How to BRRRR Real Estate (WITHOUT Getting Burnt) in 2023

don't buy the hype that you can't get that good of a deal this thing's been on market for 90 days now in this condition there's nothing wrong with asking for the number that makes sense for you because it's a carcass property it's just kind of rotting here the city is watching this and they're requiring full permits to get this project up to new standards that means it's going to take 12 to 15 weeks just to get started on this project I've even been hearing investors talk about how the Burr strategy is dead right now which is not but you need to make some adjustments foreign ER and today we are talking about burning your next property in 2023 and is Burr actually dead I don't think so so we're actually touring a property up in Everett Washington I'm walking through it I'm running my metrics and seeing if this will actually work as a burr so before we do our walk through let's talk about what a burr actually is it's when you buy you renovate you refinance and then you repeat and go do it again so the purpose of the burst strategy is to buy below market value do the renovations and be all in at 75 of the new appraised value so why is 75 kind of that magic number is because most banks will lend you up to 75 percent of new appraised value and if you can keep your purchase price in rehab inside that number it gets you most your Capital back and hence the repeat to where you can buy it increase the value get your rental property and then go get another one because your money's not locked in it's a great way to Great Value in your portfolio grow exponentially and continue to keep buying so let's walk through this property let's talk about the the pros and cons of burning with the higher interest rates and let's see if this property actually works so before you go buy that next Burr property or look at buying that expert property make sure that you have the right team around you your team is going to be essential to whether you can execute that right plan the first person you need is a real estate broker that understands what you're doing you want to make sure that they can run the analytics for you on what the as-is value is and what the improved value is if you don't know how to put you on the right metrics for this property it can throw you way off on your down payment and whether you can actually get all your Capital back the next thing you need is a bench of lenders because in Bur properties many times they're in condition like this right where there's it's down to studs there's electrical hanging down we actually got a red tag on the door that's not going to be for traditional lender we're going to go get a construction loan on this property we're going to set it up with Hardware money they're going to finance in the repairs and we're going to have to come up with about 15 to 20 percent down and then get the property stabilized at that point the second group of lenders you need is either a local bank or a mortgage broker or a regular Bank the reason you need that lender is because when you take the property down with hard money you're paying 10 to 12 percent interest which is really expensive you can't stay in that money it's made for a short term purchase but once it's stabilized you need to be able to get that cheaper rate that's going to allow you to cash flow the property and start building wealth and lastly you need a good quality construction partner remember on the Burr properties it's essential that you want to be 75 percent of the new appraised value which includes your fix up costs if you don't know how to handle those costs they could go over and then that's going to be cash you have to either leave in the deal and it can change the whole metrics behind whether it's a good buy or not so the burst strategy can change your whole trajectory on your portfolio you're buying properties below Market you're picking up massive Equity positions and you get to leave your capital in your bank account to go buy that next deal I know personally I use the birth strategy through 2006 to 2009. we acquired like eight to nine rental properties this way and we ended up trading those nine properties for almost 400 doors it changed our whole trajectory as Real Estate Investors but in 2023 if you don't pivot your plan it can be a very risky strategy I've even been hearing investors talk about how the Burr strategy is dead right now which is not but you need to make some adjustments so why is it risky it's risky because the rates are changing on a monthly and weekly basis every time the Fed chair comes out he says he's going to continue to increase rates if you're trying to factor in the debt on today's pricing it could be different down the road that means your payment will be higher in addition to it can have negative impacts on the market and your value could come down by the time you're done renovating the prop property so the bad news is Burr has gotten more risky you have more risk in your interest rates construction costs are kind of all over at this point and you have to really pad your performance and really forecast at those rates but the good news is is investors are starting to slow down we are seeing way better opportunities I actually haven't really been buying Burr properties the last 24 months but now I'm heavily looking I like looking when no one else wants to do these things everyone's looking at rental properties and they're seeing the seven and eight percent rates and they can't figure out how to make a pencil which I am all over these big fixers we were having to pay 65 to 70 cents on the dollars just to get in the door for the last 24 months now we're seeing them his trade at historical levels typically we're buying these things at 50 to 55 cents in the on the dollar I don't really care if my interest rate's higher because I can offset that with my rents and just to buy cheaper if there's low demand and the projects need a lot of work that means that I'm the buyer a lot of times in a lot of neighborhoods that means I can pay whatever pricing that I want and it really allows me to dictate those numbers so how are we pivoting based on the riskier market and the opportunities that are available so things that we're doing to mitigate risk and buying our next Burr the first thing we're doing is when we're performing deals we're adding contingencies and we're padding our performa you hear me talk about that a lot in this pivot series because that's how you mitigate risk we are taking comps if today's value is at nine hundred thousand we are taking about five percent off the value or we're going with the medium comps and not going for the high comp by doing this if the market continues to slide backwards and the appraisal comes in a little bit lower we're covered at that point it gives us a five percent buffer that means our money is not going to get trapped in the deal in addition to as we're performing out our rents and our cash flow we're adding about a half point to whatever the rates are at currently today the FED Reserve keeps announcing that they're going to increase rates so I need to build that into my performa it doesn't really matter if the rates are seven eight nine ten percent I really don't care I just have to account for it in my performa so pad in a little bit more if you think that rates are going to go even higher then add an extra point in if you think that rates are going to go lower knock three quarters of a point off you just depends on what your kind of appetite for risk is in addition to we are adding five and ten percent to all of our rehab plans the reason being is we don't know what's going to happen with inflation and what's going to go along with the supply chain issues and other energy issues if