Tag Archive for: rental property

DSCR Loans: Top 3 Questions Everyone Is Asking

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DSCR Loans: Top 3 Questions Everyone Is Asking

DSCR has really been taking off in the last 6 months! Today we are going to talk about the top 3 DSCR loan questions everyone is asking. As rates continue to come back down and properties start to cash flow again, many investors are coming back to DSCR. It is an excellent product for real estate investors to use for their next property!

First, can you get a DSCR loan for more than 4 units?

Typically there is a lending box that you fit into when you own a 1 to 4 unit. As a result, those who have 1 to 4 units have a lot of loan options available. We have had a lot of questions regarding lending options for properties that are not in that range. Anything over 5 units is considered a commercial property. Here at The Cash Flow Company we are working with a few investors who have an 8 plex, 12 plex, and even a 24 plex. For these customers, there are DSCR options, however they are considered commercial loans. Commercial loans are just a little bit different, but there are more options available now then there were in the past.  

Second, what kind of documents do you need when you are applying for a DSCR loan?

If you are doing a refinance, you will need:

  1. Lease agreement – What are you leasing?
  2. Business setup – What is the operating agreement and who runs the company?
  3. Reserves – You need a couple months of bank statements that show 2-3 months of reserves.
  4. Taxes – Needed for DSCR ratio.
  5. Insurance: Needed for DSCR ratio.
  6. HOA – Needed for DSCR ratio.
  7. Flood – Needed for DSCR ratio.
  8. Title 
  9. Appraisal – An appraisal will show the value of the property.

Once you have the appraisal and everything you need for the DSCR, it normally takes 2 to 3 weeks before everything is finalized.

Third, what happens if the property doesn’t break even?

The DSCR ratio is what everything is based on. The DSCR ratio is the breakeven point where the rents equal the expenses on that property. Just to clarify, expenses include your payments (principle and interest), taxes, insurance, HOA, and flood insurance. When the rents are equal to the expenses, there is a DSCR ratio of 1. If the property is not cash flowing, then the DSCR ratio will be less than 1. While there are still options available for investors whose ratio is less than 1, it is often at a higher interest rate and lower LTV. There are options for no income as well that will go down to 75%, while other lenders might not even check income. 

There is something for everyone!

DSCR loans have a lot of options available to fit your investment needs. Whether or not you have a break even property, or one that is struggling to cash flow, there is something for everyone. DSCR is becoming more of a mainstream option for investors. What types of properties are growing in DSCR popularity? The answer is commercial, 5 units, rural properties and many others. These properties no longer have to fit in the lending box. DSCR is opening the doors to endless possibilities. Do you have a unique rental property and are looking for more lending options? If so, contact us today to find out more about DSCR loans and how you can get under the DSCR umbrella! 

To find out more about DSCR loans and calculate your DSCR ratio contact us today!

Watch our most recent video DSCR Loans: Top 3 Questions Everyone Is Asking to find out more!

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How to Buy 5-10 Properties with Little to $0 Down

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How to Buy 5-10 Properties with Little to $0 Down

Today we are going to talk about how real estate investors can buy 5 to 10 properties with little to none down. While this may be difficult in some markets because of the price points, real estate investors are still finding good deals in smaller communities. Within these smaller communities and smaller markets, there is the opportunity to find properties at 50¢ to the dollar. How can you buy 5-10 properties with little to $0 down? Let’s dive in!

Great deals can create excellent opportunities.

Here at The Cash Flow Company we recently helped a couple in a small town in Oklahoma to purchase 8 properties. They have since rented out all 8 properties and refinanced 5 of them. As their lender, we not only liked the properties that they were purchasing, but more importantly what they were doing with them. This allowed us to finance more and even all of it in some cases. Once the couple rolled the property into a long term loan, they were able to pay off the loan with us. Now the couple is getting ready to purchase 5 more properties. This is just one of the many examples of how buying great deals can create excellent opportunities. 

 Every lender is different.

Every lender has their own requirements, so it is important to set things up correctly and do it right. In doing so, the lenders who like the numbers and the leverage will be able to finance 100% for both the purchase and the rehab. Once the property is rented, then it can be refinanced, lenders paid off, and the real estate investor has nothing in. It is important to be flexible on where you look as well. In the Denver market for example, it could take 3 to 5 years to find 5 properties. As far as lenders, the majority of lenders will require 10% to 20% of your own money. Start by  finding properties that are 70¢ to the dollar and below. This will create a better opportunity for funding. Take your time and do your research!

