\n<\/p>\n
Want to build your rental portfolio faster?<\/strong> Then the BRRRR method<\/strong><\/a> is about to become your best friend. BRRRR (buy, rehab, rent, refinance, repeat<\/strong>) allows you to take one investment property and turn it into MANY<\/strong>, all while using the same stack of cash you started with on the first property. This means you can \u201cinfinitely invest\u201d<\/strong> with the same money over and over and over again! But how do you pull off a BRRRR in today\u2019s tough housing market?<\/p>\n We\u2019ve got Sir BRRRR himself, David Greene<\/strong>, on the show to teach you what BRRRR is, how to find BRRRR deals, how to analyze your first BRRRR<\/strong>, and how to recycle your investment so you reach financial freedom in years<\/strong>, NOT decades. Whether you\u2019re searching for your first BRRRR deal or rehabbing your fifth, you\u2019ll want to hear David\u2019s latest tips and tricks for all BRRRR investors. Don\u2019t miss out!<\/p>\n Unlock UNLIMITED usage of the BRRRR calculator<\/a>, get lawyer-approved lease agreements<\/a> for your state, and find financial freedom FASTER with BiggerPockets Pro! Click here to sign up<\/strong><\/a> and use code \u201cREPEAT20\u201d to get 20% off your annual membership AND a $2,000 value in bonuses!\u00a0<\/strong><\/p>\n David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the Real Estate Rookie episode 339er. Hey, what\u2019s up? This is David Greene, the host of the BiggerPockets Real Estate podcast, and today I am on the Rookie Show, taking over the rookie feed to share a presentation of buy, rehab, rent, refinance, repeats or BRRRR. In this episode, we\u2019re going to cover what makes a great bird deal, whether today\u2019s market is good for BRRRR investors or not, and if BRRRR is the right strategy for you. I\u2019m going to be teaching you how to master the must knows for successful BRRRR investing. Whether you\u2019re a first-timer or a season pro, get the latest tips for great BRRRR deals, market suitability, and finding the right strategy. Many investors have fast tracked their portfolio growth journey using the BRRRR, and I am one of them. The BRRRR strategy, buy, rehab, rent, refinance, repeat can allow you to get the most out of your capital and reach financial freedom in years instead of decades.
But with today\u2019s market conditions, BRRRR, investors need to be more focused than ever on correctly running the numbers, projecting expenses, and estimating the after repair values. In today\u2019s show, you\u2019re going to learn must knows for any BRRRR investor from the BRRRR guy himself, me. Whether you\u2019re searching for the first BRRRR deal or rehabbing your fifth, you\u2019ll want to hear my latest tips and tricks for all BRRRR investors, so don\u2019t miss out. During the podcast, you are going to learn a little bit more about ways that real estate investors evaluate deals to make sure you don\u2019t end up with something that loses money after you\u2019ve done all the work. If you decide that you would like to sign up for a BiggerPockets Pro membership and get access to the calculators that we investors use to analyze our deals, I\u2019ve got good news for you because you\u2019re listening to this podcast and supporting BiggerPockets, I\u2019m going to give you a discount code for 20% off of a yearly pro membership.
So take a second to write this down or put a note in your phone to save 20%. The discount code is, OWNIT20, O-W-N I-T 20, that\u2019s OWNIT20. All right, I hope you\u2019re feeling chilly because it\u2019s time to BRRRR.
Welcome everybody. I\u2019m David Greene, the host of the BiggerPockets podcast here today to talk with you guys about BRRRR. In fact, yesterday at my jiu-jitsu class, there\u2019s a young man named Dylan, Dylan, if you\u2019re watching this, what\u2019s up? Who knew who I was and was assigned to work with me and called me Sir BRRRR, which is my nickname given to me by my cohost Rob Abasolo. So I wrote the BRRRR book, which we\u2019ll talk about later. I\u2019ve used the BRRRR method to supercharge my portfolio and I\u2019m here to talk to all of you today about how you can do the same. So if you\u2019ve ever heard this BRRRR word, you don\u2019t really know what it means, you know it has something to do with repeating a process.
Well, don\u2019t worry, by the time we\u2019re done today, you\u2019re going to have a very good understanding of what it is, how simple it is, and how you can use it to use the same capital to buy a lot of real estate. So welcome, I\u2019m glad you guys are here. I\u2019m thrilled. Let\u2019s go over a couple ground rules. First off, get your phones out. You don\u2019t have to put them away. I want you to have your cell phones out while we are going through this. And here\u2019s why, there will be points in the presentation and I\u2019m going to want you to take a picture of the screen so that you can remember what we talked about. So if you have your phone out and ready to go, that will help us. Also, you can follow me at David Greene 24. I didn\u2019t cover that earlier, but if you guys have a question after the webinar, you want to get some clarity on something, the best way to get ahold of me is to send me a DM on Instagram or Facebook.
All right, what if I told you that you could make your capital go further? Would there be any interest in that? I mean, is everybody here bleeding money out of their ears right now? Is it like, \u201cMan, I got all this cash and I just need to find somewhere to put it?\u201d Well, if you\u2019re not Pablo Escobar, you probably don\u2019t have that problem. You\u2019re probably looking for a way to take the little bit of money you do have and stretch it further, which would be a good thing. Do you want to increase the velocity of your investing? Meaning do you want to make transactions happen more frequently? Do you want to reach your investing goals faster? Are you not wanting to need 50 years before you can save up enough money to buy enough real estate to become a millionaire? Well, you can. Anyone here can using BRRRR. By the end of this webinar, you will understand why BRRRR works and the expert tips to follow.
All right, let\u2019s get into today\u2019s agenda, what we\u2019re going to be going over. We\u2019re going to talk about some door prizes. We\u2019re going to talk about why experienced investors love BRRRR. We\u2019re going to talk about if BRRRR is the right deal for you, finding a deal, tools to help expert tips and tricks, and we\u2019re going to analyze a deal together. Pretty cool. So stay all the way until the end for expert tips and tricks because you don\u2019t want to miss those. So who are we here at BiggerPockets?
