Learn Real Estate Investing & BRRRR Strategy | Shane Kluiter | Skillshare
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Learn Real Estate Investing & BRRRR Strategy

teacher avatar Shane Kluiter, Knowledge is Power

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

    • 1.

      BRRRR intro

      2:16

    • 2.

      What is BRRRR

      3:38

    • 3.

      How to find off market properties

      9:17

    • 4.

      Buy

      9:44

    • 5.

      Repair

      4:48

    • 6.

      Refinance and Repeat

      5:31

    • 7.

      A note on refinancing

      2:23

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About This Class

In the BRRRR method of real estate investing you are able to buy properties, build equity, and pull your equity out of those properties quickly. In doing so you are able to stay more liquid and more aggressively grow your portfolio.

In this method of real estate investing you need to make sure you:

  • Find the right Properties

  • Connect with Wholesalers to get the best prices (We'll discuss how)
    Understand funding on properties to avoid surprises

  • Utilize your ability to quickly grow equity in properties to facilitate buying more properties

The focus of our examples in this course will be on single family homes because that is the most common use case for this method. However, this method has been successfully applied to multifamily properties. I have even personally worked with clients who have used this method to facilitate doing this method on commercial properties, specifically malls.

BRRRR is the most common method for quickly growing a real estate portfolio. It's a commonly used method for a reason, it scales quickly.

