The BRRRR Real Estate Investing Strategy Explained (FULL GUIDE!) #wealthbuilding #realestateinvesting #brrrrstrategy

The BRRRR strategy is one of the single best ways to invest in real estate. If you're thinking about buying an investment property, you have to understand this strategy. Today, I will be breaking down step by step to give you all of the answers you need about the BRRRR strategy. Without further ado, let's dive in. The first step in the BRRRR strategy is finding the right property to purchase. Unlike other real estate investing strategies, the key to the BRRRR strategy is to find a property that is in need of repairs. Ideally, this property should also be somewhat undervalued. What this means for you is that you're looking to avoid properties that are 100% turnkey, 100% renovated, or 100% rent-ready. You should also avoid properties that are too far gone and are complete teardowns. Instead, look for properties that look like they might need repairs, like new flooring, a fresh coat of paint, new appliances, and much more. You might be able to find these properties on real estate sites like Zillow, or Redfin, or Trulia. However, you can also find them through foreclosure auctions, wholesalers, or off-market deals. The goal is to buy low so you can add value later through renovations. Even though we are looking for properties that need renovations, you should still focus on properties that are in good locations with strong rental demand. You see, when it comes to financing these deals, options can vary and many people who do the BRRRR strategy do not use traditional mortgages. This is because the BRRRR strategy works best when you're buying distressed properties. A lot of traditional mortgage lenders do not like these kind of properties and thus, they won't write a traditional mortgage loan for them. However, sometimes they do. But there are a number of different financing options out there. For example, some investors use cash, some use hard money loans, and some use private lenders for these purchases. If you're not familiar with hard money loans, it is a short-term asset-based loan that is very popular amongst BRRRR enthusiasts. Hard money loans often cover around 70-90% of the property's value in addition to rehab costs. You see, when it comes to financing BRRRR deals, the key is to use short-term capital with a plan to refinance later. But even though speed can be essential in acquiring good BRRRR deals, never skip proper inspections or title checks. Also, make sure you plan for contingencies like unexpected repair costs or delays. Buying right sets the foundation for the rest of the BRRRR process. Now let's move on to step two, rehab. Once you close on the property, the next step is to renovate or rehabilitate it. The purpose of this phase is first, to increase the property's value for refinancing, and second, to make sure the property is desirable and livable for tenants. Focus on improvements that will increase the appraisal value and appeal to renters, like the kitchen, the bathrooms, the flooring, and the curb appeal. You don't necessarily need to go overboard with luxury features, but the property should be clean, functional, and safe. It is crucial to have a detailed rehab budget and timeline. Work with reliable contractors, or you can do it yourself if you have the experience and skill. If you go with contractors, then make sure you get quotes and writing before starting. Be sure to account for holding costs during the rehab, including taxes, insurance, utilities, and loan payments. Efficiency is key here. The longer the property sits empty, the more it eats into your potential profits and cash flow. Also, remember to document everything. You want to save the receipts. You want to take before and after photos and keep a detailed record of expenses. These will help you during the appraisal for refinancing and may be useful for taxes. You see, having a well-executed rehab not only boosts value, but also ensures your property attracts quality tenants and minimizes maintenance calls later on. Step number three is to rent. Once the rehab is complete, it's time to rent out the property. This step creates the income stream that makes the property self-sustaining and qualifies it for refinancing. Before marketing the property, set a competitive rent based on local market. You can check rental platforms, but ask local property managers first what they think a good rental price would be, or just run a rent comparison. You should aim to have the rent price cover your future mortgages, taxes, insurance, and other expenses with enough left over for positive cash flow. Also, remember that you'll most likely be able to raise the rent price periodically in the future, so factor that into your calculations. Tenant screenings is critical. You want reliable, responsible renters who will pay on time and take care of the property. Perform thorough background checks. You need to verify income and employment history. Check credit and contact previous landlords. A bad tenant can be one of the most expensive mistakes in real estate investing, so please don't rush this step. Consider hiring a property manager if you want a hands-off experience, or if the property is out of town. After the tenant moves in, you should focus on building a smooth landlord-tenant relationship and maintaining the property well. Good communication and quick responses to issues goes a long way in keeping tenants happy and reducing turnover. Consistent rental income for a few months will help during the refinance step, as lenders typically want to see a stabilized property with tenants in place. Now we can move to step number four, which is the refinance. This is the pivotal moment in the birth strategy. After the property is rehabbed and rented, you apply for long-term financing, usually through a conventional or commercial mortgage. The new loan is based on the appraisal value of the property