BRRRR Method: Cash Out Refinance to Make Money TAX FREE Investing in Real Estate

in this video we're gonna talk about the best real estate investing strategy and it exists on planet earth this strategy is the Bur and yes I'm in Canada but no I'm not talking about being cold I'm talking about making a ton of money and real estate investing with the lowest amount of risk here's one of the secret to doubling your money fold it in half [Music] crickets today we're gonna talk about the best real estate investing strategy that exists the BIR I've tried all the strategies I've done them all dozens of times and I've perfected the bird I think over 50 times now what is the birth no I'm not talking about being cold in the Canada but it works anywhere in the world it relies in the fundamentals of basically combining a flip with a cash flowing rental property and putting them together for the most tax advantage quickest way to build wealth in real estate in fact you can easily go from 0 to 10 properties in about a year or two used in this strategy and I used it to go from basically four properties to 50 properties in under a year so it can be done by anyone if you know how to follow the strategy well and if you'd like this video I'm asking you to share it around throw it on Reddit throw it on your Facebook share it on Instagram sure with your friend who's looking to buy a property because they're gonna learn something about the Bur and they might just make a little bit of extra money talk to my channel about this before I've done dozens of live streams where I've given specific examples and today we're going to go through a real example of how you were and how the borough works I don't think I've done a video specifically on this but you can go back in my channel a year ago where I had the opportunity to walk through the Rose hard real estate snowball which is basically how to build a huge portfolio and real estate really quick or to get to financial independence or financial freedom in like under three years so 0 to 10 properties in 3 years basically using a series of Burres interconnected and there's a few different criteria that make it slightly different but the row start real estate snowball is basically the fundamental of the Bur on steroids so what is the Bur and how you use it the Bur method brrrr method of investing in real estate so you've got by Renault or renovate rent refinance the property and then repeat with the money that you've now pulled out let me walk through a real example how you pull out money from a property that's what the burr method is tax free pulao the pull out method or kena when you're buying you have to buy smart and so by talks about buying the right kind of property for a burr now the right kind of property for a burr is one that's often distressed that has had bad tenants it's been neglected it needs a good renovation oftentimes cosmetic in nature for the rehab or the renovation so we're gonna go find a property and that's exactly what I did I went found a property I've done this now dozens of times but one example was I found a property I'm just two hundred thousand dollars negotiate very hard for this it was actually it was a public deal on realtor.ca but we negotiated very hard for this deal and two hundred thousand dollar purchase price with an ARV or after renovated value backed up by other comparables we found in the neighborhood up between 310 and 330 thousand you're saying wow there are properties on this street that are very similar that after being renovated are worth three ten to three hundred and thirty thousand dollars but right now we just bought it for 200 grand because the property needed work we had to evict the tenants it's we to pay the tenants out cost us around two thousand dollars to pay those tenants out so we were out two thousand dollars to pay the tenants and we had a renovation budget of around twenty two thousand on this property a little over 10 percent of the purchase price and I got those costs so low because I was very frugal in how I bought a lot of my materials I was price shopping and cheap drywall a cheap flooring managing the project myself and a bad time before I had a crew and a team I was just bring you in different sub trades and working with them so I was often just managing the flooring guys managing for instance the dry waters eyes even pitching in a little bit to keep the rental costs down in the beginning of your journey you can make a ton of sense to jump in and get the old some sweat equity I think once you've built enough properties that your time is more valuable then say 20 or $30 an hour work it makes sense to outsource this burr method but you can do it either way both ways will make you money so we're all in $2,000 cash for keys to buy the bad tenants out then renovate it 22 K so we're all in it for 23,000 plus our two hundred thousand dollar acquisition price now you could close on this in cash totally fine to buy this property in cash or you can put a mortgage on it and then replace that mortgage with another refinance mortgage once you get it reappraised at the higher value so we've unlocked a ton of value of this property now I go and rent this property out it was actually a property with it was sort of a duplex not a legal duplex but it had a secondary unit in the property and we're able to get 1,300 in rent for the upper unit and 1200 and rent for the lower unit so we're getting 2,500 a month in rent and this is actually a little low we went with really great tenants as opposed to going with like the highest rent you get just cuz we wanted some really stabilized rental income I bring this back to an appraiser and I say look at this property that we bought for $200,000 then in the beginning was rented out to a family for 1400 a month so rented very low too bad tenants were neglecting the property and landlords who didn't care about the property's upkeep or curb appeal turn this property around and now we go back to the bank and they come back and they agree they look at the comparables neighbor they said yeah this property is just like those other properties and it came back at three hundred and twenty five thousand dollars the reason for that with the burn method is you're focusing not only on comparables to determine comparable properties in the neighborhood to determine your after renovated value or ARV but also you know that there's an income approach to valuing property and I know if I get in my area twenty five hundred a month in rent I know my property's worth at least three hundred thousand dollars now a typical rule of thumb