Well, we have over 2 million members. We have the number one podcast for real estate investing in the world hosted by yours truly, 5 million plus forum posts. These are questions that investors have asked and other members of the community have answered. As well as 40 million total YouTube views and counting. It doesn\u2019t take that many properties to achieve financial freedom, but it does take the right goals, the right plan, and the right actions. So who am I? Well, my name\u2019s David Greene, I\u2019m real estate investor and I live in the Bay Area of Northern California. I own rental properties, I flip houses. I\u2019m a commercial investor. I co-host the BiggerPockets podcast with Rob Abasolo. I\u2019m the author of Buy, Rehab, Rent, Refinance, Repeat the BRRRR book. Long Distance Real Estate Investing, that\u2019s the first book I wrote for BiggerPockets. Also, the top producing agent series for BiggerPockets, which is three books written to help real estate agents and some more houses.
Those are sold, skill and scale and like you, I was once a newbie to real estate. So let\u2019s talk about what BRRRR is before we get into it. It\u2019s an acronym. BRRRR stands for buy, rehab, rent, refinance, repeat, and this is the order of operations when we\u2019re buying a property. So first you buy a house, then you rehab it to make it worth more, then you find a tenant and rent it out to them to get cashflow. Then you refinance the property when it\u2019s worth more than what you paid for it to get a lot of your capital back out. Then you take that capital and buy another property to repeat the process. So why do experienced investors like me love BRRRR? Well, first off, it\u2019s a low or a no money down strategy. Now you will still need money to buy the property, but if you do this well, you will leave only a little bit of your money or get all of it out of the deal.
You\u2019ll also increase your return on investment, and that\u2019s because you\u2019re leaving such a small amount of money in the property, but you\u2019re still getting cashflow that the ROI and the money that you leave in there is astronomically high. You\u2019ll get the most out of your capital. So your money\u2019s going to be working hard for you just like you had to work hard to make that money. You\u2019ll increase the velocity and the efficiency of your investing, which means you\u2019ll buy more properties and you\u2019ll buy them better than if you were not doing BRRRR and you will supercharge your wealth. You will get wealth faster, still using sound fundamentals of real estate investing. So is BRRRR right for you? Do you like what you\u2019re hearing so far? Well, here\u2019s some things to consider before choosing to BRRRR. First off, are you willing to do a rehab and are you going to hire it out?
Do you do the work yourself or are you going to pay a contractor or a handyman to do some of this work? Because most BRRRRs involve fix or upper properties, which mean there will be a rehab, whether it\u2019s lighter, extensive, there\u2019s still a lot of work. They require solid skill planning to find a deal. So we\u2019re going to share some great tools later to make this possible for anyone to do. But know when you\u2019re BRRRRing, you have to find a better deal than when you buy traditionally to make this work, which is one of the reasons I like it is it forces me to buy better, but it is going to be harder work. And here\u2019s some of the potential cons of BRRRR. Well, first off, you\u2019re usually going to use a short-term loan to buy the property, this could be a hard money loan, it could be private money. We\u2019re going to get into some of the different ways you can finance it.
Then there\u2019s the problem that you may have a low appraisal after the rehab. So you\u2019re going to learn in this method, you buy a property and then it has an after repair value, what you think it\u2019s going to be worth after it\u2019s fixed up. Well, sometimes it appraises low and that messes up your whole plan for pulling your capital out of the deal. You\u2019re going to end up with a rehab that ends up over budget. That can happen too. So you plan to spend say 50,000 for the rehab and it becomes $75,000. That can mess up your numbers. There\u2019s a seasoning period. Traditionally it\u2019s been six months for conventional financing. Now for some it\u2019s up to 12 months. So it can be hard to refinance that property until you\u2019ve waited a period of time.
So if you thought you were just going to do this every three months, that can be tough depending on what kind of loan product that you\u2019re using. There are two potential closing costs, so you may have closing costs when you first buy it, as well as closing costs when you rehab it, that\u2019s an added expense. And then the rehab itself is stressful. It can involve pulling permits. It can involve talking to a contractor. It can usually go over the timeline. Rehabs are notorious for being headaches, and when you\u2019re buying fixer-upper properties, that\u2019s a part of what you\u2019re buying. So it does have a lot of downsides and now that I think about it\u2019s probably better that we don\u2019t talk about BRRRR. I mean, if something\u2019s hard, it\u2019s usually bad. Eating vegetables is hard. Lifting weights is hard, exercising is hard, raising babies is hard.
I changed my mind, I don\u2019t think we should be doing this at all. Actually, no, that\u2019s terrible. In fact, we have the word nope written in cursive with paint. That was very, very impressive. Whoever wrote that on this hardwood floor, that\u2019s actually a really good nope. But nope, we\u2019re not going to run away from things that are hard. BRRRR has propelled many, including myself towards financial freedom and I believe that anyone here can do the same. So how do we work around the cons? Well, first off, remember that every strategy has unique downsides. How do we address them? How do we address the short-term loan? Well, you can use a hard money loan to buy the property, but you\u2019re going to have additional closing costs. So know that when you\u2019re getting the loan, you should contact a mortgage broker. I own the one brokerage, so we can help you with that.
You may have a relationship with the mortgage broker. You want to ask questions like what financing options do you have available for short-term debt? This is not a 30-year fixed rate loan on the property, this is a loan that you want to get for a shorter period of time. Then there\u2019s the low appraisal after the rehab. Well, you want to plan your rehab well and you can contest appraisals. In fact, owning a mortgage company gives me an advantage there. Sometimes we\u2019ll order an appraisal and it will come in low and we\u2019ll go to a different lender and have a new appraisal ordered instead. Sometimes we\u2019ll contest the appraisal and say, \u201cHey, I think your guy messed it up. Here\u2019s some comps we should consider.\u201d And they may redo their original appraisal. And the more you do rehabs, the more confident you get with knowing what to do when they go wrong.
