Tag Archive for: undermarket properties

Leveraging Bargain Properties for Maximum Gains

Real estate is all about creating leverage. Another way to create that leverage is to buy undervalued properties. What exactly is an undervalued property? It is a property that is being sold for less than it is worth. These are the properties that provide an opportunity for you to receive 100% financing and steady income for the rest of your life. Let’s take a look at a few examples of how an undervalued property can help you to succeed. 

Hoarders helper

Just the other day a friend of mine helped someone move out of a hoarder house that was under foreclosure. The homeowners no longer wanted the property, and they just couldn’t get everything done in time. My friend was able to come in and give them some money to take care of things, allowing the homeowners to get out of the property.. My friend was able to get the house at 70% of the value and put in 10%. In doing so, he created 20% net worth for himself. With the condo appraisal for $250K, he created $50K in wealth within just one weekend. 

Starting with nothing

Another local guy we know sold his car in order to get his first real estate deal. Fast forward 4 years, he has built three 6 unit apartment buildings with cash. These properties are owned free and clear, which is creating a steady income for him for the rest of his life. He achieved this success by being very diligent with both his process and his numbers. This is a prime example of how people who put their mind into something, can in turn create the wealth that they want. 

Lenders like undervalued properties

Lenders consider undervalued properties to be safe. This is because they are such a good deal compared to other properties on the market. Therefore, real estate investors can often get 100% financing on a property that is under market value. There are a lot of properties that are well under market value out there and many of them need some work. By taking the time and fixing them up correctly, you could guarantee a future profit for your investment.

Buy undervalued properties for maxim gains

Real estate is all about leverage. By leveraging bargain properties, you will in turn have maximum gains on your investment. It doesn’t take a PhD or a masters, it just takes some Doers! These are people who want to get out there and just do it. Investors who go through the correct steps can in turn make great returns within a short period of time. Some people want to make $50K to 80K in a year and have 6 months off. That is the beauty of investing and leveraging correctly. 

Watch our most recent video to find out more about Leveraging Bargain Properties for Maximum Gains.

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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.

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