The “Buy, Rehab, Rent, Refinance, Repeat” (BRRRR) Method Made Simple | BP Podcast 327

this is the bigger pockets podcast show 327 it's time to burr you're listening to BiggerPockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place stay tuned and be sure to join the millions of others who have benefited from bigger pockets calm your home for real estate investing online what is going on everyone this is Brandon Turner host of the BiggerPockets podcast here with the man the myth the legend mr. David Green David Green welcome to the show man good have you here thank you my friend thank you very much there is nowhere I'd rather be good good what's today's show I should hope not because you're the guest star not only the guest host you were or the co-host you were the guest co-host interviewer interviewee I don't know every year in every year I don't know you're the guy I'm interviewing today on the show from this one hour I've patted my resume to add like 12 different things like you've just said very efficient much like the Bur method very efficient that's what I went today and we're go through the burr method look here's the deal people like we've been talking about burr for a number of years here are bigger pockets like the last like five years right and people love this strategy love this strategy I built my portfolio on it David built his portfolio on it but the problem is a lot of people still just don't get it they don't understand all the rules behind it how it works the dangers there are some things that are really important to be aware of so we thought why don't we do a show that is just like here's everything you would ever want to know about burr investing in a podcast here you go so that way in the future when people are like well how do I burn best we're like listen to episode number 327 of the podcast and oh and also David wrote a book on burn vesting which we'll talk about today so you know there's that but I don't know David you want to talk about anything else before we get into it no because anything that prevents us from talking about the burr method is just a waste of time this is this is the future of real estate investing right here well I was gonna tell you about my you know my little girl Rosie but if that's just a waste of time whatever fine if you want to you know you want to hear but usually you just waste our time talk about your weird rashes or things that you're into that creepy allow your odd taste in music videos you know that's all right I taste it I don't watch music videos at all do I I draw are you doing Galen okay I'd rather eat Randy you're right that's the best it doesn't say that's weird no five you human being that doesn't laugh hysterically when watching go to youtube later and search for I'd rather eat Randy and watch the music video I'd rather eat Randy it's the best thing ever all right and with that let's get to today's show on bur investing like I said we don't have a guest today our guest is also our coach mr. David Greene the author of the brand new book by rehab rent refinance repeats the BIR rental property investment strategy made simple if you're watching this on YouTube right now you can see I'm holding up the book but David basically wrote the I don't know the the book the book on burr investing and it's amazing you can get it at bigger pockets that come such burr book that's burr book with four R's and we'll talk about the book later on but really I just want to jump right into burr investing so David Greene for those who don't know you give us a 30 second overview of who you are why you're teaching this birthing your story and your favorite color go 30 seconds I like black because I am a sqi I don't really care why very good point thank you I'm a former police officer that worked a whole bunch of overtime to buy a whole bunch of rental property because I fell in love with real estate investing do you really like black that really it's by far my favorite colors cooler in black my ideal car would be black on my clothes or black no that isn't black all right please officer let go I've worked a lot of hours I realized that this was killing me and very hard on my life I was working like a hundred hours a week it's sleeping in my car a couple times a week to work as much as I could to save money to buy a real estate I discovered or rather heard other people talking about the Bur strategy I sold one of my properties I used the proceeds to buy a new property in a different market and I refinanced 100% of my money out actually for refinance about 15 or more than all the money that I had put in and I had a very successful bur and then I went on to start only using the BER strategy so instead of buying about two properties a year which is what I could afford it I was saving up money and putting a big down payment and then putting a lot of money into the rehab I just recycled the same money over and over and over and I averaged about two properties eight months or sorry yeah two properties a month so my my portfolio scaled incredibly I got really good at investing real estate cuz I was doing it so often I started to master all the individual parts of real estate and then I got to become the co-host the BiggerPockets podcast and best friends with the lovely Brandon Turner Wow that's quite the story by the way that was over 30 seconds so we're going to edit that out Dave Dave's either just kidding just kidding no but Dave's awesome by the way everyone say hi to Dave Messiah what's up Dave alright I guess people can't actually talk on a plaque chily timey are you just saying that was I'm just in that I have no idea you always do that all right let's go into BRR David why like what are the first of all can you explain and we're gonna go broad overview what is burn vesting and then we're gonna actually spend the rest of today's podcast going through each part of the BIR it's an acronym is that what we call it's an epidemic that's it exactly what it is hi good I'm not good at English we're gonna go through the rest of the BRR acronym one by one but let's first get an overview when we say BRR investing it's a weird sort of phrase what does that even mean and then we're gonna go through the benefits of it but first what is it BRR is an acronym that stands for by rehab rent refinance and repeat it was coined by none other than the infamous Brandon Turner because he's very good at coming up with clever names in fact the book is dedicated to him because he let me write a book on a topic that he created so it stands for and what it really is is it's the order in which you go about investing in real estate right this isn't some some scam it's not some like top secret algorithm that only a really smart person can understand you're just switching around the order of how you go about investing in real estate to maximize efficiency can you give us a quick like kinetic a story story format usually works better for like trying to explain the concept of birth sometimes Sookie obviously just a quick story of a perfect bird like either a hypothetical or real when you've done okay so you go and you buy a property with an ARV of 120,000 so it's gonna be worth worth 120 when you're done which is after repair value right when you're able to and this property is in terrible shape is just tore up from the floor up right like this is definitely a fixer-upper problem did you make that up tore up on the floor up if things rhyme people remember them I like that yeah kind like or for from your last book that's exactly right and no one will ever argue with you if it rhymes they just accepted it I don't like people arguing with me all right you buy the house it's gonna be worth 120 you pay 60,000 for it because it's in such bad shape and you get a really good deal yeah had to pay cash to be able to do that because oftentimes these houses are in such bad shape that you just couldn't buy it if you need it to get a loan okay and you spent about $30,000 to fix this house up that's your rehab budget right and for $30,000 and a lot of these markets where I'm investing like the south and the Midwest where you find 1% properties 30,000 actually goes really far if you're listening to this in Seattle you're like oh that would buy me a toilet but in some of these areas I mean that's almost an entire remodel of a house including the roof okay so now you've got this house that's been completely fixed up I'd have to find something that rhymes like fixed up from this something that rhymes with fixed up hmm - bent a total of 90 thousand dollars right it could be your own cash it could be money from your 401k it could be you and some friends and pulled your money together however you do it you go to a bank and you say hey I have this asset that's worth 120 thousand and the bank orders an appraisal to make sure you're right and you are then they let you borrow a percentage of that asset which is what they would call the loan-to-value ratio most banks will let you borrow 75% of an assets value in this case 75% of 120 thousand is 90 which coincidentally is the exact same amount of money that you put into this deal so you end up getting back a hundred percent of the capital you invested and you're left with the cash flowing property that's been fixed up completely so you're not gonna have any capital expenditures or maintenance fees for a very long time you then have your ninety thousand dollars that you could buy your next house with that would be the perfect / nice okay so we're gonna dive into each part of that and I know people are saying well I don't have 90 K cash I can't do this or or I can't find a house with 50 grand in my area or 60 grand I quit go turn this off stick with us like this works like burr is cool because it works in downtown Detroit we can buy a property for like six bucks and a pack of smokes or you can buy I mean like I bur my apartment complex isn't that like this kind of concept like came from what apartment owners do all the time big apartment master so this scales incredibly large I mean you could buy a hundred million dollar property but 50 million dollars of work into it and then go and refinance it to get that hundred and fifty million back because now it's worth 200 million right so I don't freak out if you're like I don't know the money or I don't have the location it works everywhere all the time anywhere if you work it right I actually discovered like I stumbled across verb you did it your first kind of one your first projects I did as well my uh I tried to flip a house and it didn't sell cuz the market crashes like oh eight and I was like oh crap what do I do I can't sell this property right my number's very similar i bought off like 50 i put 40 into it so i had 90 into it it appraised for 130 and so I I because I couldn't sell it cuz the market was just really and I was like well yeah I probably could've just kept dropping my price but instead I went to the bank and was like hey I got this property with 130 can I get a loan for 90 and they're like yeah no problem I go and they gave me a nice 30-year fixed mortgage on that property and I was like and so I got like I used a hard money lender to buy it and I used a partner to fund the rehab and so I didn't even have any money in the first place but then I got I got to pay my partner back and I got to pay the hard money lender back and so now I could go use their money again and I was it go this was really awesome so I just started doing it from there and then it was what ten years later that we coined it so well you also added $40,000 to your net worth and one fell swoop yes yeah just talk about all the time but that's pretty powerful it is right in fact like I I don't talk about this a whole lot because I don't my family and friends getting weird around me but like I I hit the million dollar mark in equity when I was thirty years old it was I like to do it by 30 I was at 30 was like 30 and a half or something that but when I looked at why I did that I mean it was entirely because of the birth strategy I mean like entirely because every single time I burn I gain 20 30 40 50 thousand dollars in equity and then when I did it on my apartment I gained two hundred thousand dollars in equity and so like every single property out BRR I just heard gaining more equity and then when the market started climbing up that equity started increasing because now I got really nice