we come in 10 to 20 percent over budget when we go finish out the project that's just money I got to leave in the deal that's good Capital that I can go acquire more properties for so I Pat in the rehab expense to make sure that I'm fitting all inside that 75 percent as long as you pad all those things it will work out another thing we're doing is we're being conservative on rent so we don't want to use that top end comp we want to use more than me median comps the reason being is we've seen a lot of growth 20 to 30 percent a lot of different markets and some of that data could be bad just like your high comps from the spring so if you're looking at buying your bur property you want to make sure you're covering your mortgage payment you want to make sure you're not going with too high of a comp because if it doesn't quite rent out for that price you're going to be stuck paying that bill and that just turns into a liability rather than an asset so another thing that we're doing on our next potential Burr investment is we're asking for longer closing times the the risk and Burrs is you when you buy that property you're buying it on a good deal today if the market slides backwards or rates go up it could turn into a bad deal down the road the time of the renovation is actually your risk in the market the quicker you get your project done the less risk you actually have on that deal so if we're looking at this project right here what we do know is it's been red tagged the city has came in and stopped the work on this project It's actually an investor bailout deal or what my good buddy Gabe rosenshine says is it's a carcass property it's just kind of rotting here the city is watching this and they're requiring full permits to get this project up to a new standard that means it's going to take 12 to 15 weeks just to get started on this project imagine if we're going into a volatile Market with 12 to 15 weeks before we can even start so a lot of times on these prom projects or projects that take longer permits for my next Burr I'm going to ask for a delayed close or a close-on permit this reduces my risk exposure in the market and it allows me to make sure that my numbers are still solid all right so now that we talked about how to mitigate risk and how to Pivot with your burst strategy going forward let's look at this deal that we're at right now and whether I would buy this as a burr or not so it's listed for 499 000 right now it's worth about 800 to 850 000 after all repairs and it needs about 125 to 150. if I look at leaving about 10 percent in this deal or about sixty thousand dollars which would spend about a 70 five percent loan to value it's going to put my mortgage payment around thirty eight hundred dollars before property taxes and insurance my rents here are four thirty eight hundred to forty one hundred a month so no matter what I'm going to be losing money on this property the upside on it is I'm going to be picking up about 150 to 160 000 in equity positions so I'm putting out sixty thousand and I'm getting this big Equity position at the end of the day but I'm still going to be losing money for the next one to two years every time I'm looking at a bird property I'm looking at the today's number I am trying to break even on that that payment so I don't have a liability and have to service this house for a long period of time but I'm also then looking at where's the long-term gain in this property I don't want to get trapped on hey rates are so high on buying this property it's not a good deal because it's at seven and a half percent the rates are going to be this high for a shorter term period I think that no after two years that rates are going to be in that high to Mid fives at that point we're going to get through our session we're going to get the inflation under control and then the rates are going to come back down when I look at this deal at a five and a half percent rate it dramatically gets better my payment is roughly about thirty four hundred dollars a month including taxes and insurance and I'm going to get around 4 000 a month in rent that's 600 a month in cash flow for leaving 60 Grand in the deal that's a 10 return that's a buy all day long for me but I am not willing to pay this price right now the reason being is this is a huge project if this was a cosmetic fixer and I could leave ten percent the deal and have a 10 kicker down the road I will look at that property but on big fixers again it's bigger risk it's more work I don't want to work on a property for six months just to make no money you have to pay for it so what I am doing is I'm writing an offer based on my break even number I ran the math backwards I know this property is listed at 499 000. I need to be at four hundred and ten thousand plus the renovation to get me inside that loan to value to where I'm getting the 60 000 back and I'm not leaving it in the property and then my mortgage payment is going to be around thirty two hundred dollars a month plus taxes and insurance so I'm breaking even every month don't buy the hype that you can't get that good of a deal this thing's been on market for 90 days now in this condition there's nothing wrong with asking for the number that makes sense for you so as a bur investor I want to narrow my buy box I want to know what I will buy and what my requirements are so in 2023 I'm trying to leave less than 10 percent of the deal in each one of the properties I'm looking for development upside I want to buy a single family house that I can sell two and three x down the road for more because there's more value there in addition to I want to make sure that the asset is breaking even or slightly paying for itself I am actually not too concerned about the cash flow because I think I'm going to make up for it when the rates fall later but I don't want to have five and ten more additional properties that I have to feed every month and weight that rate out so as long as you know your buy box work your numbers backwards stick with your offers that work inside what you're trying to accomplish and you can get that per property so yes bur properties are going to be more risky in 2023 if you don't make the right adjustments but I know personally in 2008 when no one wanted to buy birds or rental properties we cleaned up we identified what our buy box is we knew what we were going to buy and we would work the numbers backwards and secure the properties for those numbers this property Here Right Now does not work for me on its current list price but there is always a number that I will buy it at I know that I need to be about eighty thousand dollars cheaper on this property if I'm going to pull the trigger by knowing this it either identifies that I'm going to move forward with this property and start working the offer or just move on to the next deal work the numbers backwards find out what your goals are and you can still bur in 2023. so if you enjoyed this video about burring in 2023 make sure you like And subscribe below or for more strategy advice or just free information in general check us out on jamesjaner.com or my Instagram at J Dane flips and we will see you guys next time foreign [Music]

Channel: BiggerPockets

Views: 41,613

Keywords: brrrr, brrrr real estate, how to brrrr real estate, how to brrrr, brrrr method, brrrr strategy, buy rehab rent refinance repeat, buy rehab rent, buy rehab rent refinance, brrr strategy, brrr method, brrr biggerpockets, brrrr investing, brrrr investment, how to invest in real estate, invest in real estate, real estate investing, what does brrrr mean, passive income, housing market, real estate market, interest rates, mortgage rates, the fed, biggerpockets

Id: RyIjGFSC4Ec

Length: 14min 11sec (851 seconds)

Published: Wed Jan 11 2023