You also have the problem of the rehab ending up over budget. There\u2019s no way around it. You just have to have access to extra money in case that happens. Then you\u2019ve got the seasoning period. One of the ways that we address that problem is we don\u2019t always refinance into conventional loans. Sometimes we refinance into A-D-S-C-R loan or a bank statement loan. Some of the other financing options that\u2026 Or a portfolio loan that don\u2019t require you to wait the full 12 months, and again, that\u2019s a mortgage broker question. If you work with a mortgage broker, they have many different banks that they can find you financing for. Versus if you work with a direct lender, they usually have one bank with one program, and if you don\u2019t fit within those parameters, then they\u2019re not going to be able to help you. And then it comes to actually doing the rehab. How do we address that?
Well, something that I need to highlight about BRRRR, especially if you\u2019re not familiar with real estate, this does not work when you pay fair market price for a property or you don\u2019t add value through the rehab. This is a method for buying a property below market value and or adding value to the property through the rehab, upgrading it, adding square footage to it, fixing problems that someone else didn\u2019t want to fix. This is something that you only do when you can get a property for less than what it\u2019s worth. This doesn\u2019t work for a turnkey property that you\u2019re paying fair market value for. There\u2019d be no way to get your capital back out of it. You\u2019re actually trying to create equity when you buy this property and fix it up and then take that equity out and put it back as cash in your bank to invest into the next deal.
So that\u2019s another important thing to highlight, that the BRRRR method is not something you just choose to do on some condo in an area that you love and you paid what it was worth. This is something that\u2019s going to take a little bit more work to find the better deal. So let\u2019s talk about how to find the right deal. Okay? Well you\u2019ve got networking and BP can help you there. You can go to real estate investment groups. That\u2019s a way to meet other investors or wholesalers that are actually people out there actively looking for really good deals, putting them in contract and then assigning those contracts to you. You can go to Meetups. These are places where people go and they get together and they talk about their businesses and they talk about what they\u2019re investing in and they build relationships. You can get on the forums like I mentioned earlier, BiggerPockets has forums with all kinds of different deal finders or agents and different people that you\u2019re going to need in the transaction all conversing and having conversation.
Or you can tell your family and friends, \u201cHey, I\u2019m a real estate investor. I am looking for someone who needs to sell their house, especially if it\u2019s ugly, a hoarder house, death in the family, something that wouldn\u2019t work great to put on the MLS and sell for the maximum price possible.\u201d You can do what we call driving for deals. Now, this is a method where you get in your car, you drive around neighborhoods. Maybe you\u2019re an Uber driver and you do this while you\u2019re working. Maybe it\u2019s when you\u2019re on your commute, maybe you\u2019re taking your kids to swim practice, and as you\u2019re driving through residential neighborhoods or when you\u2019re waiting for practice to end and you\u2019re driving around listening to the BiggerPockets podcast or BiggerPockets on YouTube, you look for properties that are in terrible condition. You want to find something with overgrown grass, boarded up windows, clearly deferred maintenance, something that lets you realize that the owner isn\u2019t taking care of their property and maybe more inclined to sell it.
Then you look up their information using skip tracing technology and you send them a letter or give them a call or an email or whatever you do, and you say, \u201cHey, I\u2019d like to buy your property. Can I make you an offer?\u201d There are wholesalers. This was one of my favorite methods when I was knee-deep in BRRRR, is I would find people that had deals under contract for less than what they were worth, and I would buy it directly from the wholesaler and then I would do my rehab. I\u2019d also look for three kinds of distress. I talk about this in my book Pillars of Wealth that will be coming out for BiggerPockets. The first is market distress. This is when a entire market is in a bad position. Something during the recession, if you were buying houses in 2010, we had a lot of market distress. There was a ton of properties for sale, good time to buy.
You also look for property distress. This is like when I was saying driving for deals. You\u2019re looking for a property that is clearly in bad shape and other people don\u2019t want to buy it because of its issues. Then you look for personal distress. That\u2019s when a human being is in a bad point. They\u2019re facing foreclosure, they need money for medical bills. There\u2019s something going on in their life or maybe they\u2019re going through divorce, they don\u2019t want to deal with it anymore. They just want to get rid of a property easily. That\u2019s something investors can take advantage of. You\u2019ve also got investor friendly agents, agents that are good at finding deals for you on the MLS and negotiating them. BiggerPockets can help you do this with agent finders. So if you go to the BiggerPockets website and then you click on tools, you can click on Agent Finder and find an agent in your area that can help you.
If you\u2019re in my area, northern or Southern California, you should definitely email me, reach out to me because I can help you. But if you\u2019re not near me, BiggerPockets has a great way for you to find another agent that like you enjoys BiggerPockets and speaks the language. So what makes a good bird deal? First off, you should read the bird book for all the tips and tricks, but while you\u2019re here, I\u2019m going to cover some of the big ones. First off, you want to buy under market value. You want to get that house for as far below fair market value as you can possibly get the seller to agree to. There\u2019s some rules of thumb you should look at. The 1% rule is a rule that states the property should rent for around 1% every month of what you paid for the house, which means if you pay a 100 grand, it should rent for around a thousand dollars a month.
If it\u2019s close to that, it is likely to cashflow and not a waste of your time. Now, the 70% rule is another helpful rule. Now, this is a rule that says you should try to buy a property from an owner for about 70% of what it would be worth after it was fixed up. So you take 70% of what you think it\u2019s going to be worth after it\u2019s fixed up, you subtract your rehab costs and that\u2019s where you make your initial offer to start your negotiating. Now, that doesn\u2019t mean you have to follow these rules to a T, but they are guidelines that give you a framework for where to start when you\u2019re considering pursuing a deal. Also, remember that appraisals can vary by location. So if you look at a four bedroom house on one side of town versus a four bedroom house on another side of town, it\u2019s very possible that one of them will be worth more than the other because it\u2019s in a better side of town.
So remember, it\u2019s not just by city, it\u2019s actually by neighborhood. When you\u2019re looking for comparables to determine what a property is going to be worth after it\u2019s fixed up. And then you\u2019ve got rehab best value ads, okay? We all know you can fix up a kitchen, you can fix up a bathroom, you can make a property more desirable, but did you ever think about adding a bedroom? Did you ever think about buying a two bedroom home that has 1400 square feet and converting the bonus room, the den, the living room into another bedroom or two if it has living space like a family room already? This is a fast way that you can take your two bedroom house and have it compared to three and four bedroom houses by adding bathrooms. Same for creating more livable space. Maybe you have an attached garage that\u2019s not being used for anything. Maybe you have a covered patio that\u2019s really big not being used for anything. You can actually wrap that into the house and create another master bathroom, move the kitchen to that part of the house.
