My Failed Attempt of The BRRRR Method (Don't Do This)

how's it going everybody welcome back to my channel and today we're going to be talking about my personal failed attempt at the burr method so i'm sure that almost every single one of you guys have heard of the burn method from one of your favorite youtubers here on the platform however if you guys have not heard of it yet it stands for buy renovate rent it out refinance and repeat so those are the five key things and if you guys execute it correctly it's the best way to own a property with little of your own money sitting in that property but don't get me wrong there are still ways that you can mess this up and the burn method could not work correctly and it's exactly what i did here and i want to pretty much explain to you guys how i failed this and how i can help you guys avoid you all failing it so i purchased this duplex a little over a year ago in hopes of executing this method properly however i did fail drastically so i purchased this duplex for 226 thousand dollars with tenants on each side of it now each unit needed work as it has not been touched since the house was built in 1971 so the house was very outdated so at the time that i purchased the house the unit on the left was making 850 a month and then the unit on the right was generating 780 every single month now don't get me wrong i was still generating a little over 600 every single month with these two units being rented out for so cheap so since i bought this house as an investment property and didn't have any plans to live in it i did have to get a conventional loan which did require 25 down for a house that has two units or more so with that being said after closing costs and 25 down i ended up having to bring a little over 60 000 to closing so once the units became vacant i decided to go in there and renovate everything and make this beautiful with that being said i installed brand new luxury vinyl plank flooring put brand new dual pane windows new cabinets and countertops i even knocked down a wall in each unit to make it a little more open i installed a new hvac unit since before it had the old baseboard heating that normally likes i painted the entire place i put a brand new bathroom in so a new vinyl tub and shower new vanities i ended up relocating the washer and dryer so it was no longer located in the kitchen and it was now located in a hall closet i installed new fans i also went ahead and installed recessed lighting throughout the entire house which really made it pop i also painted the entire house and i put a lot of time and effort to make this top quality for somebody also while i was working on the house i was up in the attic and i ended up finding out that the house had water damage and with that being said we ended up coming to the conclusion that we needed a new roof so i installed an entire roof on the entire duplex which cost a little over four thousand dollars to do now the big key for me while doing this was that i try to keep costs down to a minimum and do as much of it myself as i possibly could with that being said i installed all the flooring myself which took about a week or so did all the painting myself all the demo work i even hired an electrician buddy that i knew and i helped him do the electrician work the plumber that i knew the plumber and i ended up helping him here and there so the key was to find people that i knew that were in that field and kind of just give them a hand and also do a lot of things myself which probably ended up saving me between ten to fifteen thousand so the total renovation costs for both sides combined came out to a little under 65 000 now that was to completely renovate both units make them beautiful so now my total all-in cash on this property is a little over 125 000 sitting into this house the good thing is that now that both of these units were beautifully renovated i was able to rent them out for each 1400 a month which means the entire duplex is bringing in twenty eight hundred dollars a month and with my mortgage payment being a little less than a thousand dollars a month i cash flow eighteen hundred dollars every single month from this property which is amazing so once all these renovations were completed i decided to go to the bank actually went to my buddy who is a loan officer and i said let's get a new loan let's refinance the house so my plan was to pretty much execute this burn method and pull out a bunch of money that i just put into the house now where i really messed up and how i failed the bur method here is that i did not do my research on the comps in the area for renovated duplexes so where i live there are not very many duplexes it's very limited with that being said i couldn't find a single duplex that sold in the last two years that's renovated so i did not have a good comp to compare my house to also with the rents being higher i thought that hey the price would go up significantly so i was aiming for my house to be valued around 320 000 however the appraiser came back and valued it at 275 000 which was a real bummer so 275 000 is only 49 000 more than i purchased the house for and if you guys remember when i told you all a few minutes ago i ended up putting 65 000 in the renovations here so on paper i really lost like 16 000 by doing this deal not really though so even with the appraisal coming back low i still decided that i wanted to move forward with the refinancing so one thing that i didn't know which i learned is that for a multi-family property of two to four units the bank requires you to have 30 percent of equity in the house so when you purchase the house they only require 25 percent down payment but when you go to refinance it they still want you to keep thirty percent of the home's value in cash in that property that's something i never knew on top of all that the closing costs were around seven thousand dollars and my interest rate went up by a little over one percent so this deal made absolutely no sense to go through with so i decided to pull the plug on it and i did not refinance this house the good thing is that since the rents are so high i am still pulling in about a 13 cash on cash return from my initial 125 000 investment so it really could be worse you know i'm not really losing out completely so by doing this deal i really learned my lesson to do my research on the comps prior to me putting so much money into renovations and i really hope you guys now know this and you guys are hopefully now doing your due diligence and really researching your market and researching other houses that have sold prior to buying a house and probably prior to putting all this money into a house as well so hopefully this helps you all out so much i know that i learned so much from my own mistake and hopefully you guys don't need to make that mistake for you to learn this lesson as well if you all enjoy the channel and enjoy all of the content i'm bringing to you guys please make sure you subscribe and hit the like button and i will see you guys in my next video thank you guys

Channel: Brandon Lopez

Views: 26,022

Keywords: real estate, investing, cars, money, finance, rentals, rental income, renovations, portfolio, making money, passive income, fast money, building wealth, cryptocurrency, stock, multi-family properties, flipping houses, brr, brrr, brrrr, brrrrr, brrrr method, duplex, duplex reno, duplex renovation, reno, graham stephan, chandler smith, chandler david smith, kris krohn, brrr strategy, bigger pockets, real estate investing, real estate agent, investing in real estate

Id: XD2ZcopKdV4

Length: 6min 38sec (398 seconds)

Published: Tue Jan 04 2022