Meet Your Teacher

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Shane Kluiter

Knowledge is Power

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Level: All Levels

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Transcripts

1. BRRRR intro: Hi, This is Shane. In this course we're going to look at the method for real estate investing. In the berm method, you take a look at real estate investing from the approach of personal property, repairing that property, renting out that property, and refinancing that property. And then repeating the process. The idea there is that you're almost buying properties without without having your caching and the property. So if I buy a property, I put in in $30 thousand to get into the property. I finance the repair work. I financed majority of the purchase. I get into this property, I have the repairs done, I refinance the property after I've rented it, pull that cash-out. I have now pulled out more than I put into buy it, plus I haven't rented, so I've made money on buying the property. I own the property. I have a payment on it yet, but now the tenants paying for that. So that's a method where you're almost getting properties for nothing. You just have to take the risk of buying and repairing. Do repair work, work out your funding to the point where you're putting cash in. And then you do a refinance where you take that cash out of the property. And the amount you take out is the amount that you have grown, the value of the property. So we'll take a look at that and we'll take a look at how to actually get a hold of wholesalers. Because wholesalers are going to be the best method for finding these repair jobs. If you just go to a MLS and get with a realtor, you're gonna run into the housing market. And especially after 2020, just into the 20 twenties, the housing market is pretty rough for binding properties in general. So you have to get a hold of wholesalers. So we're gonna look at how to get a hold of wholesalers to ensure that we are finding the right people to help us find the right properties. 2. What is BRRRR: What is Br? Br is by renovate repair, refinance, interbreed. With this method, you should expect your first repair to be the hardest because you're not having that much experience going in. You're coming up with the money for the first time. A lot of homes people are either a pulling money out of the primary property to do this, be saving up money over a long period of time to do this on a car, to do this. There's a lot of different ways people get the money to do this. The majority of people who do this, they don't get a loan to do this from a traditional bank, they'll go to a hard money lender. And if you go to a hard money lender, you cannot use a you cannot live in the property. So it's a property that you do not live in, so they're non ocher owner occupied. So if I'm going to do this method is my first one, I have to have someplace else to live, which is based on the rules of the loan because these are for investment properties. If you have 0 experience, you should expect to put at least 20% down on the property and have the closing costs, closing costs. And you're looking at two points. Points whenever a lender recommend are mentioned those to you as a percentage of the loan. So if I say two, that means that we're talking about 2% of the funded value of the loan. So if the total funding value is the purchase price of $70 thousand and then $30 thousand and repair for a total of a 100 thousand because you're gonna put $30 thousand a shelf down. That means that we are going to be funding a $100 thousand in cash. Points on a $100 thousand is $2 thousand. Plus you're gonna have a lending fee, usually a $1000 to 2500. Just keep those in mind when you're talking to wonder, you're going to have some amount of fees. And then you're also going to have interest payments. Take a look at what these look like here in a little bit as well. But just looking at that first set, your interest payments on renovation loan, you're gonna make interest payments for the whole time and a lot of times you have to show liquidity for the first 12 months. So by that, I mean, you have the ability to make payments over that period of time. You have 12 months worth of payments set aside. A lot of these things add up. Thankfully, financing the repair work makes it a lot easier. You don't have to have all the repair money also satisfied. Otherwise, these would be very difficult to get into. We have downpayment and we have closing costs. We have cash set aside to show liquidity. And that cash doesn't have to stay there for the entirety of the loan. That is just when you go to closing when you're going through loan process, you just have to have the ability to say, Hey, I have this money in a bank account that says, I can make sure that there's payments is essentially gives the lender knowing, hey, this property is not gonna be rented. So obviously, I'll be able to pay for these. 3. How to find off market properties: So how are we going to bind properties to do fixed envelopes? This isn't really big struggle for a lot of people when they want to get into this. So what a lot of people do when they get into real estate is they go on Zillow or they go on Realtor.com and they started just going around and they start looking at all these properties and honestly, a lot of the ones on Zillow, they're listed for sale, aren't really for sale. There have been real or friends of mine that I've talked about, how they've had people call them and ask why he's listed as selling their house. And he's not actually selling their house. And Zillow just showed it as for sale because Zillow just randomly will list house as being for sale. Apparently. Don't know if it's a glitch in the system, but not every house on Zillow is actually for sale. So if you're looking to use a realtor, you didn't do talk to natural reorder. They'll give you access to what's called an MLS. And the MLS will have all the properties listed in an area. Retailers have access to. These are all the properties reorders are selling. This will be the most