Adding square footage to small homes is a great way to add value to the property. Now, remember that 99% of the properties out there are not really deals you have to analyze for the best one. So let\u2019s analyze one together. We\u2019re going to take a minute here and we\u2019re going to go to biggerpockets.com and I\u2019m going to show you guys how you can actually actually analyze a deal. Here\u2019s the one we\u2019re going to analyze. We\u2019ve got a nice cute little house. Now, this looks like it\u2019s a single storey, but it actually has a basement, you just can\u2019t see it from this picture. See the dining room here. Living room here. It looks like it\u2019s in a pretty good shape. Just could use a little bit of updating. Maybe replace the carpets, maybe give it a fresh coat of paint.
You can tell it\u2019s in a pretty nice neighborhood here. It got some good bones, I can tell from looking at this thing. It is a 1950s ranch up down duplex, meaning it has a basement that has already been converted into the lower side. The purchase price is 220,000. That\u2019s what we\u2019re going to try to buy this thing for. The rehab is 50,000. That\u2019s what it\u2019s going to cost to turn that bottom unit into something that is more livable to upgrade it. And when we\u2019re done, we should have an ARV, meaning an after repair value. This is what we think the property\u2019s going to be worth of $350,000. Okay, so to run through these numbers, we\u2019re going to try to buy it for 220. We\u2019re going to put 50 into fixing it up to spruce it up, make it worth more, and then we\u2019re hoping it\u2019s going to be worth 350 when we\u2019re done.
The estimated rents from unit one are going to be 1600 and unit two are going to be 1600, and property taxes we assume will be about 220 a month. And this is what unit one looks like. We\u2019ve got a mud room, remember I told you to look for square footage that\u2019s not being used well, that mud room could probably be converted into either additional living space. We could take a bedroom that might be next to it and make it bigger. We could take a bathroom that might be next to it, make it bigger. We can add another bathroom here if the mud room\u2019s not being used for anything. Sometimes you can knock down a wall and there\u2019s a closet on the other side, and you can make this into an actual bedroom.
Whatever you do, you want to take space like mudrooms that aren\u2019t being used for anything useful and try to add them into the square footage of the property in a better way. Then we\u2019ve got the kitchen here. We can tell it\u2019s a little bit outdated. We can probably spruce that thing up, and then as you see, the bedrooms are fine. They\u2019ve got some pretty nice hardwood floors, but they might need some paint and definitely some new window coverings. This is unit two. It\u2019s a two bed, one bath. So you can see there\u2019s already a bathroom in the basement and there\u2019s a bedroom in the basement. You can see that they had a renovation that they were doing but had water damage and drain issues, so they had to stop. Now, when I\u2019m looking for properties on the MLS, I love seeing pictures like this. This is what I want to see because it scares away other buyers, but I just see that a lot of the work has already been done. We just have to go put in some drywall. We could make this thing look pretty.
The basement also has a rec room and a utility room, so there\u2019s a lot of square footage here that we can try to use for better purposes. I like that. The more square footage that I see and the lower the price of the house, the better. So this is a very good BRRRR candidate. So we\u2019re going to switch over to biggerpockets.com. We\u2019re going to use the BRRRR calculator and I\u2019m going to show you how BiggerPockets has tools that can make analyzing properties much, much easier. So all we\u2019re going to do is head over to the BiggerPockets website. We\u2019re going to hover over tools. Then we\u2019re going to go to calculators, and we\u2019re just going to roll down to BRRRR. See how easy that is. We\u2019re going to hit start new report. The report title is going to be called Up Down Duplex.
In this case, I don\u2019t know that we actually had the property address, but let\u2019s say that you found this thing online somewhere. This is where you would type in the property address so that you could just remember, okay, this was the property that I was running. We\u2019re going to say this is in Denver, Colorado, that\u2019s where BP headquarters are. Remember the annual property taxes? We already know were 220, but what if you didn\u2019t know what they were? That can be intimidating when you\u2019re a newer investor, you don\u2019t know how to calculate that. You\u2019re going to click on this little guy right here. This will tell you how to find what the property taxes are for an area. So anytime you come across one of these boxes and you don\u2019t know what to do, you hover over the question mark and it will tell you what you\u2019re supposed to be putting into that box.
We could add a photo if we wanted. In this case we don\u2019t need to, but you may want to put in a property description, 1950s ranch style, up, down duplex with basement value add potential, lots of square footage. That\u2019s something you could do to remind yourself when you\u2019re going over these past reports, which property you were analyzing. Can you click on other property features here? And this is where we could put in, well, it was a four bedrooms and it was a total of say, four bathrooms. You can put this information that will remind you more of the property that you were analyzing, because you\u2019re probably going to do this for lots of different properties. All right? Pretty cool. BiggerPockets makes this very easy. Hit next step and now we\u2019re going to put in the purchase price. We\u2019re going to try to buy this thing for 220.
The after repair value is 350. The purchase closing costs are going to be around, let\u2019s say probably $5,000. Don\u2019t know what those are, hover over the little question mark here, right? Typically they are one to 2% of the purchase price of the property, but in this case, we\u2019re going to go a little bit higher. The estimated repair cost was $50,000. Now we could just walk the property with a contractor and ask them what they think it would cost to fix it up. That\u2019s the number they\u2019re going to give us. Purchase loan details. Now, there\u2019s different ways you can buy a BRRRR. We talked about using private money, hard money, cash, lots of different ways. So in this case, let\u2019s assume that we have our primary residence. We took a HELOC on that. We\u2019re going to use the money from the HELOC to buy this thing.