properties in really nice areas boom my net worth just went through the roof now granted yeah I showed the market might crash that might drop me that's fine but I mean BRR works and I love it so let's get into some of the benefits of BRR can you kind of lay out like some of the benefits to do amber investing versus others well yeah there the first benefit is that it increases your ROI the return on investment ratio so when you look behind it too complicated where do my Joe Rogan podcast let's bring Josh Dorkin into understand my high-level concepts this is beyond Brandon's capability yeah clearly all right all right keep going I increase your ROI what do you mean so there's two ways that you can improve your ROI because there's two metrics that make it up to calculate your ROI you take all the money that an investment makes you in a year and you divide it by how much money you invested so you can increase your ROI either by increasing the amount of money you make in a year or decreasing the amount of money that you invest now if you own rental property you know it's very difficult to increase the amount of money you make in a year because that's largely done by increasing rents and you can only increase rents as much as the market will allow meaning you don't have a lot of control over that but you do have a lot of control over is how much money you leave in a deal and that's where the Bur method is so important because in this deal that you just described brandon if you had left 85,000 in that deal instead of or if you've gotten back 85 instead of 90 maybe you got to leave 5,000 of your own money in that deal but that's such a small number that your ROI would have skyrocketed so what it does is it makes your money work very very very hard for you as opposed to you working very hard for your money to then invest in a real estate which is what I was doing as a cop yeah and here's a good way I like to explain how or why two people sometimes if they get a little confused is like if I were to ask you David hey 500 bucks a month is that a good is that a good return for a rental property like would you like $500 a month well the question is depends how much you put into it right right yeah like so if you invested ten million dollars and all you were making was five hundred bucks a month that was terrible right but if you invested a thousand dollars and you can 500 bucks a month is that a good investment crap all day right that's all day that's an amazing investment right so ry simply saying like are you making a good like amount of profit based on how much you put into it and so I mean people always want like a formula or number do you have like I mean what's a reasonable return on a normal rental properties I do have any kind of numbers you can throw out that people I usually get a 12% return when I was just putting a down payment on a house and adding it the rehab yeah me too 12% is kind of my minimum if I just go throw down payment I get 12% I'm like yeah that's pretty good no I came up with 12% simply because it's about double the stock market it's that's my like really anti-scientific way I was like double the stock market but I don't know if there's a better I don't know there's a national average that people shoot for but it sounds exactly like something you do actually as a side know because you make as good as every other man well I'll probably get twice what those bozos could get that's awesome it's more like if I'm gonna put in all the hard work I'm gonna give 6% I've always given to the stock market who cares right I want to I want to I want to put all the work I do in real estate I wanna get a better return now what I found what was with BER investing is sometimes I can get a 20 30 50 100 billion percent return right depends on because if I'm putting in a dollar total if I have one dollar invested in a deal and at the end of the day I make ten thousand dollars a year in cash flow that's a pretty good return right there so what if you had no money in the deal or what if you got more money than you put in like I don't even know what men I don't know yeah to measure that you're breaking you're breaking wealth building scales if the permits that went done well all right so let's talk about we'll talk about how to get that and how do you haul your money out but first what does it mean it's got related to I think what your second main benefit of our birds what's the second benefit number two is it increases the velocity of your money now velocity of money is a term that economists use when they're mostly talking about the gross domestic product of the country the GDP and what they're saying is like of the money in circulation how many times is it changing hands and the higher that number is the healthier it is for the economy because obviously every time money changes hands tacks are collected right so the get the government wants money to change hands frequently a high velocity of money because more taxes are collected which is a revenue from the government's perspective now we are not the government's we want to take that same principle and apply it to our own wealth building philosophy and our own life where if I can take a set of amount of capital invested in a property get it back and invest it again the faster I can do that the higher my velocity of money the quicker I will build my wealth now the example that you just gave where you bought a place for you are all in 490 and it appraised that 130 I believe it was you just made $40,000 to your net worth right that was with $90,000 right so that was almost 50 percent of the money that you put out you then added that to your net worth and they got your money back which means you could then go do that again so if you could just do that twice a year right that's a hundred percent return on the same 90 thousand it's not even ninety thousand you're leaving in a deal and not getting back the faster you can send out that 90 grand and have it come back with a $40,000 bump to your net worth the faster you can build wealth and we call that the velocity of money and the Bur method lets you do that because you can recover all of our most of your capital when you do it right yeah I love that and you people ask me a lot during webinars or doing during like meetups is like you know Brian I only have thirty thousand dollars I only have twenty thousand I only have fifty thousand yeah I can go and buy one property with that maybe then I'm stuck for another five or ten years saving up more money because their velocity and money is so slow at that point and so they always that's like what do I do about that Oh easy just go and bur it get your 50 grand 30 grand 40 grand back and then go do it again and then do it again and do it again until you build up enough like cash flow coming in that you now have you can save up you know on bigger deals and you can start burying apartments or wherever else like you can get out of you can get out of a job you can get financial freedom in less than twenty or thirty years you can do it in three five ten years if you were right and if you returned you know yeah that's that's actually what they say necessity as a mother of invention and that was my problem as I looked in my life and said I'm losing my life doing nothing but working to make this money to invest in real estate how do I do it differently or was my house so rather than having to work crazy hours to make this money I just made my money work for me instead there you go alright number three what do you got number three and this is probably the the basic the foundation of the book is that repetition builds mastery you want to get good at what you do and you can't get good at anything if you don't do it very often right I have snowboarded a total of probably seven times over a 12-year period okay I never got good at snowboarding I'm just good enough that I can justify going but it is not fun I always end up sore and hurt and as I'm doing it and my legs are burning and I'm falling the whole time I'm like why do I do this especially when that little five-year-old kid goes flying down the mountain next to you and it's just like humiliating right the problem is it's no burning the problem isn't me the problem is that I don't do it enough there is not enough repetition if I did it enough to get good at it I would have fun so real estate investing is not any different than anything else in life one workout every year is not gonna get you in shape buying one house a year you're never gonna get good at real estate investing you're just not getting the exposure you're not getting the repetitions you're not learning from what went wrong you're not developing the contacts they're gonna send you deals first you're not bringing enough business to a contractor to where he's gonna give you better prices you're not developed a relationship with the banks I could go on and on and on but the point is we all understand you get good at something by doing it over and over and over and you need the Bur method if you want to do that with real estate I love that people don't talk enough about that about the mastery and getting really good at something like I mean like you and I both make good incomes you and I both make good incomes from job stuff like me business related stuff and from our real estate and like what do you really boil it down to why we do well financially it's cuz we're both I don't want to say this like to sound cocky but like we're both good at what we do we both know I'm not saying we're the best I'm saying there's a million people smarter and better than we are but we are better because we chose mastery we said how do we get how do we every day try to improve how do we ask what went wrong on that deal how do we do better next time how do we read another book attend another class whatever like to get to get better and I think a lot of people lack that in their life they lack the desire to become a master anything right like we just in this today's world it's like how can I get the bare minimum to get this somewhat done and and maybe I'll be fine enough to scrape by right like what's some few or some hours I can work to get my paycheck to pay my bills and anyway that's one thing I like about you David is your good at the like mastery thing thanks man that's why you call me the mayor and what I think I like about you is that you recognize the great things about me I feel like that's one of your skills and I just want to call that out for everybody here they know what you're good at oh just kidding when we interviewed Robert Greene he actually talked about this same concept and Robert Greene's a super smart guy I don't remember what show that was I'm sure we could throw it in the show notes but mastery is really important and a lot of investors get very discouraged when things go wrong and those are things that always go wrong when you're new the problem is they never move past the new stage right they're like me going snowboarding every time I go it's like the first time or surfing I've done surfing with you twice I think right if I go once a year for the next ten years I'm probably never gonna get good yeah head surfing and there's gonna be five year olds that are that are beating me at it so I have a quote in the book that Bruce Lee says he says I don't fear the man who knows 10,000 kicks I fear the man who has practiced one kick 10,000 times hmm and what I would teach defensive tactics to police officers I was like my favorite quote I loved it right because the people who are best as something have the best technique because they practiced it so many times and burr allows you to do that and if you're not boring you better just be independently wealthy and have so much money you can keep buying real estate cuz otherwise you're never gonna get there yeah that's fantastic hey so I'm working on a it reminds me I'm working on a sort of book we're relaunching the journal the BiggerPockets 90 days of intention journal pretty soon I kind of rebranding it it's gonna be awesome but anyway in there I'm adding a bunch of like written content and one of those I'd actually have a section on how to become world-class of something and because this is what I do I created an acronym for it so you wanna hear my acronym on how to achieve mastery really bad all right okay it's called feel F EE L right you have to to get mastery you have to feel it