competitive market for UDP dealing in. This will be the higher priced homes. These will be harder to find ones that are good for fixing flips. A lot of these are gonna be ones that have already been repaired. If they do need repair work, they will be very, very light on repairing. These are gonna be properties and are generally going to be set up for someone to just move into. Now a lot of profitability in that area. You're also going to be dealing with homeowners and have to pay a real are they gonna be willing to come down in value or anything that much when you want to reduce the prow, you wanted to reduce what you want to pay them. Other options. Want to get off market properties. Off market properties, where are they? They're not on the market. Now, if market property is a property that isn't listed for sale on the MLS, They don't have a sign in the yard. Ways you can do that in drive around. You drive around in your car, you'll look for properties that look a little bit rundown, they look a little bit disheveled. The yard work hasn't been done. There's trees over growing the house, stuff like that. The paint is chipping off. If you will knock on the doors and they'll ask me know, hey, are you want to sell your house? They knock on a lot of doors until they find them. People will call this, open up a phonebook and start calling until they find people in an area code that want to sell a house. And it makes a lot of phone calls until they find somebody that wants to sell their house. And they put out road signs that say, Hey, I buy houses. Some of them that say of the cash for homes signs were not actually cash for homes will there'll be a closed within 15 days, but it'll actually be a bridge lung. Just say it's basically the same as cash from the list themselves. The cash for home, place, the leave and do the cash for home, but they'll refinance and immediately after, you can send out flyers to a specific area and asked to buy people's homes if you know there's an area, but a lot of neglected homes in it. You would like to mine. The easiest way, probably especially starting out is to trying to find the wholesalers. Wholesalers. What they do is they go out and they find properties. All the things I just described. There's a group of people that that's their entire business model is just finding these properties. They don't repair them. They are actually sell them. All they do is they're the middleman between john down the street wants to sell his property. But John has a house that kind of socks. They're gonna connect channel with somebody who wants to buy a house. That kind of sucks. I'm gonna, they're gonna flip it or do something with it. John doesn't really care. Just knows his house needs to go and it needs to go to someone that's going to buy a house that kind of socks, gets to wholesaler, wholesalers either a column or shell, but his house something and it's people that you wouldn't normally have sold or ALS otherwise they wouldn't have taken the action to go where Wheeler and the wholesalers basically get the house under contract on paper. The wholesaler is buying the house. The wholesaler gets this house under contract. You may say, great, I will buy this house from you in X amount of days, usually 30 days to 60 days. So 30 to 60 days, they don't get rid of that house. The wholesaler is going to lose whatever deposit they put down on the glute good faith deposit or just like when you would go to buy a house yourself? I'm a wholesaler. I go to John and I say, I'd like to sell your house. John agrees to let me sell his house. And my method is going to be getting John sells houses. I'm gonna I'm gonna do I'm gonna take the agreement for John at the agreed upon price. And I tell them, Look, I'm gonna give you $1000. If I don't get rid of this house, you get to keep $1000 by duty under the house. Use a $1000. All the different warning. That is how springs in the house is worth a 150 for you and give you 1000 now, the other 149 afterwards. What we do then is we can take that property. The wholesalers do them, is they take that property and they tried to generally find investors than one. Mit's quickly. Best thing for them is somebody who can buy in cash or a hard money lender generally take a hard money loans or cash because they want to move these quickly. They don't want to have their cash stuck in somebody else's hand. B, they don't want hang-ups because they don't want to be dealing with homeowners that are wondering if their properties are moving because it's already an uncomfortable situation for them to not know if the property is gonna go or not. And they really just want to take a look and see, and they really just want to move these quick. It's the whole name of the game is how many of these time moves through the wholesaler will do is they'll mark up the price. Wholesaler might find the house for say, 120 all salaries. I found this property that somebody who will buy it, everybody wins. That's what wholesalers do. Understanding that I am I paying somebody a 130 for something that the contract says 120? Well, it's because you've got to pay the wholesaler. If you want to contact wholesalers, root, there's not like a wholesaler directory out. They're really good way to get all the wholesaler that actually is. Surprisingly Facebook. Get on Facebook. You'll just look up your areas like if you're in Philadelphia, you type in Philadelphia wholesale properties or Philadelphia properties and you can find these groups and I'll have wholesalers in it and you'll see a property listing and you'll see drop your email and they'll see you in just a property listing, a whole bunch of people dropping emails. But if you click on that person and you send them a direct message instead, then you don't have to put your email down there. Because if you put your email down there, then you're gonna get messaged by a whole bunch of lenders and your emails just going to get blown up by the way. But much of them directly, That's a little bit easier for you. That'll spare your inbox. You want to get hit with a bunch of lenders. So that's a good tip for you. But wisdom with the wholesalers, they don't want to wait on these deals. So when you see them pop up, if it's one you're interested in looking at telling me I want to come look tomorrow or tonight and go take a look and give a contractor that's coming with you for these repairs. Take a look and give you an idea of how much is it going to cost to do this repair work, bringing that person with you? Just to get an idea. Because essentially we are going to want to build a team around us that we work with pretty consistently. Great. That's how you find them. Easiest way is Facebook. But if you're gonna be doing Market stuff yourself, It's a lot of going into houses, it's a lot of phone calls, a lot of fliers. 