So we\u2019re basically using cash from our HELOC that we\u2019re going to be using. We are planning on refinancing this property after 12 months. That\u2019s when we think we\u2019re going to get the money back. And we\u2019re going to give ourselves an estimated rehab time of two months to do this work. Now let\u2019s talk about the refinance loan. So this is after the work is done, what are the terms of the loan that we are going to go get? Well, first off, our loan amount is going to be 80% of the $350,000 that we think it\u2019s going to be worth. Most banks will let you borrow around 80%. So let\u2019s take the 350\u00d70.8 is $280,000. The interest rate on that loan, we\u2019re going to assume on an investment property is going to be 7.5%. And are there other refinance closing costs? Probably another, oh, you know what? 5,000, I think I put 5,000 for closing costs to buy the property, so we\u2019re going to have another 5,000 when we want to refinance it.
Are there any other loans, fees and points? Well, let\u2019s say that if there was, we would wrap them into the loan or you can choose to pay them out of pocket. However you click there is how the calculator is going to determine extra costs you have for closing costs. This is not an interest only loan, so it\u2019s going to calculate the principle and the mortgage and it\u2019s going to not have PMI because we\u2019re leaving 20% of the equity in the deal by only pulling out 80%. When it asks you how to amortize it, we always want to use 30 years, that\u2019s the best loans to use. And we can skip this typical cap rate for the area that\u2019s more for commercial property. So we\u2019re going to hit next step. Total gross monthly rent. Well, we calculated this in each unit we thought would rent for $1,600. Okay, so that means it\u2019s going to be 3,200.
Now if you don\u2019t know how to calculate what the rent\u2019s going to be when we clicked on tools and once a BRRRR calculator, you can also just go to Rent Estimator and BiggerPockets has an actual software tool that will look up the address of the property you\u2019re looking at and tell you approximately how much it will rent for a month. And then other monthly income, this is where you would put any information if the tenant\u2019s paying you for laundry or something else. In this case, they\u2019re not going to be. Fixed landlord paid expenses. Some areas require landlords to pay the water, the sewer, the electricity, the garbage, or maybe they don\u2019t always require the landlord to pay it, but it\u2019s written into the lease that the landlord will pay. That not the case in most areas though. So in most people where you\u2019re living, the tenants are going to pay for their own water, sewer, electric, garbage, no, they wouldn\u2019t pay the HOA fee, but they might have renter\u2019s insurance, so you don\u2019t have to worry about that when you\u2019re the landlord in most cases.
The property taxes, we might\u2019ve done something wrong. Yeah, I guess we calculated them at 220 a year. I don\u2019t think that\u2019s right though. I think we need to fix that. It should probably be 220 a month, I\u2019m going to guess. So that\u2019s okay, we will click on previous step. Now this will happen and it happens for the best of us when we\u2019re analyzing properties where we either enter the wrong information or we make a mistake. The BiggerPockets calculators make it very easy to fix that. So the property taxes are $220 a month. I put them in AS $220 a year. That $220 a month, it actually comes out to 2640.
So I\u2019m just going to change that number, Make that 2640. Then I\u2019m going to click on the next. Here we go. We\u2019re just going to pick up right where we left off. Don\u2019t have to worry about any of these fixed landlord paid expenses. The variable landlord paid expenses we\u2019ll have to pay. Now, this is where we budget money for things that could go wrong, so we know at some point we\u2019re not going to have a tenant in the property, so we\u2019re going to have a 5% vacancy. That means we\u2019re going to take 5% of the rent and we\u2019re going to budget that for times when nobody is renting our property. We do the same thing for payers and expenses. We typically take 5% of the rent. We say that\u2019s how much we\u2019re going to put towards things that break in the house. Capital expenditures are when you set money aside to pay for big things like the roof going out, the air conditioner going out, the water boiler, big expenses of things that are going to break so we can budget money for that.
And then if you have a property manager like you\u2019re not managing the property yourself, you set money aside for management fees. In this case, at this rent range, probably around 8% is what you can expect to pay. That\u2019s about it folks, as I\u2019ve walked you through how to do this, it\u2019s still only been about five minutes of time it took to run through this entire thing, so let\u2019s say calculate results. All right. Now the calculator does all the work and gives us the results. This is 123 Main Street in Denver, Colorado. A four bedroom, three bathroom property with two units, one up, one down each rent for $1,600 that we purchased for $220,000. Let\u2019s see what the numbers look like here. Now that $286 and 20 cents of cash flow may not sound super impressive. However, I want you to consider that that is an infinite return.
What that means is, we pulled more money out of this deal than we put into it and it\u2019s still cash flowed. Now, that may seem too good to be true, but those of you that understand the BRRRR method get it\u2019s not. Now, let me break that down for you. Remember, we paid $5,000 in closing costs, we see this on the left-hand column. We had estimated repairs of $50,000. The total cost, what we paid for the house plus the repairs, plus the closing cost was 275,000, and then we had an after repair value of 350, which means when we got an appraisal after this was done, the bank said it\u2019s worth $350,000. They\u2019re going to give us a loan for 80% of 350,000, which is the same as if we bought it and put 20% down. To the bank, it doesn\u2019t matter if it\u2019s equity in the deal or if it\u2019s money that you bring to the closing table, they just care what percentage of the property\u2019s value they\u2019re giving you the loan for.
So in this case, we got a loan after we were done for 280,000, but remember the total project cost was 275,000. They gave us 280, which meant they gave us five grand more than what we put into this deal. We ended up with more money after we did the deal because we bought it at such a good price and because we added value through the rehab so well. Which means our cash on cash return cannot be calculated because it\u2019s infinite. There is no cash left in the deal. In fact, we got cash out of the deal and we\u2019re left with $286 a month of cashflow. This is how people like me took the same money and kept reinvesting it and reinvesting it and reinvesting it over and over and over, adding more properties to our portfolio with the same capital.
Okay, so you\u2019ve added some equity to your net worth, you\u2019ve added some cashflow every month, you\u2019ve got your money back, you can go buy another property. And if you\u2019re someone that likes numbers, if you scroll down on this calculator, you can see what your total annual income would likely be in year one all the way through year 30, assuming that rents or property values go up by two to 3% a year. All of this is made very easy by these BiggerPockets calculators. So if you\u2019re intimidated by numbers, you don\u2019t have to be, you just have to know where to find them and how to put them in the box and the calculator will do all the work for you. Let\u2019s get back to our presentation here. Now that you\u2019ve seen just how simple it can be to analyze a BRRRR possible project. Now, here\u2019s something that\u2019s cool. Even if you are not a pro member, if you just have a BiggerPockets profile, you will get your first two calculator reports for free, so you can use that calculator anytime you want just for having a BiggerPockets profile.