here you number one you have to focus intently on what you want to be world-class at right like if you don't like you like you have to definitively say I want to be world-class at this I'm gonna focus on that F number two if to educate yourself on how top performers in your field became that way so like educate yourself what are the top burner investors doing what are the top surfers doing well the top racquetball players doing whatever it is right like educate your some of what they're doing third you have to execute on what you've learned and this is where a lot of people drop the ball is they like they they see what really world-class person does they don't execute on what they've just learned but like you know model it find out what other people are doing and then just execute on that and then number four I'll learn learn from your attempts like oh and then repeat the cycle it just feel feel feel feel feel all day long and if you do those over and over and over and over you're going to become world class or whatever it is but if you drop any of those four steps you're gonna miss out on becoming world class and that's what I love Auburn investing is that bird investing gives you the ability to focus on what you want to be a world-class that educate yourself to execute on what you learn and then to learn from the attempts and repeat it over and over and over do that velocity so there you go Brandon you just taught me how to feel I just taught you how to feel all right number four what do you got number four is that the burr bethod will decrease risk okay now here's what I mean by that when you buy a property that's like a fixer-upper you make it worth more and then you pull your money out of decreases your risk in several ways one you get all your money back out or at least most of your money so if you don't have any capital left in the deal it doesn't matter if the market drops you're not gonna sell if it's cash flowing you're just gonna wait for the markets to come back out if you leave a bunch of money in a deal in the market drops well that money is theoretically gone too by fixing up a house a lot before you put a renter in and refinance it you improve its value but you also minimize the amount of work you're gonna have to do later if you buy a fixed trip or property and just throw somebody in it there's a lot of stuff that's gonna go wrong all the time and that like you and I know that eats up your cash flow faster than anything else right and then three you're decreasing your risk using the Bur method because of the pure repetition factor I'm gonna get better at what I do so the next deal I'm more likely to do even better than this deal and the deal after that I'm gonna do even better than that when you're when you're operating from a place of ignorance or inexperience you're operating with a massive amount of risk simply because you don't know what you don't know very good I love that hey I'm funny that you said actually I was gonna bring some up you ever talked to somebody I gotta meet up or whatever and they say things like you know isn't it risky to not have a lot of equity in a property or is it well let me rephrase that isn't it risky to not put a huge downpayment on a property and I get this argument that people make like well you know if you're gonna do an O when I came up with a book on investing with no one lemonade and I got this a lot if you're gonna do no money down deal that's way risky that's way too risky and I always argue okay let's just say with to you you're gonna buy a hundred thousand dollar property I'm gonna buy a property with a hundred thousand dollars we're both buying properties with a hundred grand you paid a hundred grand for yours and put 20% down so now you've got an $80,000 mortgage and you have twenty thousand dollars in equity and you got this property I found that exact same hundred thousand dollar property I put it under contract for fifty and then I put thirty thousand dollars of work into it so now I've got eighty thousand dollars in as well we both have eighty thousand dollars into a deal we both have twenty thousand dollars of equity but I put no money I mean I burn it so I have no money left in the deal I have no risk at all of my own capital in that deal you've got 20 grand in there at the end of the day who's riskier at that point right and it's the person who put the down payment so downpayment has nothing to do with risk and nothing to do with risk right it's all about equity is where your risk is yeah do you buy a hundred thousand dollar property you pay a hundred and ten thousand for it yes that's risky and if you're losing cash flow every month that's risky that's not what burn besson is about right bird messing about gaining equity magically yeah gaining equity without losing capital you getting you hit those two thin yes I mean you you hit a wealth building like supercharger yep perfect perfect night when that leads us to number five what do you have does is it allows you to scale the financial freedom faster and this is very simple math in the example you gave I love your example you take ninety thousand dollars in the ad at forty thousand dollars to net worth and then you sent that 90 thousand dollars out there to do that for you again and theoretically you could do that forever on the same 90 thousand dollars and I have an example in the book of the guy who did it the traditional way and how long it took him to save up money and park it in an investment versus the guy that recycled the same capital got better deals and did it that way and at the end of a ten year period it was wildly different how many houses one guy had versus the other that's what this is about we do not live to be 900 years old like people did a long time ago Bible right like you know who still is running around so you can't waste time and once you get this thing down you really need to put your foot on the gas and scale it up quicker and real estate is incredibly powerful but almost always it's over a long period of time this is not Bitcoin this is not buying a marijuana dispensary this is not a get rich quick type of a thing right you're planting a seed that grows into a tree and that tree will be very powerful but it takes a while to grow which means we want to plant a lot of these seeds as fast as we can get those seeds back and then then replant them again so this helps you to scale much much faster because you need less capital to do so there you go perfect and then number number six the last we'll talk about yes we've touched on this one briefly earlier but it lowers your capital expenditure expenses or your capex so because you're fixing your house up like what I'll do is I'll buy these trashed houses I'll put a new roof a new HVAC new flooring I'll fix the plumbing because the walls are gonna be ripped out a lot of the time new appliances pretty much all the main things that break in a home or cause problems I go in there and I fix before I get the appraisal we'll talk about this later in the show why that's the way to do it because it pumps up the value gets me more of my money back but as a little sweet bonus but some icing on the cake here I then don't have to worry about an air conditioner breaking for the next 15 20 25 years where when I don't do this I think I'm doing great on a property three years in the HVAC goes out and my cash flow for the next year and a half is gone in one mistake there it is yeah it's it's so so true and all the properties that have ever bought that I didn't fix up fully before like renting them like all of them like they're unpredictable and I tend to have a lot more repairs but I mean the properties that I've bird which are you know majority my portfolio at this point like most of my bird deals like they just they hardly ever break they hardly ever go down because yeah they got the new floor and when you're rehabbing them you're typically doing it like you're rehabbing it knowing that you're gonna own this property for the next 20 years so like what if it's a choice between hey I could put this cheap carpet or I can put this better laminate that's gonna clean better or tile you go with the slightly better tenant proof to use a term from Darren Sager to tenant proof your property you you use the slightly better things that also decreases your maintenance and repairs and capex over the next 10 15 20 years of the life of that property which is another just awesome part of burn busting so very cool yeah you don't have to worry about what some other company like a turnkey company did because you manage your own rehab so you know what was done you know what went in there and you know like what wasn't done so you could prepare for it there you go now we're gonna go through now I mean I'm not asking a few questions on each of the Bur method the by the rehab the rent their finance repeal we're gonna move s in that next but before we get there I did want to quickly talk about in case you guys are interested in learning more about bird directly in book format if this is like a long podcast again David's got an amazing book it's called by rehab rent refinance repeat the BIR rental property investment strategy made simple and it's literally like I mean how many pages like 340 meters to change it's a it's a big book a physical book there's an audio than ebook there's an ultimate package but you can look get it you can get more information about it or check it out at BiggerPockets calm such BER book that's BER book with four R's BER book you could also just go to like Amazon but I would recommend if you if you want the bonus content that comes with there's a bunch of cool bonus stuff like a bird Pacific a specific power point presentation David does on how to find private lenders to fund it there's a twenty page e-book on long distance purring there's a live Q&A with David he's gonna be doing a live Q&A and a bonus video on how to interview and hire a great contractor if you want those bonuses you do have to buy it from bigger pockets and not Amazon but if you just want the book Amazon's got a Barnes & Noble should have it as well so I do I go to bigger Pakistan cyber book and check it out so anyway anything else you want to say in the book before we move on to the specifics of BER yeah the the main thing that the reason I think people should read the book and why I wrote it is that if you master the five what I call the five elements of birth by the rehab the rent refine is repeat you are going to master real estate investing by mastering those if you learn how to buy great deal so if you learn how to rehab house as well if you learn how to calculate numbers and rent your house and you learn how to use financing and refinance and how banks work and then the repeat system our segment is all about systems how you make this automated so that it just goes on its own over and over and over by default you will have mastered real estate investing you'll be what I call a black belt investor right so it's really simple if you just focus on those five things when you're done boom you understand real estate investing in a very very level and can build well quickly sounds like a future book black belt real estate investing from by David Green Wow alright so check it out again bigger pockets that comes has a burr book and yeah and when you buy it do me a favor yes take a picture yourself when you get the book take a picture of you holding the book and you know tag in tag david on instagram at david green twenty four and at bigger pockets show it off and we'll do a you know will accumulate some of those pictures together and we'll kind of do some promo stuff with you and your stuff try to build up your social media presence at the same time so be kind of fun there yeah all right so let's go back to burr and walk through each segment there alright let's get to it burr investing the let's talk about buying a property so david the first question that I get a lot when that comes like Buran vesting or or is is the by how do i buy it i don't have any money that's why i want to burn i don't have much money so is it is burn besting the by part only for people who have cash it doesn't have to be so there's it doesn't matter where you get your cash from you just need some cash to buy the house because the seller is gonna want money so the easiest ways to have your own cash but if you don't have your own cash