Buy now to take advantage of rate drops later.

Real estate investors who are able to purchase now and hold them for a few years will have a huge advantage. Predictions indicate that interest rates are going to decrease over the next few years. When they do, real estate investors will have the opportunity to refinance. This will allow them to take advantage of the lower rates and increase their cash flow. By purchasing undervalued properties right now and at least breaking even, then in a few years when rates go down you will be in a great position. Not only will you have a lot of equity, but you will also have cash flow for the property.

Example of how decreasing rates increase cash flow:

Property has a $400K mortgage with rates at 7%

The current monthly payment is around $3000

In a few years when rates go down to 5%

The current monthly payment will go down $500 to $1000 

This will increase the monthly cash flow for the investor. 

While the property might just break even right now, the rate decrease will provide cash flow in the future.

Example of exponential growth for the future.

Property that is $400K can be purchased for $350K right now

In a few years, it will be worth $450K to $500K

If you were to buy ten of those properties at $350K and put in $50K into each property. 

This would total $500K in rehab costs.

In a few years each property would be worth $450K or $500K. 

You can use this money as leverage.

 Buy now to create wealth later.

Those who are able to purchase properties now that are under market value will set themselves up for wealth later. If you are able to break even or tread water in this current market, then when the market takes off you have the opportunity to create cash flow or wealth. Now is the time to buy 5-10 properties with little to $0 down so that you can open the doors to endless possibilities over the next few years.

Watch our most recent video about How to Buy 5-10 Properties with Little to $0 Down.

Contact us at The Cash Flow Company to discover your options for fix and flip investment opportunities and BRRRR loans.

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How to Overcome Your Fear of Real Estate Investing

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How to Overcome Your Fear of Real Estate Investing

Real estate investing can be daunting for many people. They often wonder what they have to do in order to apply and be approved for multiple loans. So how do you get started and overcome your fear of real estate investing? Let’s take a closer look.

Good properties make the difference.

When you are selecting properties for your real estate investments it is imperative that you have good properties. What is a good property? A good property is one that meets all of your numbers, and will help you move forward. If the property doesn’t pay for its own mortgage and fix up, then don’t do it. By taking a property that does not cash flow, it will become a burden as opposed to an asset. 

What do we mean by “covers everything”?

When you get into an investment and take out a loan, you have to make sure that the business covers everything on that loan, so that it doesn’t become a worry. Just to clarify, the business is the property. For example, if you have a rental property, then the rents have to not only pay the mortgage payment, but they also have to cover additional expenses as well. If you have a mortgage payment of $2,000, then you need to charge $2,500. This amount will not only cover the mortgage, but provides extra money for fix up costs or other expenses. 

Keep personal and business separate.

The key to being successful in real estate investing is to separate your business expenses from personal expenses. At no time should the property cost you money out of your personal funds. It is important to be safe and secure in order to protect your personal credit score, and ensure your financial stability. Here at The Cash Flow Company we strive to help you succeed. Contact us today to find out more about setting up your business correctly in order to prevent credit score stress and financial strain. 

In conclusion.

Overcome your fear of real estate investing by doing the research and setting yourself up for success. Real estate investors need to set the business up correctly, know the numbers, and be prepared. 

Here at The Cash Flow Company we can get you started on the path of success. Contact us today to find out more about getting started in real estate investing. Also discover what you need to do to overcome your fear.

Watch our most recent video about Overcoming your fear of real estate investing to find out more! 

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The Benefits of a DSCR Loan

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The Benefits of a DSCR Loan

Are you looking for a loan that is easy to qualify for with good rates and a 30 year fixed term? Then we have your solution. We call it the Easy Rental Loan, but other lenders in the industry call it a DSCR loan. A DSCR is also known as a debt service coverage ratio loan, measures your ability to cash flow in order to pay your monthly costs. Before looking at the benefits of a DSCR loan, there are two key items that you need to take into consideration. Let’s take a look.