Two simple questions I want to ask you. Do you understand how BRRRR can help supercharge your investing journey? Does it make sense why this supercharges, how quickly you acquire properties? It\u2019s because you\u2019re not saving $85,000 and putting a down payment, saving $85,000 and putting a down payment. Taking equity from a property and putting it into the next one, and then being no more equity to invest. You are putting money into properties, growing money within the property you just bought because you bought it for less than what it\u2019s worth, and you added value through the rehab, taking that money out of the property and then buying the next one. That supercharges how quickly you can acquire properties, and this works best if you\u2019re making and saving money all at the same time that you\u2019re doing these projects. Do you believe that if you have commitment, knowledge, and tools that you can reach your investing goals?
Now, you can\u2019t do it without that. If you don\u2019t have the knowledge to do this, it\u2019s not going to help. And if you don\u2019t have the tools, you can have the best intentions, but you\u2019re not going to get anywhere. If you don\u2019t have the commitment that you\u2019re actually going to commit to doing this and go through, well, you could have the knowledge and the tools and it\u2019ll be useless. You really need all three, and as you\u2019re listening to this, I just want to ask, do you have all three? Are you committed to putting your money into real estate so it can grow and spending less of it on things you don\u2019t need? Are you committed to gaining the knowledge that you need and listening to more webinars like this, more podcasts like this, more books like this so you can do what I did? And are you committed to getting the tools that you\u2019re going to need in order to take this commitment and this knowledge and put them into practice?
\u201cIf you really want to do something, you\u2019ll find a way, and if you don\u2019t, you\u2019ll find an excuse.\u201d Now, you guys can tell me, maybe in the chat, \u201cYeah, David, I\u2019m committed or No, I\u2019m not committed.\u201d But you know what\u2019s crazy? Even if you didn\u2019t tell me, I would know if you were. Because if you are committed, you\u2019ll find a way to get this done, and if you\u2019re not committed, you\u2019ll find a way to make an excuse why you didn\u2019t get this done, and that\u2019s how simple life can be. People don\u2019t become millionaires by accident. People don\u2019t hit financial freedom by accident. People don\u2019t get in good shape by accident. People don\u2019t get six packs by accident. They do it by eating carefully, working out the right way, being committed to a process. Now, if you want to be a financial fitness person, if you want a money six-pack, if you want a portfolio six-pack, you\u2019re going to do certain things to make it happen just like people that are into fitness do certain things to make their body look the way it does.
If you answered yes to those questions, let\u2019s look at some tools that are going to help you minimize risk, increase confidence in a deal and blast off into success. The biggest one is going to be BiggerPockets Pro. This will be the best bang for your buck if you\u2019re committed to making money in real estate investing. It is a one-stop shop to start, scale and manage your portfolio. BiggerPockets Pro will allow you to analyze investment properties in minutes and determine which ones are worth pursuing with unlimited access to analysis calculators and rent and rehab estimators. Now, you saw what the BRRRR calculator looks like. There\u2019s also just a traditional rental property calculator. There\u2019s a lot of different tools on there. I only showed you one of them, but there are many.
This is an example of what kind of reports you can get when you use the BiggerPockets calculators. Very easy to read and very easy to use. There are rehab estimator calculators. So if you\u2019re trying to figure out how much it\u2019s going to cost to do a rehab on a property, we got you. You put all the information in there and it\u2019s going to give you the report. It will help you become a better investor with curated video content and webinar replays, covering everything that you need to make smart investments. You also get access to pro exclusive videos. Now, BiggerPockets has a lot of free content, but these are videos exclusively for pro members that not everybody else has access to that. When you join in, you get to watch these videos. We have a couple examples here on tax benefits, multifamily, private lending, things that the experts use to grow their portfolios that you can learn about.
You\u2019ll get access to the investing with No or Low Money Down Workshop. This is some of the best content I ever made with my best friend Brandon Turner. We hung out at his shed in Hawaii and we got into some really good stuff, including the BRRRR method for how to invest in real estate with no or low money down, a $200 value, which is yours if you\u2019re a pro member. You\u2019ll get access to the Finding Great Deals Masterclass, where Brandon sat down with Elliot Smith, Nathan Brooks, Lance Wakefield, and Nate Robinson, and went over door knocking, direct mail marketing, relationships and driving for deals. A $990 value where you can learn from some of the best in the business at their respective strategies only available for pro members as well as the book on the Best Ways to Find Real Estate Deals For Investing Success by Brandon Turner.
You get to show the community that you meet business with your pro badge. So this here is Blaine Alger. When you see his profile, he\u2019s not just a lurker hanging around looking through the window like the other people working out. But he\u2019s in the gym grinding, sweating, and building a better financial body. You get to save time and money and minimize your risk with lawyer approved lease documents for all 50 states. So you can make that deal we just looked at even better on the numbers by managing it yourself. And if you like to property manager, that\u2019s something that you want to do yourself to save money, we have forms that you can use that are lawyer approved for all 50 states that you can have your tenant sign that will function as a lease, standard Lease agreements. You can save thousands of dollars on tools and services that you\u2019ll use in your real estate business with BiggerPockets partners like RentRedi and Invelo.
RentRedi is free property management software for pros. If you\u2019re not pro, you\u2019re going to have to pay for this, but this is some of the best in the business when it comes to managing properties. You\u2019ll also get discounts on AirDNA in case you want to analyze short-term rentals or a Keystone CPA Inc. That can help with real estate strategy tax planning. If you use Invelo, when you sign up, you\u2019ll also get a $50 credit for marketing costs to send letters with the Invelo software. Plus you\u2019ll gain access to our discounted 10 week educational bootcamps. Those are only available to pro members and they\u2019re only $225 per course, but if you\u2019re not a pro member, you can\u2019t take them at all, this is only for the committed. We\u2019ve got a rookie bootcamp, a multi-family bootcamp, a short-term rental bootcamp, a rookie Landlord bootcamp, a house hacking bootcamp, lots of cool stuff there, only available for pro members. But what\u2019s the number one reason to consider going pro? It works.