you can borrow money from other people and that's why in the bonus content i included a video and a PowerPoint presentation for how to give a presentation to people that you know about why they should partner with you on these bird eels and they can provide the money and you provide the work and find the deal you can borrow from your 401k you can borrow from a hard money lender you can find private money like i mentioned earlier you can use like traditional financing or untraditional financing the most important part of a successful birth is that you are buying it under market value you are rehabbing it to add value and you are pulling your money out after the house has been made worth more if you hit those things it will go fine now the reason that buying is the most important part of the bird process is that's the only part in the entire investing cycle where you actually make money I mean there could be an argument to be made that you can make money during the rehab like if you add extra bedrooms or bathrooms or square footage that are worth more than you spent you've created some equity there but the most significant chunk is when you buy the house and that's I unique capital this is really what it comes down to capital is so important because you need it to buy a property and buying a property is where you actually make money then everything you do after that is just turning it into like a usable asset that then you can rent out but you're really not making it worth more at that point so finding money is really important but the birth strategy makes it easier to find money because the people who are investing can get their money back right like that's a really big thing I don't want to gloss over if I go to someone and say hey let me borrow $50,000 I'll pay you an 8% return on your money and in the in fifty five years from now you'll have all your money back that's not that enticing right if I'm like let me borrow your money I'm gonna go use it to buy this house and then I'm gonna pay you back in six months all of your capital and you're gonna be making interest that's a much easier like proposition for you to the person yeah that's true and there's a lot of hard money lenders that will do it others a lot of I mean like there are harming lenders that very specifically understand the birth strategy they that's what they work inside of is the burst energy now granted hard money is gonna be fairly expensive there's companies that will give you a hard money loan just for a year for a burb but the danger is that like you're just paid you pay more for that money so put it into your numbers when you run the numbers make sure you're accounting for it and there you go speaking of accounting for bigger pockets actually has a burr calculator that we built and you can plug in all the numbers including the purchase the purchase amount that closing costs hard money costs the refinance amount later on you can play with all those numbers and anyway check it out bigger pockets calm calc see alc but one more question on the on the buy a lot of people question and they have you kind of touched on it earlier but I want to make sure we nail it here what's the point of just what's the point of like buying it and then refinance it later why can't I just go to a bank right now and just go borrow all the money needed for the property why can't like what's the big deal well you can do that let's say that you're buying a property that's worth a hundred thousand dollars and you're paying a hundred thousand dollars and you're gonna borrow 75 thousand of that from the bank and you're gonna spend your own twenty five thousand and then once you buy it you're gonna have to paint it maybe fix a few things you spend another five thousand there the problem is you just left thirty thousand dollars in this deal and like you said earlier for some people that takes four or five six years to be able to make that money back and save it to buy the next deal okay the reason that we want to spend the money up front and then refinance it is we want the bank to give us a loan value or a loan to value of the after repair value once the place is fixed up so I don't want the bank to be letting me borrow on a hundred thousand dollar house I want to be buying it for much less than a hundred thousand then make it worth a hundred thousand then go refinance it once it's worth a hundred thousand so that I'm not leaving equity in the deal I'm taking the same money so like when Brandon I calculate our net worth it doesn't matter whether it's locked up in a property or it's in our bank account it's the same amount right it says this very same for you for your own net worth if you have twenty five thousand in a savings account or twenty-five thousand equity in a property it doesn't change anything the difference is 25 thousand in your savings account can be used to add equity to your net worth by buying more assets whereas 25 thousand in equity is almost useless unless somehow you can access it from a HELOC so that's why you want to be refinancing and getting capital on the bank as opposed to leaving it in the house because it can't do anything for you when it's in the house they're young and also of course like most banks like you'll find don't want to deal with nasty properties right so like yeah yeah if you go under just a real nasty property in your bank but yeah this thing's gonna be worth a hundred and twenty thousand and I don't need fifty for it and they go there and they look at it and the appraisal comes back and says the rust falling apart and there's foundation problems or whatever the bank's gonna say yeah I know thank you this is there are there are bank programs I call them BIR loans they don't call them that but like although there are loans that banks can do specifically designed for the Bur process because again this isn't like we invented the birthing we just put a name on it but like they're hard to find they aren't harder to find but if you can find a burbank if i one of my buddies actually has a what is it a three hundredth I think he's got a three hundred thousand dollar line of credit from a local community bank and he has an agreement with the bank if she has a like they built a loan for him tuber they gave him a three hundred thousand dollar line of credit he goes out and buys properties with that line of credit fixes them up rents them out then goes back to the bank and they convert that line of credit money he spent let's say he's been a hundred grand of it immediately into a mortgage for him without having to go redo all paperwork and everything is it's all part of one big thing that he pitch them on and now he's birds like that and without any of his own money at all just got equity after equity he just keeps doing deals out this way and it's a portfolio lender so there are no limits now if you go to like a Bank of America Wells Fargo they're gonna limit you at ten residential mortgages on your name portfolio lenders like the small local community bank they don't care like and so he just keeps doing it over and over and over and over so there are banks that can do it but those are a lot harder to find typically what I do and I think David I'm not sure which one you do but I think we look at private lenders people I know will fund the deal people have met through BiggerPockets networking conversations and I will buy it with a private money and then refinance it later hmm so yeah and I talked about in the book why like how to actually target properties like that because not only will banks not lend on really trashed houses but it actually gives you a competitive advantage when you're looking to buy yeah your competition doesn't have the cash and you do so they can't buy that house you've eliminated ninety percent of the buyers that are out there and you're only competing with the other cash buyers most of those cash buyers are home flippers which is a bigger margin than you do as a per investor and you settle into that perfect little area where you can make a deal work that other people can yeah actually I was just thinking like one thing I love a burn vesting is that it's you can pay more than a flipper and a wholesaler but you're also like you know you're not competing with the homeowners and so you're in yet it's a sweet spot to be four burn vesting because you can pay a little bit more now a lot of people what do you say about people are like well shoot you're using these examples of like $100,000 property you get under contract for 50 grand I can't find that in my neighborhood that's impossible what do you say to things like that there are no deals like that in my neighborhood there's no deals out there I can't buy the initial property what do you say that's why we included that bonus content of long distance purring because I take the strategies that I use in my first book long distance real estate investing and I combine them with the Bur method and that bonus content so what happens is the Bur method allows you to invest extremely efficiently the long distance method allows you to invest anywhere and when you combine those two things together what you're really doing is removing any excuse you have of why you can't it opens up doors and that's how I was able to scale to as many rental properties as I have over a couple years as I did yep I love that and I also say this any time somebody tells me that they can't burn their area I always ask is there anybody flipping houses in your area because of somebody's flipping houses you can BER because again you can pay more than a house over so if if you tell me yeah I can't find anything there are no deals here tuber and then I can find a single house flipper who's doing it in your area you're wrong like it's just a simple as that because like the real the real thing you should be saying is I'm not good enough at finding deals like that house Hooper is right if you figured out what that house flipper is doing to get deals then you can do it right because again house slippers operate on what we call like the 70% rule oftentimes not always but like they generally follow something called the 70% rule which basically means they can pay 70% minus the rehab costs in order to you make a profit on a flip well you're doing the basically the same exact thing with burn vesting but you can typically spend less on the rehab than they are because you're not you know fixing up quite as nice as a flipper might be doing so anyway absolutely excuse the reason those margins work better for a burn investor than a flipper is that you don't have your like commissions and taxes and all the other closing costs that go into a sale you don't have capital gains on the money that you make right like those are the two biggest pieces and you're taking advantage of low interest rate so burner investors can make this work as opposed to when home flippers can't because of those two very big expenses that we're shaving off and then we get all of the long-term benefits of owning rental property as opposed to oh hey you hit it out of the park great job on your flip your short term capital gains taxes forty five percent half your profits are gone but all that risk is still there yep yeah that's definitely why I like burr more than flipping I mean flipping is great for some short term money but burr is I think far superior for long term wealth so alright moving on from the bye so the bye you got there now moving on to rehab are there any tips you can give for like we having like what are some of the things that you've done in your burr investing they've added the biggest bang for your buck any kind of bird tips or rehab tips on there absolutely you want to understand the concept of highest and best use when you're going to rehab your property okay so there's two ways that I find equity one is I find it or I buy it so I the house is worth a lot of money and I'm paying less money I just bought equity through the deal the other thing is I make equity through the rehab so that can be as simple as taking an outdated house and fixing it up that'll add value if it compares to houses that are worth more and that are nicer boom you just made some equity another thing I'll do is like knock down walls to make the function of the house actually more appealing and appraisers will give it value that way so if you've got a kitchen that's closed off from the rest of the house