Two key items for the Easy Rental Loan are:

  1. A decent credit score
  2. A lease that covers the monthly cost of your property

The Monthly costs include

  1. Mortgage payment
  2. Property taxes
  3. Insurance
  4. HOA fee

Benefits of a DSCR Loan:

If your property positively cash flows, meaning that you make more than you spend on the property, then you can qualify for an easy rental loan. Better yet, you can still qualify for affordable, long term fixed rates with a 30 year fixed term. 

What makes the Easy Rental Loan Easy:

You don’t have to worry about submitting tax returns, being in business for two or more years, or having too many financed properties. It really doesn’t get easier than that

Contact us today!

So if you’re looking for a fast, efficient, and easy solution to fund your rental properties, then look no further. We have the easy rental loan waiting for you.

Ready to chat? Great! Our team here at The Cash Flow Company is here to help. We are eager to set you on a path that helps you make the kind of money you need to live the life you want.

Watch our most recent clip to find out more about the Easy Rental Loan.

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What is Peer to Peer Lending and Why You Need It?

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What is Peer to Peer Lending and Why You Need It

What exactly is peer to peer lending and why do investors need it? Peer to peer lending, also known as other people’s money, is funding that is provided by family, friends, or individuals within the community to help you in your investments. Here at The Cash Flow Company, we have done about a billion dollars over the past 23 years using peer to peer lending. The majority of this money is not from family and friends, but instead from other people who are interested in making a good return. Investors and business owners are looking for other sources for their financial needs, which is where peer to peer lending can be an excellent alternative to traditional bank loans.

Who makes up the peer to peer lending community?

Peer to peer means that working with other people in the community who have just as big of a need as you do. These individuals might be in your church or individuals who are in retirement and need some extra income. They might have some money in a 401K, IRA, or extra savings that they would rather lend to you. Whether it’s 6%, 7%, or even 8% secured, it can help you with closing costs, while helping them get a better return on their money. 

Peer to peer is replacing banks.

We all know what is happening out there with affordability. The banks are starting to change their requirements, DSCR is getting into the 9% and 10% range, and fix and flip loans are anywhere between 11% and 13%. This lending squeeze is causing affordability, terms, and credit score requirements to all become tougher as well. Which creates the perfect opportunity to reintroduce peer to peer lending, which is something that has been around since before banking began. Peer to peer lending is taking out the banks and allowing people to begin working with humans again. 

Peer to peer gets deals done quickly.

Every good investor always has a few peer to peer lenders that they work with on a regular basis. These are individuals that the investors have built a good reputation with, and proved that they can produce quality work. By creating this foundation, it allows investors to act quickly on deals that come available instead of waiting for the bank’s approval. Peer to peer lenders also benefit because they are able to use money from their savings accounts or retirement accounts in order to get a better return that is something secured. It’s a great win-win situation for everyone!

Something for everyone.

Every investor or business owner should look into peer to peer lending. Even if it is just for a down payment, fix up cost, or any other expense in the real estate world. Businesses could also benefit from peer to peer lending for start up costs or unexpected business expenses. It doesn’t have to be $500K, but it could be! With lending becoming tighter, banks could require an additional 10%. In that case, where would you go for the additional money? The answer is peer to peer! There are all kinds of people out there with pockets full of money. You just need to find one that has what you are needing.

No need to make things awkward

Again, peer to peer lending is funding that is provided by family, friends, or individuals within the community to help you in your investments. While we all know that borrowing money can create an uncomfortable situation, there are three steps you should follow to prevent this from occurring.

  • Make sure you are putting them in good deals both now and in the future. 

These are deals that have a good chance of cash flowing. This can be done by making sure you have a good ARV or After Repair Value before jumping into a deal. 

  • Make sure you do the proper paperwork. 

Proper paperwork  includes a real note, a mortgage, or a deed of trust that’s secured on a property. If you do it right and secure it with real estate, then they are in a good position as a lender.

  • Get out there and mingle.

You need to get out there and talk to real estate groups.  Find out what they are doing, and who they are using for their peer to peer lenders. There are a ton of people who want to get into real estate, but they don’t want to get into the real estate game. Instead they just want a better return.

Start the process and do it right.

If you are a good keeper of other people’s money, then it will expand. You have to start the process, do it correctly, and come up with a good package to present to them. What should you include in your package or portfolio? Let’s take a look.