4. Buy: We're buying this property where they're buying it from a wholesaler or we are buying it from somebody's helps me, not done, however, we're doing it. We're buying a property, evaluate this property before we buy it. So we want a contractor or whoever we're gonna be doing work, maybe we're doing the work. We want to make sure that we are evaluating how much it's gonna cost us to do it. So what is the repair cost going to be? Every time we go into this one, need to know what is a, what does it cost to buy the property? B, what does the repair cost of the property see, what is the after repair value? We don't want to make like ten grand on a flip. We want to make 3040 million. These are not little things we do. These are supposed to be big movements. If you're only making ten grand, you're putting a lot of risk in C where you're gonna not have wiggle room because something's gonna go wrong on one of them and that would just could just kill your business if you're not giving yourself that like 3040 grand gap. When I look at a house, I don't want to buy the home with low price and don't get stuck in a bit anymore. And don't be afraid to walk away. There'll be more of a gonna be getting stuck trying to get one. Generally just reduce your own profits. These aren't emotional decisions, these are homes for your family. These are your business. And walking away is okay. You want houses that have been neglected, not completely ruined. Full tear-down likely won't make sense. I want to compare the cost of recently sold properties in the area. I mean, by that is this is going to tell you the ARB, which is the after a pair value. So let's take a quick look at Zillow to look at comparable. Say I'm in Michigan, I'm looking at this is Belmont right here. I want to just draw a quick circle here around this area. This is the area I'm about a house somewhere in here. I'm looking at in the nearby homes, see what one of these houses go for? What are some reasonably sold? One's mind's three-bedroom, two bath like these top ones here. These ones recently sold. Let's see what they sold for. Let's see what they looked like. This one has a nice inside here that updated. It still had the black and stuff. It's very woodsy looking. Doesn't necessarily mean I need to deal with they didn't finish the basement and it's still got that price. Good to know. That tells you what the competition is. Basically no countertops that are nicer than a backsplash. Basically make the kitchen look nice and decent flooring. Make it look decent. And this one here, guessing is not gonna be anything special on this one either. Laminate countertop, very small kitchen, only 1500 square feet. Water and dryer in the bathroom. Cramped spaces. What it gives me ideas of what to do with my space. So for instance, I have a bathroom. I'm looking at the bathrooms for how are the kitchen? The kitchen. I know between these two. If my kitchen is like this one, I'll say I have a galley kitchen like this one. I know this house still sold with this kitchen. And it's still sold at 315 this year. If I know this is still sold at 315 with a galley kitchen and opening it up to look like this one's kitchen where there was a big open space next to it, would cost me 20 grand worth of work to do. If I'm not gonna get a big enough movement in value from doing that, I'm not going to do it now because it's not going to justify it. Because the difference between these two houses isn't going to be significant enough. Square footage between these two houses isn't that much either. It's only 200 square feet. Has a little bit nicer finishes on it. Some of it is in the fluorine. Here you can see. So the flooring looks nicer than these ones. The other ones, it's also presented with wider spaces. Then the other one. It looks like a much cleaner, wider spaces. The lighting is better than this one. Even though it's still not very well updated. And a lot of it just shows you like you don't need to update all that much in this to this area obviously to be receiving that value. So they changed the fixtures in here clearly because that's a newer fixture, that they didn't change the shower. The shower is still from the nineties. Even this light fixture up here would be from the nineties. The cabinet tree, I believe, may have been restrained. But look at entry probably still. These are newer washer and dryers. They never finished the basement and Raj still ugly a good amount of land. But we can't really influence land with repairs. But taking a look at the properties around and seeing what they're going for and seeing what people have done with them will really show you what wouldn't value. Adds, makes sense. So leisure difference, this one has space and this one has a kitchen. And it got a lot more. It's significantly more. One for 349 versus 315, and it's only 200 square feet more. It also had to finish basement. So finishing the basement over here really improves this one. So if you got this 12 pictures of the basement, this one could be valuable in that maybe in here. You don't really do that much work with the cabinet tree, maybe put a new countertop on it and put better flooring in. But this one could be paying on a pig. As an example, the basement could all be finished to add a whole bunch of space. Depending on what Let's look at a light source over here that looks like maybe add a recess window. Turn that until a