You\u2019ve got Aaron C here who\u2019s a BiggerPockets Pro member that says the BP Calcs are my go-to for analyzing potential properties. There\u2019s no way I could analyze the volume of properties I do without being a pro member. I locked up my first three unit almost a year ago that I\u2019m now selling for almost a $70,000 profit that will go towards something larger. The BP calculators were a huge factor in making sure my numbers were right. Patrick M. says, \u201cBack in June, I intended one of your webinars right afterwards, I signed up for Pro. And the next couple of weeks I analyzed a bunch of deals. Eventually I found a fourplex, I got it under contract three weeks after signing up for Pro and a week later I closed on another property that was six units. Big thank you to you and the entire team. Final quick tip, sign up for Pro Annual I made my money back at the closing table.\u201d
So how much is BiggerPockets Pro? Well, here\u2019s what\u2019s crazy. It\u2019s only $390 a year. That is less than the cost of a home inspection on a single property. Of all your expenses in real estate, this one is one that barely even makes the radar. It\u2019s almost insignificant compared to the normal expenses that we have when you\u2019re buying a property. You saw the numbers that we were putting into the calculator for buying a property. Closing costs rehabs, that\u2019s not going to be including the home inspection, the pest inspection, the roof inspection. If there\u2019s a pool, you might have a pool inspection, a foundation, the notary signing, it can be around the same cost as this. Like, buying property, you\u2019re going to have transfer taxes, you\u2019re going to have title fees, escrow fees. There\u2019s a lot of money that goes into real estate investing, which is what allows you to make money out of it, but the BiggerPockets Pro membership is only $390 a year. And because you\u2019re watching this webinar, we\u2019re going to give you a discount of 20%, which means if you sign up now, it\u2019s only $312 a year.
It\u2019s getting ridiculously cheap. I don\u2019t know how BiggerPockets is able to offer this at the price that they do, maybe I guess it has something to do with the level of commitment that the members have. But this is a very, very, very good price for getting access to everything I just showed you, all the education plus the calculators that help you analyze deals. So use that code, OWNIT20, O-W-N I-T 20 to save your 20% off on a BP Pro membership. Now, just a reminder, if you sign up for BiggerPockets Pro, you\u2019re going to get the Pro membership plus $2,000 worth of bonuses. 20% off your first year of Pro annual membership, a $78 value. Pro exclusive video workshops, a $1,500 value. The lease agreements templates, which are about $100 per state, and you\u2019re getting 50 of them. A free rent ready property management subscription, a $239 value. Plus unlimited rehab and rental estimates, analysis calculative reports, and a profile badge all for signing up.
You just got to use the code, OWNIT20, O-W-N I-T 20 at biggerpockets.com\/pro. So I\u2019m going to give you guys a minute while we\u2019re here. I\u2019m going to keep talking so you can still hear me, but I want you to open a second tab. If you\u2019re using Google Chrome, just hit the little plus sign at the top where all your tabs are. And once you\u2019ve opened up that new tab, I want you to type in biggerpockets.com\/pro. It\u2019s going to take you to the website where you can sign up for the Pro Annual. It\u2019s going to give you a couple options. I want to make sure you get your 20% off. So remember, you\u2019re going to click on BiggerPockets Pro Annual, and when it asks you for the discount code, there\u2019s a little box put, OWNIT20, and you should click a button and it should tell you that it worked.
Want to make sure you don\u2019t miss out on that discount if you\u2019re serious about wanting to start making money through real estate and you need BiggerPockets Pro to do it. What if you\u2019re already a pro? Well, everything that I just mentioned you already have access to, you might not have known. Just go to biggerpockets.com\/pro\/videos and you can see everything that we talked about. You can also find the bootcamp info at biggerpockets.com\/bootcamp. Now, what if you sign up and you decide you don\u2019t like it? \u201cDavid, I actually need that $312 for the year because that can buy me 70 cups of coffee, and that\u2019s more important than becoming a millionaire in my future.\u201d Okay, I hear you. Don\u2019t worry. Give BiggerPockets Pro a try for up to 30 days, and if you don\u2019t love it, you can email [email\u00a0protected]<\/a> and get a 100% refund and you can still use everything else on the site.
This is a no-brainer, guys. If you\u2019re not already a pro member, you need to go do it right now, and if you are a pro member, you know why I\u2019m saying this is great. Look at all the different people that already love their pro membership. There\u2019s a ton of them, this is why you see the people with the badge on their name that says pro, mine says premium, right? Even I\u2019ve set up this with BiggerPockets. You guys can do the same, and I hope that you do. Remember, the late great Jim Rohn, \u201cIf you really want to do something, you\u2019ll find a way, and if you don\u2019t, you\u2019ll find an excuse.\u201d If you want to a six-pack, you\u2019ll figure out a way to get it. If you want to be a millionaire, you\u2019ll figure out a way to get it. If you want financial freedom, you\u2019ll figure out a way to get it.
I\u2019m just sharing with you the way that I did. I walked myself to the top of the mountain and now I\u2019m going back down to the bottom and I\u2019m telling all the people that are down there looking up, \u201cHere\u2019s the path that I took. Here\u2019s the way I made the journey. Here\u2019s what I did when it got hard. Here\u2019s how I avoided the Poison Ivy.\u201d I\u2019m just trying to share with you guys the path that I took, and I hope that you follow me on that. A BiggerPockets Pro membership is a great way to get yourself started and get on the same journey, because you\u2019re going to need these tools just like I did when I was climbing that same hill. So remember, this is over $2,000 worth of value plus the membership for just $312 a year. If you use the code, OWNIT20 at biggerpockets.com\/pro.