post-rehab, not the purchase price. So if you bought and renovated intelligently, then this appraisal should come in significantly higher than what you originally spent. And that's where the magic of this entire strategy really happens. Let's look at an example of what this can look like for you, so you can fully understand the picture. Let's say that you performed a birth strategy on a duplex that's in good location, but needs a decent amount of repairs. And you estimate you would need about 40 grand to put into it. So you get a hard money loan that covers 80% of the purchase price, plus the $40,000 for repairs. In this case, the loan amount would come out to $200,000, the same amount as the total purchase price. Then a few months down the line, after you have rehabbed and rented out the property, you go to a bank to complete a cash out refinance of the property with a traditional mortgage, because the property is worth more. And after your repairs, the bank will give you a loan that is significantly larger than your original hard money loan. Let's say that the property is now worth $300,000. Banks will typically give you a loan worth 80% of the new after repair value when you do a cash out refinance on a rehab property. In this case, that would translate to $240,000. You could use this $240,000 to pay off the remaining balance on your hard money loan, and then the bank would then pay you the remaining balance in cash, thus allowing you to access some of the equity in your new property. Refinancing does take some time and requires documentation, including your rehab receipts, your bank statements, and a strong credit profile. Shop around for lenders who are BRRRR friendly and understand the strategy. The key is to secure long-term financing with good interest rates and terms so the property continues to cash flow after you refinance it. Once you close the refinance, your capital is back in hand, you now own a stabilized income-producing asset. Step number five is to repeat this process. Now that you've refinanced and pulled your money out, you're ready to repeat the process. Repeat is the last R of the BRRRR method. You can take the funds and go find another deal, just like the first. And over time, this creates a compounding effect. Every successful BRRRR deal increases your cash flow, equity, and net worth, and provides more capital to keep investing, if done correctly. With enough cycles, you can build a sizable real estate portfolio without constantly needing fresh capital. The repeat step is all about systems. Streamline your deal sourcing, streamline your rehab process, and tenant placement and financing, and you'll build a reliable team of contractors, property managers, and lenders to repeat this. Learn from many mistakes in previous deals and refine your approach. Track your metrics like cash-on-cash return, ROI, rent-to-cost, and help you grow a smarter and faster real estate portfolio. Eventually, many BRRRR investors scale to owning dozens or even hundreds of units, all while leveraging the same original capital. It's a powerful wealth-building strategy when done correctly, but it does take discipline, patience, and planning. With each repeat, your experiences increases, your systems improve, and your risk lowers, setting you up for long-term financial freedom. Taking the BRRRR strategy one step further is ideal. This BRRRR strategy is incredibly useful by itself, but it has been used successfully by countless real estate investors. However, there is a way to get even MORE out of this strategy by qualifying for larger tax savings. If you work more than 750 hours in a real property trade or business, and if at least 50% of your total annual work hours are in your real estate business, you can qualify for real estate professional status. If you qualify for this special status, you can use real estate losses, such as depreciation, to offset your active earned income, 1099 from your self-employed business or W-2. Guys, this can dramatically reduce your tax burden, so if you're someone who is planning to do real estate investing on a full or at least 51% basis, then you should strongly look into real estate professional status. If you have a spouse, your spouse can also qualify on behalf of both you and if you are not able to qualify yourself, as long as you file jointly. Now, if you want to learn more about using the real estate losses to offset W-2 or 1099 income, I want you to go ahead and check out this video right here where I explain this strategy in detail. Right now, I want to take some time to answer a question that came in from one of my subscribers. This question was asked by Mo5ago1 on my School of Hard Knocks video. Make sure you check that video out if you haven't. That was a wonderful video. The question was, Carlton, what's investing in oil and gas? Investing in oil and gas allows for you to have what's called a working interest, which means you pretty much own an oil well. And because it's an active business, it requires people to physically be there and manually work that well and manually make sure it's being fixed. You have active losses that can come over from your expenses of running that oil and gas operation. On top of that, you can earn cash flow from oil and gas because oil and gas has to be refined and positioned into houses for us to have gas to cook our food and into our cars for us to drive our vehicles. Guys, oil and gas is essential, which is why the government creates incentives around it, and which is why I believe it's a powerful sector for tax saving purposes. If you have any questions on oil and gas investing, you would like to get started on doing some tax planning strategies, be sure to click on the link below to schedule a call with the TaxAlchemy team. We are here to support you 100% of the time. My name is Carlton Dennis. Thank you so much for joining me on this video. I look forward to seeing you on the next one. Cheers.