for $195,000 which is $101,000 higher than his purchase price. You might be wondering how he found this house. He mailed out $7,000 worth of postcards (around 14,000 postcards) until he found a seller that was truly motivated to sell. The seller had a partner who had moved into an assisted living facility and they needed to sell the house in order to get access to cash since they had run out of money. This is a text book example of a motivated seller.

The house appraised for $195,000. The bank was willing to lend 75% of the appraisal value which was $146,250 (75% of $195,000 is  $146,250). The refinance fees were around $6,000 leaving Dale with $140,000.

From that $140,000 he used the proceeds to do the following:

Pay off his private lender loan to me $80,000

Pay himself back on his $14,000 down payment

Pay himself back the $5,000 in closing costs and fees

Pay himself back the $2,000 for insurance.

Pay himself back on the $12,000 he spent repairing the property

Pay himself back on the $7,000 he spent mailing postcards. 

There was still a lot of money left over. So at this point, Dale owns a rental property that is appraised for $195,000 which has a mortgage of $146,250. He has almost $50,000 in equity in the property. He also has the cash left over which even after accounting for interest payments, taxes, insurance etc is still more than $20,000. 

After refinancing his mortgage payment to the bank with his new loan is $1,200 a month. That includes taxes and insurance. And the property is rented for $1,805. So he has $600 a month of positive cash flow.

The net end result is that for Dale this property:

Created $50,000 worth of equity

Created $7,200 a year of cash flow

Was Purchased With No Money Down

Had $20,000 Cash Left Over

The best part is now Dale can start looking for rental property number two. And he can repeat the above process as many times as he needs to because he does not need to come up with cash to buy additional properties. He just repeates the BRRR process above over and over. This is exactly why I urge you to learn how to employ this strategy. 

I have one student (Andy) who purchased 10 Section 8 Rental Properties using this exact strategy. Then in 2020 he converted one of them to an Airbnb and his cash flow went from $2,500 per month to $10,000 a month (just on that one rental). He started converting his next rental into an Airbnb, and over the past few years has converted all 10 of his rental properties into Airbnb's. He now makes $80,000 per month in cash flow on Airbnb. A few years ago, Andy quit his job. The crazy part is that he is only 34 years old!

So if you want to learn how to build wealth and become a millionaire then you need to learn how to employ this strategy. Dale will be there. So will Andy. I want you to come to one of my real estate training events and meet my students who are buying rental properties using this strategy.

The easiest way to learn is to attend my upcoming Buying Rentals and Building Wealth Boot Camp. Here is a link to that event: https://www.lexlevinrad.com/buying-rentals-building-wealth-boot-camp/

Enjoy the podcast episode. Make sure you subscribe to the "Investing in Real Estate With Lex Levinrad" Podcast on Apple Podcasts so that you are notified of future episodes. 

To your success.

Lex