So if you\u2019re signing up, I want you to tell me in the chat, how many of you signed up and are you excited to start this journey. Now, we\u2019re going to get into the expert tips and tricks that I promised you earlier in the show that we would do. First off, you should analyze deals with more than one exit strategy. So let\u2019s say that you looked at this deal that we did in Colorado, this up down duplex, and you buy it and everything looks great, but the rents aren\u2019t 1600 a month. Something goes wrong. There\u2019s a school that shuts down where this property was. This was a great school district. Now, nobody wants to rent there. Let\u2019s say you\u2019re only able to get $1,100 a month per unit. It may not give you the cash on cash return that you want. It may actually be losing money if that happens.
But you\u2019ve added so much equity to this property because you bought it right, and you rehabbed it, right, that you can still sell it to somebody else and make cash that way. That\u2019s an example of a second exit strategy. Maybe you thought, \u201cHey, I\u2019m going to buy this thing and I\u2019m going to put it on Airbnb and I\u2019m going to get way more than 1600 a month,\u201d and so you go into it and it just doesn\u2019t work. It\u2019s harder than you thought, the neighbors complain, the city shuts you down. Something goes wrong with your Airbnb plan. Rent it out traditionally for $1,600 a month and boom, you got a second exit strategy. This is something that the pros all do. Target aspects of the rehab that increase the value of their property for the appraisers. Flooring and paint are two very, very powerful ways to get a high ROI on the money you spent to make a property look much nicer.
Landscaping is another way that you can really imppress appraisers that you don\u2019t need to hire skilled labor for. It\u2019s not like paying an electrician to go do landscaping. You can find people that will do that work for relatively cheap, or you could do it yourself. And then focusing on the kitchen and then the master bathroom is huge. And the last piece of advice is making it an open floor plan. Tearing down walls so that the property feels more open, makes it more valuable.
Choose cost-effective value adds to increased ARV. One of the things I talk about in long distance real estate investing is if you\u2019re going to be doing a small area like tile in a shower, flooring in a bathroom, back splash on a kitchen, I splurge for the really expensive materials to make it look really nice, and the trick is, I don\u2019t need very much of those materials. So even though I\u2019m paying five times as much for the materials, my budget\u2019s only going from say, $300 to $1,500, which isn\u2019t that bad when you consider that the labor is going to be the same whether I use cheap materials or not, and labor\u2019s a bigger part of the overall cost. So if I\u2019m redoing a shower, the quote might be $8,000 for labor. So I can either pay 8,500 or 8,300 and use the cheap stuff, or I can pay 9,500 and get a beautiful shower.
The difference between 8,300 and 9,500 is insignificant, but the difference between a gorgeous shower and a plain basic model is going to hurt my appraised value. Does that make sense? Now, if it\u2019s a material that I need for the entire property, the flooring for the whole house, I\u2019m not going to buy the stuff that\u2019s five times more expensive because if I have to buy a lot of it, that\u2019s going to wreck my budget. So I only use this tip and this trick for when I\u2019m doing something in small amounts. Build a good relationship with a hard moneylender because you never know when the deal\u2019s going to pop up and you want to be able to fund it quickly. You can reach out to me and I\u2019ll put you in touch with my mortgage company. Or you can go to biggerpockets.com and click on network and you can look for hard moneylenders that are approved by BP. Or you can just attend meetups or you can go on the forums and ask people, \u201cDo you have a good hard moneylender?\u201d
Sometimes you\u2019ll see HML is the acronym that people will use for that. But finding one will make it easier to fund deals when you have to close quickly. Have your rehab budget laid out when you\u2019re analyzing your deal. So as you\u2019re looking at the property itself, make sure you have a good understanding of what it\u2019s going to cost to fix it up. In the example, we knew that the rehab was going to be $50,000, but it\u2019s hard to make an offer on a house if you don\u2019t know if it\u2019s going to be 50 K or 150 K. Have your final financing in the works early in the rehab process to cut down on your fees. So what I would do is I would go to the one brokerage. I would get pre-approved for my refinance. Once it\u2019s done, then I would use different funding to buy the property and fix it up, and then I\u2019m already pre-approved when it comes time to do my refi. So it\u2019s going to be easy and I\u2019m already approved. You don\u2019t want to get stuck paying a hard money loan and unable to refinance out of it.
Always add an overage for your budget for contingencies. Assume things are going to be more expensive than what you thought and give yourself a cushion. All right guys, those are my expert tips and tricks for you. I\u2019m excited to see you guys on your journey. Let me know if you went pro on BiggerPockets, it\u2019s the best ROI you could possibly get in your career. I don\u2019t know of a better deal that\u2019s out there. I don\u2019t know why it\u2019s only $312, but I like it. Sometimes I don\u2019t understand why Netflix is so cheap, but I know that I get a lot of value out of that Netflix. I ended up spending like 6 cents for every time that I watch it.
Some things in life are like that, and you just got to take advantage of them. So thank you for joining me today. I really appreciate being able to teach you guys, and I hope that all of you take this information and go apply it to make your lives better. Remember, you can follow me on social media at David Greene 24. There\u2019s E at the end of Greene, look for the check mark so you know that it\u2019s actually me. You can follow me on YouTube at youtube.com\/@DavidGreene24. I go live every single Friday night on my YouTube channel to take your questions. Or you can check on my website, davidgreene24.com to see all the different things I have going on and how I can help you. When you\u2019re done with this, either listen to another webinar, listen to one of our podcasts, or go to biggerpockets.com, go to the website and check out everything that we have to offer you there as well. Thanks a lot. I will see you guys on the next one. Good luck to everyone.
All right, I hope you enjoyed today\u2019s show and you learned a little something. If you\u2019ve heard other people talk about BRRRR, now you know why they\u2019re saying it. Or if you\u2019ve wondered, \u201cWhy do they keep saying BRRRR?\u201d Because you\u2019ve always thought it was B-R-R-R-R. It\u2019s true, but they both mean the same thing. All right, if you want to be a BP Pro member, you can save 20% off using coupon code, OWNIT20. This is David Greene, I have hijacked the Rookie Show. Your regular hosts are going to be back next week, so don\u2019t fear, you could catch me over on the BiggerPockets Real Estate Podcast after this episode. (Singing).<\/p>\n