and you can open it up you just made some value for a relatively cheap the last thing I'll do is I'll actually change the floor plan of the house so I'll take a two-bedroom one-bathroom home and I'll turn it into a 3/2 or I'll take a 3-1 and I'll turn it into a 40 I'll take a 900 square foot home surrounded by 1,500 square foot home and I'll add 500 square feet to it so now my 1,400 square foot compares to the 1,500 square feet home and the equity is much more than the money that I had to spend to do it right these are all prudent rehab strategies that I use and I talk about that in the book ways to look for quick and easy win so like one of the things Brandon talks about all the time and it's great advice is when he's buying a house that's like eleven twelve thirteen hundred square foot if it only has two bedrooms he knows there's another bedroom in there somewhere because a two bedroom house should be like eight hundred square feet it shouldn't be 1100 square feet so learning to look for things like that and adding that extra bedroom one of the ways that I'll do it is I'll look for a house that has a mudroom a utility room a sunroom something like that where the infrastructure is actually built out but that is not included in the square footage of the house the appraiser won't give it value then I will go and make that part of the house I'll run air conditioning to it I'll run electrical and plumbing I'll put up some actual drywall and framing as opposed to just like the windows that they have out there and boom I just added maybe 30% maybe I made my house 30% bigger for the cost of like four thousand dollars worth of construction work and I just created a lot of equity right there that's probably the biggest stuff that I look for during a rehab that makes value it makes it worthwhile to bur invest perfect I love it love it what about staying on budget I mean it's easy to get cost overruns especially when you're burning from a distance but how do you typically stay on budget so I I stay away from anything that has a potential to blow up to be a really big project right things like plumbing and electrical when I'm looking at a deal and I see that like oh these pipes are corroded and we don't know how bad it is I'm probably gonna move away from that deal because it's very difficult for me to know how much work this is actually gonna take to fix and putting all new plumbing in a house doesn't necessarily increase its value like if you put in new countertops right other things like rubes if I know I'm gonna replace the whole roof there's only so many things that go wrong with that I know what it costs to put a new roof on it's not like there's a bunch of surprises that can come up so roofs hardly ever go over-budget on any of the deals that I'm doing I try to keep it as cosmetic as possible so that's a good strategy to have if you can go in there and take out cabinets and and replace counters and maybe put an appliance there like flooring there's only so many things that go wrong on a floor you take out the old flooring you put in a new flooring those are some of the ways that I prevent going over budget the times when something does go over budget are almost always related to electrical or plumbing it's like the infrastructure that makes up the house it can be very expensive because they have to pull things apart to figure out how stuff was run great tips one more tip I'll throw it to you for those people who are burying multifamily if you're if you're gonna go into like duplex triplex four Plex ten Plex 20 you know whatever when you're in the middle of the rehab and you're fixing things up anyway it's a really good time to consider how do I separate the water meters and electric electrics not usually let you could separate it but water meters are often oftentimes all just like master metered but if you can separate that in the process of rehabbing it then you can go and sub-meter the water and now the tenants are responsible for their own water even like a four-plex or an A+ or even a duplex make the tenant responsible for their water and you'll instantly see your cash flow just go through the roof which on a multi-family means your value goes to the roof which is fantastic and yeah there you go all right number three so we went through we went through the buy the rehab let's talk about renting how do you know ahead of time what are probably gonna rent for like after so I've got in the book I talk about a system of like you've got your preliminary stuff and then you've got your specific stuff so the most specific ways to actually get a property manager to tell you this is what it would rent for based on what the other houses that they manage you're renting for right but you don't want to keep going to a property manager every time you're analyzed deal just to figure out what should I put in the bigger pockets calculator right for how much the rent would be yeah so I use a website called rent a meter comm which is free and easy and it gives me a very general idea of what the rents are usually over like a 20% plus or minus so it could be anywhere from 800 to 1200 somewhere right around a thousand right once I'm like pretty interested in a property I'll take the next step and I'll start looking up similar homes in the area they're similar to this one on Craigslist and I'll see what they're renting for and then I'll email a couple of the landlords and I'll see how quickly they respond and how long the house has been on the market so I know if the landlords like dude I don't really have time to talk to you I've got 17 people interested in this house it's a very strong rental market and it's place I want to own a rental property if he's like oh my God thank you for emailing is for four months and nobody's said anything that might not be a place where I want to be investing right so that's kind of how I'll verify what I just found on rent saw meter and then once I'm actually gonna buy it I want as many people's opinions in on this deal as I can get so that's when I loop my property manager and and I say hey here's what I'm thinking this is what I'm thinking I'm gonna get can you tell me if you agree and by the way here's what the agent thinks it's gonna be worth here's what the contractor says I need to do can you look this over and let me know if you think the either of those people are being a little too ambitious and it will be worth a little less or we don't need to fix it up as much and I get another counselor in on the deal cool I love that great advice what about property managers are you always recommending to use a property manager on a birdie is there any a case where you might recommend somebody manage themselves there's people they can manage themselves if they really love managing and they're gonna learn a lot from it so if you like dealing with people if you like managing your own property if it's fun for you then I say go for it right not because it makes financial sense but just because it makes like emotional sense but for most people if you're running a business it makes more sense for you not to be there so if I owned a Subway restaurant where we make sandwiches and I knew it was gonna make a hundred fifty grand a year I'd rather pay a manager seventy grand a year and only make 80 thousand and let them run it so that I have a completely passive business and I can go earn money in other ways right some people want that full 150 and they're happy to work there all year long I think the trick is they start to tell themselves that they're making 150 grand a year when they're not they're really making 70 grand a year the investments making them the other $80,000 because they'd make that 80 whether they work there or whether they didn't right so if you're somebody who has other opportunities a job that you like new job opportunities like me I have the ability to earn commissions as a real estate agent that is a lot more money than I would make if I put that same time towards managing the properties I have the other reason I love property managers is what I said earlier is I don't just use them to collect rent I use them as like an advisor on my team I'm a very big proponent of having as many smart people in your world as you possibly can have giving you advice and learning to see the world from their perspective they're gonna pick up on things that you miss they're gonna have seen things you haven't seen they're gonna be looking at like hey we're not when I'm looking at this Houston thing and this is great they're looking at this house and thinking no way that's way too small we're gonna have a new tenant every single year because there's not enough bedrooms or whatever the case may be right or it's on the wrong side of the street so I get a lot more value out of my property manager than just collecting rent which is why I like using them but some people they they buy where they live and they know the area really really well and they enjoy the relationship they have with the tenant so I say hey knock yourself out if that's what you like to do there you go that's fantastic well what about refinancing the property one of the biggest concerns when it comes to the Bur investing and this is rightfully so the biggest danger is what if you buy the property for 50 grand you put in 30 grand to fix it up you got 80 grand into it you go to the bank and you're like hey this is worth 120 can I get a nice loan for a call at 80 or 90 thousand it's the perfect burp the bank says sure we can refinance that if it's worth a hundred twenty they send out the appraiser the appraiser comes back and says yep property's worth 75 and all of a sudden you're like oh shoot I got eighty into it the banks aren't gonna give me 50 now I'm gonna be all this money left in the deal and that is a fear that people have going into BRR and it rightfully sell right if they screw up that value that's a problem so I'm wondering is that a fear should they be afraid of that or should be like how do you overcome that how do you know what a property's worth it at the end and how do you deal with that risk that is that is your biggest like risk that you're taking when you use the is that appraisal which you don't have any control over can come in low right now it can also come in to higher than you thought that happens to me all the time and we never complain about that but we always complain it becomes and less of what we thought here's some ways that you can minimize your risk when it comes to that number one you can make sure that you're getting your comps from a credible source don't just get them from the real estate agent get them from the agent have another agent look at them have your property manager looking at them have another investor look at them let people tell you no this is not a good con man this isn't a much better school district or yeah this house is the same size but it's in this this is actually like a border like that's a different neighborhood this street is what differentiates but even though it's only two blocks away it's in a different neighborhood there's things that that either people don't know or don't want you to know and that's usually when you get the case of a low appraisal is your is the agent provided comps that were different than what the appraiser looked at right another thing that you can do if you're really really worried about this is you can order an appraisal and pay for it yourself there's nothing that prohibits you from doing that now if you're paying cash to the place you don't have to get an appraisal but at the same time it's not like you're not allowed to get one you can pay for an appraisal if you want pay three four maybe five hundred bucks depending where you live and if that comes in at eighty five thousand before you buy the house or before you drop all this money into the rehab you can say whoa whoa whoa we need to stop here and get out of that deal right I don't know why more people don't do that because this question does come up all the time is it's an excuse for why people don't buy but there's no law that says you're not allowed to get an appraisal unless you're getting a loan right and then the other thing you can do is you can actually challenge the appraisal if you think it was unfairly low and there's a lot of people I believe you and I interviewed Andre psyckadeli and she said like two or three different times just at