  • What the property looks like
  • Estimate of what the rent will be
  • Include comps and additional research
  • Proper documentation 
  • Your plans for the property (rent or keep)
  • How the investment will be secured

Don’t take the cheapest path.

People try to take the cheap way out by not wanting to pay for the title, or record a deed because it’s going to cost money. The truth is, that all of those things are going to happen if you use a traditional lender. However, banks are going to charge more with higher interest rates. The better you make your peer to peer lender feel on the first few deals, the better the process will be in the future. It is imperative that you treat them like a real lender so that everything is official and secure. If it is done correctly, it will build a bridge that may bring more friends later on. Just to clarify, more friends does not mean adding more people onto a single note. Instead, these additional peer to peer lenders can be used separately for future investment opportunities. 

Peer to peer keeps things simple.

We want to keep it simple and find the people that fit your needs. Not everyone needs $300K or $500K. They might just need $35K or $50K to get their business going. While they do have real estate to secure a loan, they might not have the income that the bank requires. That is where peer to peer lending comes in. Most peer to peer lenders don’t care what your income is. They want to know what the property looks like, if it will protect their money, and what you are going to pay them. Another way to look at peer to peer lending is like a personal DSCR. A DSCR doesn’t care about your income either. With the high interest rates of DSCR in this market, peer to peer lending is a comparable option for investors with rental properties.

Double your money!

Peer to peer is so important for those who are lending. They can easily make $8K on $100K. Banks on the other hand, would only have a return of $4K to $5K on the same amount if it were in a CD or savings account. Peer to peer lenders could easily double what they are making without having to worry about the inconsistency of the stock market. This is a time when things are tightening and people are having to look for new opportunities. Those who are prepared, ready, and have money, will succeed. 

Where do you start? We can help!

If you want to find out more about peer to peer lending and how to get started reach out to us. We have developed methods for both borrowers and lenders that will walk you through the process of getting started. We want to make sure that this market grows and that we get rid of some of the lenders and bankers out there. This will result in more money going into peoples accounts! The better it grows, the bigger it grows, and the more options people will have for their future. Our target is to make it a win-win for both peer to peer borrowers and peer to peer lenders. 

Contact us today to find out more about the lowest risk lending option with the best return! 

Watch our most recent video explaining What is Peer to Peer Lending and Why You Need It

We have created an excellent resource site for you to discover more about peer to peer lending. This information can be found at www.TheNoteShop.com.

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Are You Making These Common Real Estate Investing Mistakes?

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Are You Making These Common Real Estate Investing Mistakes?

There are a number of common real estate mistakes that investors are facing. These mistakes occur when buying and holding rentals, flipping properties, and dividing land. Nowadays, these common real estate investing mistakes undoubtedly create frustration and can lead to defeat. With this in mind, let’s take a closer look at the five major roadblocks to make sure that they don’t affect you!

First, Cash Flow 

The first mistake that real estate investors make is immediately purchasing a property before evaluating the cash flow. To put it briefly, you want to make sure your profits are in fact greater than your expenses. Avoid this mistake by making a plan and know your numbers upfront! 

Second, Understanding Escrow

The second mistake is not understanding escrow, let alone what is needed to receive the escrow funds. Escrow is a portion of the loan that a lending company puts aside for repairs to the property. By understanding your lenders policies, you can optimize your profits by completing repairs quickly and correctly. 

Third, Too Many Projects

The third mistake is having too many projects. From multiple property costs to paying contractors, investors can get too big too fast. It is important to “err on the side of caution” to prevent the “finance crunch” that often occurs. 

Fourth, Rentals

The fourth mistake is not properly navigating rental cash flow. The deal needs to be a positive investment not a negative one after considering all costs. In real estate investing, you cannot afford losses or simply break even.

Fifth, Personal Credit Usage

The fifth and final mistake is the misuse of personal credit cards for business expenses. If you want to avoid spiraling into debt, then quickly set up your business and begin using a business credit card. 

By understanding these common real estate investing mistakes, you can ease your frustration, prevent a finance wall, and learn how to create a constant cash flow.

Watch our latest interview to discover more about the 5 Major Roadblocks

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How to Raise Your DSCR Ratio

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The DSCR ratio measures the break-even point of your investment. How can you leverage your money to actually build wealth?