recessed window and add a bedroom somewhere down here at another recessive window over here because the heating over there. But at a bedroom out here, which would make it a four bedroom, which would make it worth more than as well. But things like that that can add value to the property and things to look at. What now would adjust the value two, because if it's a four bedroom, so these are three bedrooms. But if you pop it up to a four bedroom, so even if it's at 1500 square feet and it's a four bedroom, that four bedroom is worth significantly more, but you can tell immediately that finishes way better. That kind of thing. You want to look and see what is the comparable house look like on Zillow realtor. Get an idea so you know how much you're gonna be able to get for that property once you have fully repaired it. Otherwise, you're gonna be going in and doing repair work and not really knowing where you're getting it out, you want to make sure that the repair work makes sense to do. So if nobody else in the area has marble countertops, if somehow in an area where everybody always every house that's ever been sold, that you ever look up. It has a laminate. Put laminate down. It's not going to make a significant difference because it obviously isn't making a significant difference to buyers. You can also contact a realtor. And you can ask a realtor and say, Hey, this is a house. I'm looking at getting what changes should I make to be able to sell this house and just get a recommendation? Or if you make friends with the realtor, just to picture some by them. Get some ideas and learn from them. Learn what people are looking for in houses that can go a long way. 5. Repair: Semester we'll do the repair work themselves. They're a handyman, maybe there are carpenter or something and they've done a lot of housework themselves. Maybe they've worked construction for their whole lives. Some will buy a house, buy houses from the traditional method and live in it and repair it and so on. That's just the way it live. But in this method and you can't live in the house obviously because it's not the launch director. Bought a lot of people do in Burma method is they will have contractors do the work. When you're doing that, you'd want to have the contract or come and look at the house with you before you buy it and just get an estimate for what that repair will look like. You want to be either doing the work yourself or contracting with people that you crossed. You know, you've used multiple times or the ultra people have recommended or you can find good reviews for you wanted to talk to these people before you hire them. You don't want to just hire a random guy. When you every year you're going out and getting quotes for us in preparing your plan for what you're gonna do. You want to be able to budget for 10% for surprises. So there's going to be times where you're earning surprises. So I had a client in time that had three or four floor Joyce that needed to be reinforced. Original plan was to have to reinforce one. And that was what they had seen on the initial inspection they did, which was just walk them through the property for visual inspection before they bought it. And that accounted for a lot of their profit. They were glad that they had budgeted as much as they had for being able to take care of it. So you don't consider anything you don't use out of that extra 10% you're considering is just extra earnings. But whenever you're considering the profitability of a project, make sure you do consider that 10% repair work. It needs to be done well. And remember, we're gonna rent these out. So a lot of these properties we want to rent out and we want to make sure that they're not going to be ones we just ditch. We're not trying to make it look nice just to get rid of it and have someone buy it normally, would that be unethical? Tim do really crappy work? It would be be another goal for doing that is gonna be bad for your render. So you're going to have to come back and do more repairs. And do you want to pair so you want to do quality work? If this is going to make a better life for her and her, it's gonna make an easier life for you as a landlord. And you're gonna get it more offers, more people to want to rent from you with a higher-quality looking at home. If you have a home, it looks like a weekend warrior came in and didn't do that great of a job with painting and lining things up. You're going to get that kind of offers. People don't want to live in the house with the floors that make weird noises when you aren't all over him because it's a floating floor and it wasn't putting right. I remember when I own mind first home and I tried to put in a floating floor and I didn't understand expansion that wall and I ended up having to do a lot of work along the edging to fix it because it needed time to it needed to be able to expand and shift with heat. And I had to remove bubbles by basically trimming the edges of it. But that was something thankfully, I lived in the home to see happen. But if I had sold the home, somebody would have inherited that. If I had rented the home, somebody would have inherited that and hopefully they would've told me that would have been fixed, but they may not have told me. They may have just been annoyed by it and then left and that would have had to find a new render because they were annoyed by creaky floors. All weird bubble on the floor. These things need to be taken into consideration. Things that you've been done quality and the need to be done for the idea that someone's gonna live in this property, ideally for a significant period of time, wanted to live there as long as possible. We want to increase the value of the property as much as possible, for as little as possible, while being mindful that we want to make changes to the property that will give the tenant to quality living space. 