Philadelphia alone she challenged an appraisal and she won and they came back and awarded it much higher now here's a point I want to make even if all that stuff you try still doesn't work why I love her okay let's say that you spend ninety thousand on this house and you think it's gonna be worth 120 to 130 and it comes back 105 okay so you get absolutely hammered I mean that's a pretty big difference like it's a big chunk like your 20% off of what you thought it would be worth right I would call that a huge loss in that case you're gonna get 75% of that 105 which is seventy eight thousand seven hundred and fifty dollars now if we take our ninety thousand and we subtract seventy eight thousand seven hundred and fifty dollars that means we left eleven thousand two hundred and fifty bucks in that deal this is on a huge loss and you've left eleven thousand dollars in a deal okay if that property we're to cash flow 200 a month which is not ridiculous right that's probably around like when I'm averaging on the houses that don't cash flow super great that is twenty four hundred dollars a year if we take that number we divide it by the 11250 we left in the deal that comes out to an ROI of twenty one point three percent okay so the point I'm looking to make here is even if the appraisal comes in super low you screwed up you everything went against you your consolation prize on a bad deal is a twenty-one percent ROI your what yep right so that's why I tell people like BRR investing is like investing with training wheels like it's it's very hard to completely screw it up like you would have had to have an appraisal fifty percent below what it should have been before you're like oh this is terrible right it's much safer you get a much higher ROI and a bad deal than if you had done the same thing if you'd paid for a house and did the traditional method and had the same problem well dude you just left a lot of money in that house this means your ROI goes very very low yeah that's a good explanation of it and I would also say like you know if you are concerned about this like burn vesting might not be perfect for you alone if you are flat broke and you are buried in credit card debt and you couldn't handle a problem like that the same way flipping is not for you and probably rentals aren't for you right if you're like completely broke so like yeah things do go wrong I did a burger couple years ago where I I mean the ARV is there it was worth it but the bank at the end refused to give me seventy percent of what it was worth they said oh we're gonna give you what you have into it where you can document and so like anyway that'd be like an annoying thing right I'll end up leaving like 20 grand of my own money into the deal that was fine I mean I I left 20 grand in there you know I make a thousand bucks a month on that property so making twelve thousand dollars a year on a twenty thousand dollar investment you know that that's okay for me that's like what sixty percent return on my money like it happens right but I still had a twenty grand to do it now that said if you are flat broke doesn't mean you can't do it but you might need to find a partner who has a better financial foundation to be able to handle those kind of things maybe you do the boots-on-the-ground part and there are more of the the risk so again it doesn't mean you can't do things it just means you said yeah just are asking how well and that would only happen to you one time cuz now you've learned right what that Bakke basically said is we will we will lend to you on a loan to cost ratio not loan to value that's what that is right loan to value is we will give you a percentage of the loan that is a percentage of what it's worth at the end like the appraised value but your bank said is we'll let you borrow a percentage of the money you actually spent which would be the cost right which is a ripoff to the investors now the next time you wouldn't do business that Bank correct into a different Bank you'd say hey can you do loan to value what percentage can you do on this right like you knowing you Brandon and I do pretty well you found a deal you jump to until you said hey I'll figure this out as I go cuz that's what you do you're the guy that jumps out of the airplane and puts your parachute together on the way down right and in this case like the parachute open halfway and you hit the ground kind of hard but it didn't kill you right next time you're like well now I'm gonna make my parachute before I jump out of the plane it's a very subtle change it doesn't ruin your entire yep fire investing career but people hear that like oh see that's why I can't invest because what if the bait comes and tells me this way you can solve that question by asking them upfront in fact what I tell people to do is get pre-approved with the bank before you even buy the house yep get pre-approved on a hypothetical basis know your target numbers going into it and then try to beat those and even if it goes bad you're still very close to what you thought you were gonna get so these surprises don't happen yeah there you go and again like so much of real estate success both from flipping wholesaling amber investing comes out of just knowing how to determine that ARV and if you need more help with that guess what there's a website if she just got invented it's called BiggerPockets comm and it's free and you can find out so much information about like figuring that out just go to the search bar and type in how to determine your ARV or listen to a podcast webinar blog posts like forum conversation there's so much information if you're willing to learn it and again mastering ARV is very important in Bern best team to go back to what you said way earlier David the repetition builds mastery the more you do this the better you're gonna be at figuring out what that what that ARV after a pair value is all right so moving on to number the last of the BER the by the rehab the rent refinance what about repeating the process yet talk about that this is probably my favorite section of the book as well as the process in general right so buying his where you're gonna make your money rehabbing is where you're gonna keep your money renting is how you gonna protect your money because you're getting a return on it you're getting rent that covers your expenses refinancing is how you're going to recapture your money and then repeating is how you are going to supercharge this entire thing right you know people ask me all the time like hey can I come be an intern and help you with your investing and while I do appreciate that the reality is my systems have become so tight with buying rental property that I don't even need an intern when when I buy a deal it looks like I get a text from a deal finder which is usually an agent and they say hey here's a house you should buy one two three main street the ARB is 120 I think we can get it for 45 it needs $45,000 in rehab what do you want to do right I will hover my thumb over that text message hit copy and then open up a text thread to my property manager another investor in the area and a lender and then I will hit paste and I will send that address to those people I don't even need to tell them what I want them to do because I've already given them a checklist of all the stuff that I want right so when my property manager gets that text he forwards it to the guy on his team that does his administrative work and that guy has my little checklist of stuff I want he immediately pulls up the address he sees is this in a good part of town where David wants to buy does that ARB look accurate what would the rents be for a house in this neighborhood is this a neighborhood that our company as a property manager company even wants to manage it in right what are there any tax liens on this I was like I have them kind of do a lot of my due diligence for me and I'll usually get back and a thumbs up emoji from them meaning yes this is a house that you should look further into it's a good deal or a down with the reasons why I don't think your air B is that high this is a bad neighborhood those are bad cops whatever the case may be right the other people do the same thing if I get three thumbs up I will go back to the agent and say write up the offer they will write the offer I will sign it undock you sign on my phone which takes me all of four seconds I've gotten an offer in when the agent comes back it's usually hey they countered at this or you're accepted right that's very very fast because their systems that are in place but I'm not cutting any corners just because I'm going fast does not mean I'm being reckless I still have contingencies in this contract to back out of this deal if I don't like what I find if it gets accepted my agent knows she immediately calls my contractor and says when can you go see the house David wants you to walk it and she calls a home inspector and says the same thing to him my home inspector shows up it takes him about two hours to do an inspection okay an hour and a half into it my contractor shows up to do his walkthrough my contractor does 30 minutes of the walkthrough he gets a list of all the stuff he thinks we need to do he then meets up with the home inspector who just finished and he says what did you see that I missed and the home inspector points out well we got a problem with the ductwork up here this outlets not working all the stuff that a home is that a contractor can't see visually right the contractor then works in those significant items into a bid that he gives me that's in an itemized fashion right he knows exactly how I want that bid to look because it takes me all of five minutes to look it over and have all the information that I need to make up my mind on is this until I want to move forward with now if all the numbers line up with the 45,000 that my agent recommended we're good to go we're gonna buy the house right if it turns out that they don't and the rehabs actually gonna be fifty five thousand I look and I see is there anything we don't need on here that he just tacked on there because it would be nice but like this house in this area really doesn't need that nice of something right and if everything is essential and we can't come down maybe I get the contractor to lower the price by two grand and I go back to the seller and say hey I can only I could pay you 8 grand less than what I said the repairs are more than I thought if the seller says yes we got a deal if the seller says no we don't have a deal and I move on but I've invested less than an hour of my own time probably significantly less than that this transaction in fact you know the stuff that takes up almost all of my time is the phone calls with the people where we have to go through all these like subtle oh how are you how's the kids how's everything how's your car doing how's your dog I saw your Instagram post little Jason was so cute right like all that stuff is what takes up all your time yeah that's what happens when you get a system in place is I can be doing that with 20 houses at a time and theoretically that's only taking up 10 to 20 hours of my actual time which is like a quarter to a half of a work week not that much time at all right and when you get these systems down and you do the same thing all the time and the people that are in your sphere know what you expect and you know how they work and they know how to give you the information you want your stress levels come down all the time I mean I have people that come talk to me they're like I'm so stressed I'm analyzing this deal and everything's going wrong and they tell me what it is and I'm like - this is such an easy problem for you - that's just you doing this in a way that's really inefficient and stressing you out and sometimes I wonder if they just like it like the drama makes them feel like they're doing something cooler they're part of something important because the actual analyzation of rental property is probably one of the simplest things you like there's no way you could analyze any other business as easily as we can analyze a rental I could never look at that Subway sandwich restaurant and analyze all the data that goes into their income expenses and profit and loss and everything that's in there nearly as fast as I can with the rental nor could I have somebody else do it for me for free like I can in real estate investing