when I'm buying a property is the one percent rule and the one percent rule basically states that you should look to get one percent of the value of the property back in rent per month so it would take you 100 months to recuperate of 100 percent of the purchase price and gross rent from the property that's the rule of thumb I've always used I have bought some properties the one and a half percent and 2 percent rule that's fantastic when you get your money back in 50 months instead of a hundred months but with that sort of rule of thumb you have strong cash flow and you can bring that to an appraiser and show them a net operating income statement and say hey this is what the property's bringing in rent here are the expenses we have solid cash flow therefore this property is worth you know based on a certain valuation on the great so the cap rate is basically the value to net operating income and most areas have certain cap rates that they trade out so you can determine the value of a property without comparables just using the income approach that's why the rent thing is so important when I get great tenants in there to increase the value of the property so we get back three dozen $25,000 appraisal most people would say it's smart for you Mike to go and flip that and make a whole bunch of money make over a hundred grand no you don't want to do that because your pit ton of tax you're gonna lose most of that equity you want to keep building cash flowing you want to repeat it and buy more properties so the tax-free way is to take this $325,000 appraised go to a bank go to a credit union and get a mortgage on it 80% loan to value they want you to keep 20% equity in the property you got to do it can't take it all out sorry unless you go to some private lenders and get a second mortgage three and twenty five thousand times 80% let's pull out a calculator get some quick math going here it's like two hundred and sixty something thousand if I had to guess in my brain two hundred and sixty thousand I was pretty good guess so two hundred and sixty thousand dollars now I have a check when I throw a mortgage on this property if there's already went on there there write me a check return 60,000 and then I'll use that to pay back the other mortgage and I'll get the difference or if I bought it in cash or used private money then I'd pay back that private money and get whatever is left over in this case imagine that I put a mortgage on it and I bought it 20% down if I had done that up here this 200,000 times 20% is a $40,000 down payment so $40,000 in cash one hundred and sixty thousand dollars in mortgage now I put twenty three thousand dollars in renovations and cost to evict the tenants so I'm all-in forty thousand plus twenty three thousand sixty three thousand dollars of capital has been tied up on this property now I get this new mortgage for 260 they're gonna pay back the old mortgage right so you're gonna have a hundred thousand dollars left over 260 minus their existing mortgage of 160 gives you a hundred thousand dollars I even injected 40 thousand dollars in down payment and twenty three thousand dollars and renovations so take that cash for pay yourself you now have zero of your own money and you've got it all back and this took ideally 120 days so you should be able to repeat this to anywhere from 60 to 150 days but let's call 120s or three or four months to do this and you can do multiple birds at the same time so you can start building a sequence where you could imagine you can do 10 or 20 of these in the year and build a ton of real money now the difference between the here and here we've got what that's 37,000 I believe so the difference between a hundred K and 63,000 is 37 K that money is paid to you so not only do you got a check for a hundred grand sent to you when this bird is done that's yours now you got your paying yourself your sixty three thousand see if the money you started with back it's yours you can have it and you've made thirty seven thousand dollars tax-free there's no capital gains tax if you didn't sell the asset you just borrowed money gain stuff so there's no tax triggering you just got a ton of cash money plus you still have the difference between three hundred twenty-five thousand value and the two hundred sixty thousand our mortgage in equity created in the property so you have sixty five thousand dollars in equity sitting in this property and you just got a check for a hundred grand back that's a ton of money you started with one hundred and sixty five thousand dollars now you started with a net worth you have plus hundred sixty five thousand you started with 63 I just taught you how to very simply take sixty three thousand dollars and turn it into a hundred and sixty-five now to do four of those all the sudden you just made a ton of money that's the beauty of a burner now every bird doesn't always pay you thirty seven thousand and ideal BIR gives you all of your money back and so you end up with maybe like one hundred and twenty thousand cash up instead 165 but in this case and I have thirty seven thousand for a downpayment on another turn at thousand dollar house and I've got my money back to buy another one so I I go from one property to three cuz I can buy two more I do the same bird and I'll say you have five or seven properties very quickly you've got a real estate portfolio that allows you to retire plus let's not forget even with the new mortgage on here two hundred sixty thousand your mortgage payments are approximately around $1,400 a month so let's not forget that you're still making cash left are all expenses property taxes insurance all the other some cost related own this property and operating costs you're still probably cashflow positive between six hundred and a thousand dollars a month so you're getting six hundred every single month and you have no money in the project in fact you got paid $37,000 tax-free by refinancing the property so you buy it you renovate it you rents it out you refinance that capital back out and then you repeat and buy more properties it's a very simple strategy to make a ton of money investing real estate that's why I call it the infinite return strategy because you can literally get an infinite return when you're a capital invested is negative your return on investment is infinite you have no money and half per is even good like in any market right now I'm going to LA New York Toronto Vancouver I know people doing it in every major metropolitan that are doing birds I see them in the comments they reach out to me on Instagram they share with me how