6. Refinance and Repeat: We're looking at refinancing property. Was old repair work is done. We're gonna need to get this thing refinanced. Lot of first-time investors will rush out of there. Another bridge loans. They used to purchase these properties. And they just want to get out of this long because they're tired of making interest only payments, but mainly they've got high interest payments on it. Sometimes you'll get into an 11, 12% long. You're only paying interest, you don't pay on the principal until the end on these loans most of the time. So they want to God alone and they might not even have a tendon yet. So we're just trying to do a refinance, just get out alone. And they think that I've increased the value a lot. So they want to just move on because the lender is going to look at the property as a vacant property. Unless you have somebody under contract to live in that property, you're gonna need to get at least some place. That's gonna give you the best chance of getting the highest value. It's going to be the best chance of also getting through underwriting. The easiest way. Underwriting can decline you at anytime for anything. Let's just how loans work, the underwriting, it's going to look at you and they're gonna look at your credit score. And they're gonna look at you a lot less than a traditional bank. Well, if you do a hard money loan, but everyone was going to look at your credit score and just make sure that you know, you have good credit. No one wants to give money to people who don't pay their bills. You're gonna get a higher evaluation on the property. In general if you have a least in place. So you want to make sure we have our ducks in order. You want to make sure that we don't rush out of that initial loan. We had to get the property and management we do have at least in place and get that lease in place. So we have the best chance of getting the most equity out of his property of the highest evaluation. I wouldn't tell somebody only able to get 60% loan to value because they were doing a cash-out refinance with no one living in the property. We want to get all the cash out we can. And what I mean by 60% loan to value is, you'll see it written down. I was like 60% LTV. I'm typically right now, you can see people getting 80% or 70%, LTV, 80%, you'll get higher rates than a 70%. And also on a cash-out refinance, you will pay a higher rate than on a purchase or on a regular refinance because you're doing a cash out, you're pulling cash out, you'll pay a higher rate. You'll pay lower rates on a 70%, the new loan at 80%. Because you're pulling out less cash, leaving more equity in the property. You end up in a situation, right? You have nobody in the property vacant. The lender looks at that and this is Iris property now, there's no one in it. It's not cash flowing. I just have to trust somebody to make payments on it and they don't have a tenant. They want you to then have 40% equity that well, it doesn't make sense, usually financially to do, I know they're cash-out after that for 20 years, enter 20%. If you don't want to go out on a 30-year, another 20, you want to try and do it all at once. So you don't have to keep doing multiple finances, see all the equity out of these properties or anything. What you end up doing is you're gonna get this least in place before you do it. Don't rush out of that first loan. Middle East in place, at least in place, then you do cash-out refinance. The lease is written down. You can show the lender this is what I don't want to see the document. Now it's up to you. If you go down to 20 or 30%, 20 percent, you're gonna pay a higher rate than a 30%. By 20 or 30, it's how much equity you have remaining. So if you go down to 20% of your equity in the home, that means you'll owe 80% of the value. If you get onto 30% of your equity in the home, you'll owe 70% of the value. Anybody on how, what the cash difference is, it might make sense to do it or not to do it. You know, difference between 20, 30% on a $100 thousand is 10%. Whereas 10 thousand. So when you're looking at that and then you're looking at amortizing over 30 years. Is that $10 thousand is gonna do more for you in another property, or is it going to do more for you not accumulating interest here? Refinance, it's time to repeat. So you do it again, grow your portfolio, take that big, want to cache. You hopefully gone after refinancing this property by NADH property. 7. A note on refinancing: The note on refinancing. Instead of refinancing, what you can do is to just sell the property. Oftentimes what you're doing is you will find properties that it might make more sense just to sell instead of holding them, just because the property itself, it could be in an area that your other properties are not in or not adjacent to. It might not fit the profile of a company that you're using for your property management that they work with. But it was a good opportunity for you to do a quick flip. Perhaps you want to focus on a single-family homes. But you had a great opportunity, like six home apartment. After repairing it, you want to just sell the building for cash by more single-family homes, but maybe you increase the value so much that you could have sold it. There's a lot of investors that they do a mixing bowls. And it really depends on what way is the cashflow go. You do a really good flip and you make a ton of cash. A lot of people will just take the cash because they can fund more flips. Maybe you increase the value so much that you could, if you sold it, you can get three or four newer pair of properties started. But if you keep it, you can really only do like two of them because the high value of the property. So Santa, $500 thousand property you bought and you added $50 thousand to a $100 thousand to it. And now it's worth 800 thousand. So you can get a series as single-family homes. Instead of that, no cash-flow. And they're in an area that you want to be in, and it'll be easier to find tenants for that. Then it will be defined somebody that wants to run it in $800 thousand house from you. Do you think? So? You just want to solve the $800 thousand house pocket the cash, not have the $1000 assets and just have more properties instead. Just some things to consider. There's a lot of variables to consider when you're doing that. It's always worth taking a look at.