because all those people want to get paid makes perfect sense all right so now we've got this repeating process going we got systems that are set up to help us out you know did we just scale up indefinitely is there is do we shift into larger properties I mean we kind of talked about that later but with where I am right like I'm not buying a ton of properties right now because I don't want to have a portfolio of a bazillion single-family homes right it's not a bad thing but it's definitely not an efficient thing right like once you've got it now there's a little bit of time that goes into managing it and when you've got 1 2 7 8 of them it's not that bad when you get into like 30 40 or 50 houses it starts to be a significant period of your time just you've got 30 or 40 houses where something is gonna go wrong like every month one or two or three of them's gonna have something right so what happens at that point is now I have to pay somebody to manage my portfolio I've planted a lot of trees or seeds they've grown into trees it's become an orchard then I have to hire like a ranch hand I don't it's bright a ranch and whatever you call the person that manages an orchard to go manage my orchard for me right well now that's taking a big cut of my cash flow whereas if you get it into multifamily investing at a certain point which is a pretty easy transition for someone like me because I've got this really big portfolio of single-family homes I can like take the person who's managing it and write them into the expenses of the deal right like they're not an outside expense that's eating into the profit they were literally underwritten into it because they're an on site property manager or something like that so yes you can scale infinitely but you probably wouldn't right I like a single-family bur investing like the thing that connects the novice investor from the experience like grant cardones of the world that are buying huge huge deals these biggest indicators right you can try to start there and for certain people they can make that happen right some guys can go from being in terrible shape to jump it into a CrossFit gym and they could just catch up to everybody and do fine the vast majority of people will not they will pull a muscle they'll break something they'll strain something and they'll never go back to work out again right it's better for them to start walking around the block and then jogging around the block and then lifting a little bit of weights and then doing some exercises in the pool and some swimming and some bike ready and as they get in better shape they slowly start increasing the intensity and the complexity of what they're doing investing this is why I love burr investing right it is not a complex system to try to learn it's very simple it forces you to master single-family investing you build these fundamentals that will be very very beneficial to you when you step into like what I call like the big way category we've got these multi-million dollar assets are moving around but like you said Brandon the Bur strategy came from multifamily investors that are doing this at a huge level some of these are deals that you and I invest in where we're using the bursh Reggie and really big deals I've just applied that system to single-family houses and made it really really efficient so you can scale and if you really love single-family houses and you probably should at a certain point you won't be able to get Fannie Mae Freddie Mac financing once you've got 10 finance properties you won't be eligible well then you look for portfolio lenders and/or if you're me you look for actually commercial lenders so I'll get similar what your friend does I have a line of credit with a bank of half a million I'll take my money or private money I will buy the house and fix it up then I will borrow from that line of credit against the houses picked up and they'll let me borrow 75% of the appraised value the minute I have an appraisal in hand there's no seasoning okay I'd pay back myself or I pay back my private money investor and now I have this line of credit let's say the house appraised at a hundred grand of seventy five thousand against the house when I've used up the full five hundred I'll buy a couple more houses with cash then I will go to a commercial lender and say I've got eight cash flowing properties I want to borrow this much money against them they'll make me get another round of appraisals on everything and then they'll let me borrow 70 or 75% of what they appraise that I've cleared off my line of credit I've got all my money back and I can really start over again right that system is infinitely scalable I can keep going and going and going if I want and just hiring more orchard hands or whatever you want to call them to manage those rentals right and for some people that's what they should do for other people once you've got a base you're gonna take all that equity that you just made in your portfolio which should be worth several millions of dollars and convert that into something like one multifamily property that's super easy to manage that is very very eat like a scalable like you've got like one guy that can do everything as opposed to me where I'm spread out over five or six different markets right and what I would recommend is like that's what I'm gonna do I'm gonna take the song I'm gonna put it into one or two really big multifamily buildings I'm gonna have all of my table wiped clean like now I've got property to property managers that manage my entire portfolio because they're into two properties right and then I just start building it again the same way I did the first time but way faster way more efficient way more simple because now I've got all these systems right and once I've got another 30 35 houses worth a couple million in equity I'll convert it into multifamily again right and I'll be having multifamily 4 K ash flow single-family for equity building equity moving in a cash flow and at a certain point I could refinance these multifamily properties put that back into the single family thing to scale it faster and I've got both sides that are kind of synergistically working with each other and it should be building my wealth for me as opposed to me having to do it like I did as a cop just by the sweat of my brow and the cut of my jaw yeah that's genius actually I realized I've never heard you explain it quite like that before but I really like that a lot so but where I want to go even a little bit more deeper into the bursh as you hear in the next segment of the show to make it just really like drive it home and that isn't the deal deep dive all right let's get to the deal deep dive the part of the show where we dive deep into one particular deal that our guest is done today's guest of course is David Greene so David let's go to the deep dive number one what kind of property is this so this is a property that actually my good friend dear at Clifford bought using the same strategies that I talked about in long distance real estate investing and the Bur method and I'm using his because I don't want people to think that I'm like cooking up my own numbers here talking about my own deal so this was a duplex that he bought in Indiana okay where did you guys find it and you guys kind of work together and so let's say you but I'm you and area so he found this through a wholesaler in Indiana okay and how much was it he paid twenty seven thousand five hundred dollars okay negotiation what went into that so he put it under contract I believe for about thirty four thousand dollars and then after the inspections came back there was some significant problems and because the seller was like pretty motivated to get this thing sold and really just needed the cash he was able to negotiate the price down and there's something to be said for buying houses in this price range where the people who own these assets are usually not that financially savvy and just they'd that quick cash that they really need is more important to them than as much money as they could get all right so what was the final final price then so he ended up being all in after the rehab for sixty four thousand five hundred but it the appraisal came in at eighty thousand dollars mmm okay what about funding 80 K piano what about funding how do you initiate about this with private money and then he refinanced out of that private money with the bank loan okay do you know wasn't like a like a Wells Fargo or like traditional like you know Bank of America was like one of the big banks exactly okay and then of course he burned it so I'm not this what he did with it outcome of the thing ended up well how much do you have invested in at the end then so he had a total of sixty four five hundred into it when he refinance they got 75% of the eighty thousand which means he got to pull out sixty grand so he left forty five hundred in this deal now he was expecting his rehab to be a lot less it was like around thirty thousand he thought so he spent seventy five hundred dollars more on the rehab that he was anticipating because he was a little bit newer as an investor and he didn't have a solid core for he kind of jumped in before he had all those pieces together so even on a deal that he did not feel he did well on he only left forty five hundred dollars in the deal the house rented for almost seven hundred aside it was six ninety five aside for a total of thirteen ninety a month and then after his financing he cash flowed 450 total on this duplex where he left forty five hundred dollars in the deal and that's great yeah well alright that's the deal that went bad that's the point the thing I wanted to point out yeah okay so what lessons learned I mean what from what you know of Derek or anything epaulet there's a lesson I kind of mentioned it with this oh yeah this one quite a bit that's why I know it pretty well and actually put that example in the book because I thought it was so good the first lesson to learn here is that your contractor can make a break a deal in my opinion in real estate investing single families there's two things that go wrong consistently and if you avoid those two things it's like your 8020 rule like you've avoided eighty percent of your problems the ARB can come in lower than you thought and often does and your contractor can screw up your rehab budget or not finish on time or just completely disappear off the face of the earth right so Derek did the thing that almost everybody does and he paid the person as an honest and trustworthy contractor should get paid up front and then the contractor didn't finish the work on time right and then as they open things up they saw that more and more stuff was wrong and at that point you're kind of pot committed at that point like you've left or maybe that's pokers about especially in talking at you and you just there's no rhyme or reason to how you play haha but I just win that's what I do David I what you all I do is win this is all I do is win tim tebow a bigger pockets over there hey what's the strategy I win I win and I win dominantly yeah yeah so he just thought that he didn't have a great contractor right now we're going to do the very same deal in the very same market a second time he'd get a better contractor right this is how repetition builds mastery is we're pointing out all the things that went wrong but it was the first freaking deal like you're supposed to have things go wrong right but if that's the only deal you do for the next two years guess what's gonna happen on the next deal you're gonna make all the same mistakes all over again you go and you but invest that money again you get better contractors you get better deal finders you get better referrals the whole thing starts to pick up steam perfect alright well let's move on to the next segment of the show our fire round it's time alright time for the world-famous fire round of course these questions come direct out of the bigger pockets forums which you can visit a bigger pockets calm slash forum so let's do this number one from Tyler does anyone else see this major flaw in the mystical birth strategy of the day arguably the most important element is the refinance and the appraiser from the lender of your choice is a single event that tells you whether you successfully complete the birth these appraisers are not investors they don't understand the concept