they're buying these properties and adding value so adding value through renovation adding value through tenant replacement different things they can do to add value and most people will get a token five or ten percent off of a purchase price on the property now this does predicate that you know how to find a deal not all the deals gonna be this good you may have to work to find a really good deal but even if you don't with his skills my first property for instance was a partial burke i refinanced out half of my down payment because i didn't know how to do it properly back then i didn't know how to look for comparables I don't know how to renovate cheaply I didn't have the skills needed which I can show you on my channel join me every single Wednesday I go live for the micros Hart show on my other channel and I walk you through these things I walk you through the strategies you need to accomplish this and at the end of the day I'm gonna do more videos on it so you can do it too but I think the bird is one of the most attractive real estate investing strategies ever and in fact of any strategy ever seen investing from all the day trading strategies the swing trading strategies that I've seen the levered strategies they've seen all the buying and selling of businesses this is the highest return for the lowest amount of risk with the greatest probability of success so those three things together make the Bur super attractive because you're buying real estate with strong fundamental cash flow even if you fail like worst-case scenario guys oh no you've got to rent this out and only get a hundred thousand dollars a month in cash flow let's say your ePHI fails you don't call your money back oh darn you had to prep 60 grand you're still gonna have thousand dollars a month in cash flow and you go in you wait for some appreciation some mortgage pay down maybe you find another way to add some value and you go back and you refinance that money out in a recession you're okay flippers underwater he's bankrupt because he needs to sell he's not ready his properties out for cashflow Joe flipper is waiting to sell that property no go bankrupt whereas the Bur investor doesn't go bankrupt they pay no tax except for on the rental income they're earning but they pay no tax on the games that they're making and it's a beautiful strategy to really grow your portfolio really quick here in Canada we don't have the 1031 exchange and so when we sell a property we pay capital gains tax I think the Bur method is the best way to get around that here in Canada a huge advantage for everyone who's really investing in real estate here because we can go ahead and delay paying tax until we sell that asset off and we can extract all the money out of it just by refinancing or getting mortgages to borrow that money out tax-free and bring it on to the next project so the Bur is super attractive my favorite real estate investing strategy and I'm excited to share and the next videos coming up about specific strategies on executing on the birth how do you find these properties how do you renovate them how do you add the value to them and then what are the I've actually done videos one of my first videos is how to get a rockstar appraisal on your property how do you get that that finagled refinance to get the most value because there's a range here some appraiser is gonna walk in and say it's 290 another one's gonna go walking in say it's 330 how you convinced the appraiser of the value and so there's a lot of little intricate strategies that you need to be able to pull off to make the bird really effective but I think anyone can do a partial burn so that's where I say you should get started investing real estate is find a way to add some value or partner with someone who knows that adds some value to the transaction focus on cash flow but then have the Burroughs like the one-two punch and you were making a ton of money in real estate it's the best way that I know sharing with you guys it's worked for me it's maybe a multi-millionaire today and I continue to operate with this strategy I know people doing it in every market pretty much in the world it's predicated on the fact that you can buy deals for less than market price because the market in real estate is inefficient which means there are opportunities for retail arbitrage people say how do I buy real estate what should I buy I say you buy a retail arbitrage deal retail arbitrage is just the idea that you can buy something for less than market because the market is inefficient and real estate there is no publicly traded market for houses so you can always negotiate and always get a bit of a deal and find a way to add a bit of value most people overestimate the amount of work associated with renovating a prop and I think that it's not near as hard as we think and because of that fear we get compensated well most people say lots of $50,000 reto you get into it maybe it's only $25,000 and so there's ways to make a lot of money in real estate and that's the beauty of the Bur strategy buy renovate or rehab rents refi repeat by Renault rent out for top dollar refi and repeat that's the bird guys you can do it I'm here to help you remember the secrets unlocking wealth your you is to get a mastery over the 3 levers of your personal finances and that is spending less you're spending earning more how much you can earn and then maximizing the difference you've invested so maximizing returns on your capital thank you all so much for watching I really appreciate it I keep making these videos for free because I want you guys to be better than you were before that's the idea is 1% better but I can have an impact on your life I'd like to know about it in the comments how I could help you and if I have helped with this video I like to hear about your strategy that you're using in real estate investing or if you put this one to work let me know how it worked out for you see you guys all in the comments like share subscribe

Channel: Mike Rosehart

Views: 72,573

Keywords: mike rosehart, brrrr method, brrrr, brrrr strategy, refinance, canada, brrrr real estate method, real estate, buy rehab rent refinance repeat, biggerpockets, biggerpockets brrrr, cash out refinance, real estate investing, brrrr canada, income property, flipping houses, brrrr real estate, money, make money, how to make money, real estate strategy, investing, mortgage, cash out, cash-out, cash refinance, cashout refinance explained, investment property, re-fi, refi, tax free, tax-free

Id: IEp5C97jtlc

Length: 16min 57sec (1017 seconds)

Published: Sat Jun 22 2019