A DSCR ratio of 1 means that the expenses of your rental property are equal to the income you receive through rents. So long as you bring in the same amount of money as you invest, you won’t lose anything.

However, a DSCR ratio of higher-than-1 is even better. A higher ratio means that you’re bringing in more money than you’re spending—generating cash flow and building wealth.

Raising the DSCR Ratio

You can get a higher DSCR ratio in a few ways. 

1. Be mindful of your expenses.

Especially if you’re a new investor, make sure you’re shopping around for the best deals. 

Before you buy a property, research the typical costs for the area. Is there an HOA? Will you need any specialized insurance? Typical taxes?

Knowing these things beforehand can help you make more informed decisions and keep your costs lower.

2. Set rents intentionally.

Look at the average rents in your area. Remember, the higher your income (rents), the higher your DSCR ratio.

Let’s look at an example:

When rents equal our cash out, lenders may see your loan as “safe,” but it’s not making you any money. 

Instead, raising rents can help you end up with a higher DSCR ratio (and more money in your pocket).

When you raise rents, simply divide your expenses by your income (rents) to find your new ratio.

By raising rents by $200, we end up with a much better ratio (1.2) that actually creates wealth instead of simply covering expenses. 

As an investor, the goal is to always make decisions that can create generational wealth for us in the years to come. Even small adjustments in rents and expenses can have a significant impact on your ratio. Do your research and your math when you work with rental properties!

 

Read the full article here.

Watch the full video here:

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DSCR Loan Calculator: How to Find Your Ratio

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A DSCR loan calculator is an invaluable tool for real estate investors.

In the investment world, rental properties are a great source of wealth. The financial potential in fixing up places to then rent out is a very lucrative model, especially in the current housing economy.

What is a DSCR Loan?

DSCR loans are specifically designed for real estate investors who hold rental properties. 

The acronym literally stands for Debt-Service Coverage Ratio which is a fancy way of saying that the loan cares about the cash flow of a property.

The great news, especially for new investors, is that accessing these loans is less dependent on personal or business income. Even if you’ve just begun a new business, qualification for DSCR depends almost entirely on the potential value and expenses of the rental property itself. 

What is a DSCR Ratio?

The DSCR ratio is a simple calculation that compares income to expenses—the cash flowing in vs. the cash flowing out—on a single property.

Essentially, a DSCR ratio of 1 simply means that the income and expenses equal each other.

The DSCR ratio measures the break-even point of your investment. So long as you bring in the same amount of money as you invest, you won’t lose anything.

However, a DSCR ratio of higher-than-1 is even better. A higher ratio means that you’re bringing in more money than you’re spending—generating cash flow and building wealth.

Raising the Ratio

You can get a higher DSCR ratio in a few ways. 

1. Be mindful of your expenses.

Especially if you’re a new investor, make sure you’re shopping around for the best deals. 

Before you buy a property, research the typical costs for the area. Is there an HOA? Will you need any specialized insurance? Typical taxes?

Knowing these things beforehand can help you make more informed decisions and keep your costs lower.

2. Set rents intentionally.

Look at the average rents in your area. Remember, the higher your income (rents), the higher your DSCR ratio.

Let’s look at an example:

When rents equal our cash out, lenders may see your loan as “safe,” but it’s not making you any money. 

Instead, raising rents can help you end up with a higher DSCR ratio (and more money in your pocket).

When you raise rents, simply divide your expenses by your income (rents) to find your new ratio.

By raising rents by $200, we end up with a much better ratio (1.2) that actually creates wealth instead of simply covering expenses. 

Use Our DSCR Loan Calculator

To help you find your projected rents, expenses, and ratio, you can use our DSCR loan calculator. It’s a free, user-friendly download that will help you estimate your DSCR ratio to see if your investment property is going to break even.

Once you have an estimate for your ratio, it’s time to start looking for loans. 

Finding a DSCR Loan

Banks typically like to see ratios of 1 or higher. 

However, if you’re working with a property that might not break even, you can often still find a loan, but you might be stuck with higher rates.

You can also check out our website and inquire about the DSCR options we offer. 

Here at The Cash Flow Company, we scour the market to make sure we offer competitive rates and connect good people with good loans.

If you have questions or want to talk about a loan, reach out to us at Mike@TheCashFlowCompany.com.