of mind just kind of property so while I prepare a nice packet for them with my rehab how I acquired it Bubba blah you're still how are you to get their base he's basically saying you're hoping that they're going to agree with your ARV and you're just living on hope iam is that that's our favorite line right there yeah you definitely don't want to be relying on hope you so the first thing I'd say to make sure that this doesn't happen to you is you have to understand the way appraisers think so Tyler here while he's making a strong effort is actually trying to convince an appraiser to think the way that he thinks right he's saying I proved I prepared a nice packet with my rehab I explained myself and how I got a discounted I told them why I think what's worth what it's worth but really you're better off to look at it from their perspective in fact that's really the case in life right the appraiser is supposed to be as objective as possible and they don't really care what you think you need to look at the comps in the area and say what would an appraiser think right and if your agents giving you Compson or 150 but there's other comps that or sixty or seventy thousand if the sixty or seventy compared close to your house it doesn't matter what you do they're gonna use those and that's gonna drag your value down sometimes you just got to pass up on a deal if you're gonna be relying on an appraisal because the comps are just like two all over the place right your ideal markets like where we see investors do this really really well at a high level our markets like Kansas City Phoenix Arizona to a smaller degree like Las Vegas areas where there's a lot of track homes right it's just like the same thing all the time and all the houses around there have a very small margin for error as far as the appraised value and I see this as a real estate agent all the time when someone comes to me and says David I want to sell my house if I pull comps and there's comps at 900 there's comps at 500,000 that's tough it's very tough to get a buyer to be comfortable paying 800 grand when their neighbor paid 500 right but I'm like man everything is right here in between 600 and 650 that's a very easy way to value what that house is worth so because I know that working as an agent I applied into my investing world and when an agent sends me comps that are 125 and I have a property manager or somebody else look at it and they're like well look at this house this one sold for 60 like oh that's like right down the street and it's pretty much the same thing right I would just avoid buying that deal I don't want to give an appraiser any ammunition to find a way to give me a lower value and then spend my effort trying to change his mind I'd rather put the effort in upfront looking at what he's gonna be looking at and making my decision based on that perfect perfect experience all right next one it's perfect perfect Ryan said hello baby I'm looking for insight on the Bur method with regards to purchasing the property if you don't have enough cash to purchase a property alright can you use other alternatives like a HELOC or a 401k or something like that and then if you did that went I just hurt your debt-to-income ratio when you're trying to cash out refine your thinking the right way I really like this a lot so you can use things like a HELOC or 401k or cash advantage I don't know a lot about the 401k world to be honest with you because I never had one I worked as a cop we have a pension and then all my money I just put in a savings accounts buy real estate with so I know people do it I don't know the rules and how that works you got to talk to one of those experts to find out my understanding though I'm not a lender yet I'm working on that is that it won't hurt your debt-to-income because you're not actually taking on I mean the HELOC might be adding a little bit of debt right like if you borrow $50,000 on a HELOC and the bank says well if you borrow the full 50 thousand you may have to pay 400 bucks a month or something that could affect your debt to income but it really shouldn't be so much that it prevents you from being a loan unless you're already living on like a razor-thin margin and I mean if you're gonna refinance anyway and pay off that HELOC then they won't the lender won't count that anyway right like unless you're gonna hold on to that HELOC after the refi but like reef eyes when they're calculating number is listed the way I did it when I was a lender like a banker like you'd say oh they're paying off that credit card with the refinance okay then we don't have to count that payment cuz it won't be there right like when we pay it off that will no longer question did you guys make him sign a statement saying that they would be repaying it off with the funds yes yeah and we'd actually pay it off now they granted it go and just drive that credit card right yeah of course but or take all that HELOC but they don't like that's not the point the point is like what do you actually have debt and you've paid off so yeah it should each and it shouldn't be a ton of money right it's not like you're going out and buying a Ferrari and now you've just set yourself up for $2,200 a month of debt yeah if it's a keylock you're looking at a couple hundred dollars a month that's exactly that's why we I recommend at least usually he locks prudently yeah it's like the cheapest loan you can ever get us alone you give to yourself based on your own equity its interest only and it's usually at a really low rate yep yeah so it the question was is it possible to BER with a conventional loan it is but it's not efficient and that's why we don't like to do it hey if you can get a conventional loan the house is not in that bad of shape so the odds are you're not getting that good of a deal be you're paying closing costs which would probably like your most expensive cost in this entire thing twice your closing cost once when you buy it and then again when you refinance it which means you might have just taken eight to ten thousand dollars that you have to add in value to that home just to break even from the closing cost so you can do it with a conventional loan in my experience people only do that because it's convenient not because it's smart all right good answer next one I don't think that's the last one cuz it's been a long show Brian from st. George Utah said I've been listening to the pipe guests learn about the bird method it makes sense I get it but I had a clarification question when you refi I'm assuming that is a cash out refinance to be on a cash out refinance my property like is it different or is that pretty much the same and obviously not a lender here but based on your experience David on my experience yes it would be a cash out refinance the biggest restriction is usually the loan-to-value will be a little bit less not a lot but like you may not get a full 80% you may get 75 and your interest rate will be a little bit higher right but these questions are actually incredibly easy to answer if you do what we said earlier and you go a bank ahead of time and you say I want to get pre-approved for a loan here's what they want to do because they immediately hear that and say oh hey this is a cash out refinance or loan-to-value you're not gonna be hit by the surprise if you line your Domino's up before you actually step into the arena all right I like it all right well that was the end of the fire round before we get out of here though today though let's get to today's fame is fun it is time for the famous for these are the same four questions we ask every guest every week let's a throme at you right now David any current favorite real estate books anything you've been consuming lately real estate related wise it's a long break long pause here look at David thinking looking at up into the right it's like he didn't know this was coming I know I think that I've just answered this question so many times I'm trying to think of a new book a lot of the stuff that I'm reading right now is like real estate agent stuff when it comes to sales like that not quite as much investing I still really think that like the millionaire real estate agent is one of the best books that's ever been written and even if I'm not an agent just to understand like the concept of taking models and applying them to a business right I still need to read don't number two a favorite business book so good they can't ignore you by Cal Newport I love that stinkin book I recommend everybody read it did you read it his new one yet digital minimalism no but I've heard you talk about it so much I might not have to it you're like my own personal what is it blankets that kind of leave it yeah I'm like I'm your blanket Brennan blankets Turner be replaced ready number three hobbies I love sports I love learning I have a lot of fun like playing video games I should admit that as a girl I really like to do and then like anything that pushes me and challenges me to be better I'm probably be interested in alright I like that last one what do you believe sets apart successful bur investors from those who give up fail or never get started yeah if you want to be good at burn investing it's really a matter of educating yourself on what you're gonna be doing the more educated you are the lower fear you have and I fear is what stops most people from from moving forward so when you go out there and you take the emotion of fear and you turn it into a question which is fears almost always be something uncertainty I don't know what's gonna happen right the more you get those questions answered so you feel like you do know what's gonna happen something as simple as getting a pre-approval from a bank before you go buy a house like that just to remove so much anxiety right there the more likely you are to be successful so I feel like the successful investors are the ones that take proactive steps to remove the negative emotions that they have as opposed to just waiting to get started for those things that go away on their own all right all right I like that fan stick well David it's the end of this show it's been a good one I got to talk about burr for the entire time yeah I was like six hours of burr investing talking it's great let me ask you again uh well first I'll say where can people find out more about you and then where can they get the book they can find out more about me on instagram i'm david green 24 or facebook pretty much all social media linked in everything I'm always david green 24 and then if you want to get the book i would recommend you go to BiggerPockets comm / burr book that's burr with four R's you get all the bonus content and you really get like you can see the endorsements of the people who liked it there's actually quite a few people in there I respect a lot that really gave me a good review on the book so in my opinion if you want to be a black belt real estate investor you have to understand the burr method if you can get that down you'll understand everything that we talk about at a much deeper level perfect perfect alright then lastly David Green do you want and the show you want take us out even though you're they you're the guest today but I'll let you take it out if you want you know I knew you were gonna do this to me because you just don't like being on the hot seat of having to come up with a clever nickname I know I call you David blink it's green but but but I already called you that right that's kind of I'm not clever at this point alright this is David green for Brandon not clever Turner signing off not clever you're listening to BiggerPockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place be sure to join the millions of others who have benefited from bigger pockets calm your home for real estate investing online

Channel: BiggerPockets

Views: 555,825

Rating: 4.9054894 out of 5

Keywords: biggerpockets, real estate, real estate investing, investing, rentals, rental property, investing in real estate, income property, bigger pockets, passive income, brrrr strategy, brrrr investing, brrrr investing strategy, how to brrrr real estate, buy rehab rent, buy rehab rent refinance repeat, buy rehab rent refinance repeat calculator, buy rehab rent refinance, brrrr method real estate, bp podcast, biggerpockets podcast, brrr, brrrr

Id: FBci62dfqaY

Length: 85min 53sec (5153 seconds)

Published: Thu Apr 25 2019