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How BRRRR Works: The Two-Loan Strategy

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Buy and refi: here’s how BRRRR works.

Say you buy a house and rent it. What’s the big deal? Hopefully, your rental income is a little more than your mortgage payment, and you’re able to pocket the extra cash or save it for future real estate purchases.

How does BRRRR differ from this?

There’s a driving power behind BRRRR, making it a more profitable and fun process than simple rental investments.

BRRRR uses a two-loan strategy to capture maximum equity in value-add properties. Let’s go through these two loans and see how BRRRR works.

Buy: How the First BRRRR Loan Works

The first loan is the “B” of BRRRR – buy. There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This takes less out of your pocket and makes the process more profitable and repeatable.

2. Quick Closing

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your pocket, it almost defeats the purpose of a value-add property. It’s best to use the buy loan to leverage all rehab costs on a BRRRR.

What’s the Best Buy Loan?

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Refinance: How the Second BRRRR Loan Works

The third “R” in BRRRR stands for refinance. At this point, we need a new loan on the property. There are 3 reasons.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance. 

Diving Deep Into How BRRRR Works

BRRRR is a powerful real estate investing strategy. We want to take away the mystery of how BRRRR works.

Download our free BRRRR map to put you on the right track with your next deal. And email us at Info@TheCashFlowCompany.com with any questions.

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BRRRR vs Retail: What Properties Do Real Estate Investors Buy?

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Where should you be looking for properties as an investor? Here’s the difference between BRRRR vs retail.

Sometimes beginner real estate investors buy the wrong properties.

BRRRR will never work in your favor unless you buy under-market.

Here’s a breakdown of BRRRR vs retail so you don’t make the same beginning mistake.

Buying BRRRR vs Retail

This is the basic concept behind real estate investing. There are two types of real estate properties:

  • Retail – When we think of a house as “on the market,” it’s a retail property. These houses sell at market price, a cost determined by current market conditions. In real estate, this includes supply, demand, location, interest rates, and a number of other factors.
  • Undermarket – Properties that might be considered “off-market” are sold at an under-market price. Something prevents the house from selling at market value as-is. The home is  outdated, damaged, foreclosed, or suffering from some other condition.

To break down exactly why and how BRRRR works, we need to look at the difference between buying retail and buying under-market as an investor.

Buying Retail with the BRRRR Strategy Doesn’t Work

The problem with buying retail as an investor is the house comes with no equity.

Let’s say you buy a property worth $400,000 (listed for that amount). With a conventional loan, the lender will cover up to 80% of the cost of the house. So you’ll need to put down 20%.

When you purchase the house and make the down payment, you’re transferring wealth, not creating it. You’re taking the money from your financial account and transferring it to the physical property.

So, you’ve moved $80,000 into the house, got a loan for $320,000, and created no additional wealth from the transaction.

There are three main disadvantages to retail properties:

  • The property may create cash flow or wealth in the future as a rental property, but no wealth is created from the purchase.
  • You’ll require money up-front (in this case, $80,000 plus closing costs).
  • You can only repeat BRRRR retail properties as long as you have the money to fund them.

Buying Under-Market for BRRRR

True BRRRR properties, however, solve all three of those problems retail properties have. A BRRRR property:

  • Creates equity & cash flow immediately (and over time).
  • Can be done with zero money down.
  • Is a repeatable process.

BRRRR is all about buying under-market properties – the houses that are unwanted and unloved. In this market going into 2023, a lot of these types of homes will pop up, resulting in some great deals.

BRRRR Purchase

There are certainly some nuances to BRRRR, but let’s look at the bare basics. Let’s take the same example used for the retail property.

You, again, buy a property with a value of $400,000. However, since it’s under-market, you can purchase it for only $250,000.

The catch is that the house isn’t necessarily worth the $400k as-is. The potential is there, but you’ll have to update and rehab it. Between those fix-up costs and the closing costs, you’ll have to put $50,000 more into the property.

So the total cost of the property ends up being $300,000, or just 75% of the value of the home.

Cost of the BRRRR Strategy

That 75% number is not only realistic but recommended for BRRRR properties. In down markets, it’s not entirely uncommon to see houses at 65% or below.

In this example, our all-in price (purchase + closing + rehab) is $300k, and the property is worth $400k.

Right away, we’ve created $100,000 in net worth.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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