The BRRRR Method Explained | And What NOT To Do

what's going on guys this is chandler smith and today i'm going to be explaining the burr strategy now i'm going to show you how to go from start to finish on a burr property and i'm going to show you all the big mistakes that you need to avoid when doing your first burst so with all of that being said let's jump into it all right guys i absolutely love the burn method and the reason i love it so much is it gives you the opportunity to use creative financing and end up owning an investment property that's cash flowing and paying you every single month with absolutely none of your own money tied up in that property and so in this video i'm going to show you how to do the burr method and i'm going to show you a bunch of the big mistakes that people make while using this method so you can make sure that you avoid them now if you don't know what burr stands for it stands for buy rehab rent refinance and repeat and so in this video i'm going to go through step by step and just break down each of these now the first step is buy and i know it sounds simple but there's actually a lot that goes into it because when you're buying using the bur strategy you're going to be buying a property in cash now i know a lot of you are saying well chandler what if i don't have cash well that is why the burst strategy is awesome because it's set up so you can use hard money or borrow money from someone and purchase the property because you're going to be pulling all of that money out but when you're borrowing money or even if you're using your own cash it is so essential that you know your numbers you've got to make sure that you are buying this at the right price because if you're not you're not going to be able to pull that money out and if you're using hard money or even your own money and you're planning on being able to pull that out or pay it back you're going to be totally screwed if you didn't buy this property right so you need to make sure that you've bought it right you need to make sure that you have financing locked in properly and i'm going to talk about it later in the video but you want to make sure that you not only have the financing or the hard money that you're using to purchase the property in cash in place but you have your future financing in place and you know that your numbers work you've already communicated with the bank you know when you can reclose and pull that money out because that's going to be a huge step in this process and don't stress out we're going to talk about it later but when you buy a property in this strategy you've got to make sure that you buy it right and that you know all of your numbers and we're going to talk about those as the video goes on so step one buy the property and you're going to be buying it in all cash now again this could be your cash someone else's cash whoever's cash it is just understand you've got to get it back and that's why your numbers have to be perfect now the next step is rehab now here's the deal with rehab lots of people think oh i'll buy a property i'll rehab it it'll probably be 10 or 20 grand that'll be great now you cannot do a rehab this way when you're trying to pull off the burn method and here's the reason why if you are planning on just going in and winging it and hoping that your numbers work out i promise you they will not a burr method property is not one where you can just buy any property and the numbers are going to work so you've got to make sure that you understand your rehab costs now i'm not going to go into that in this video but you've got to make sure you are dead on and that you leave yourself i would say 15 to 20 percent for error because a lot of times it ends up being more expensive than you think so make sure your numbers are on lock so you've got to make sure that your numbers are perfect with the buy and that your numbers are perfect with the rehab so that you're not coming in over budget because if you come in over budget again you're not going to be able to pull that money back out the other thing i want to make note of is when you're borrowing money you can't just borrow enough money to buy the property in cash and not have enough set aside for the rehab and this is just another reason that from the get go you've got to make sure that your purchase price is right that your rehab price is right and that you've got access to all of that money and some extra for error that you might run into so that you don't get stuck in a place where you've borrowed money and you don't have enough money to do the rehab or do the rehab properly or just under bid the rehab and so then you end up going way over budget even if you've got the money you're not going to be able to pull it out so it's so important that you know where your rehab costs are coming in so you've bought it you've rehabbed it now it is time to rent it and here's the deal when you're purchasing an investment property the rents are what determines what you can refinance for now with a single family home there are situations where it's going to go depending on the market and the comparables in your area that's always going to have a slight impact but you need to understand if your rents come in where they need to that's going to help guarantee that the value of your property is going to come in where it needs to to be able to refinance and pull that money back out so it is so crucial that you understand your market and that you know after going in and buying a property for cheap that needs renovations doing those renovations you need to make sure that then you can rent it for what it needs to be rented for not only for the cash flow aspect but also so that you can guarantee you're going to be able to pull the money out that you need to to pay the people back you borrowed that money for or even to pay yourself back so that you've done the bur method properly when you get to that refinance so it is so crucial you know your market and you know that that money you're spending on the purchase and on the rehab is going to get the desired rents that you need so that refinance can go smoothly which segues us perfectly into the next step which is the refinance now here's the deal with the refinance a lot of times your credit union or bank will have specific rules that you need to make sure that you're aware of some of them will make you wait six months from the purchase of the property or even a year so make sure that you go in and sit down with your credit union or your bank and you understand everything that's going to go into that refinance you want to know what the wait period is from your initial purchase to then the refinance whether it's three months six months a year and a lot of times they're on that longer side of things now i have heard that some banks or credit unions will be more flexible and if that's the case you want to find them the other thing you want to make sure you've got on lock is that you've gone in and said hey this is the property these are the renovations have you seen properties like this come in to where i can pull out everything that i need to pull out because the last thing you want to do is get to the end and have them say well here's the deal we can give you a refinance but you can only pull out 50 percent of the value of the property now that's an extreme but i'm telling you a lot of times they're going to be really weird or finicky on this and so you've got to make sure that you've spoken with them beforehand and you know exactly what you're going to be able to pull out if you get rents where they need to be and if you're in an area where comparables match up properly because again the last thing you want to do is get to the end then go to your bank and realize that you're totally screwed so sit down with your banker whether it's at your credit union or a bank and make sure that you're going to be able to refinance properly and do that before you ever purchase the property i'm telling you i know this sounds over the top but it's worth it to have that conversation with them to make sure you're good to go all right now there's a breakdown of the burst strategy but i want to dive into the numbers so you know exactly what you're looking for and how this strategy is advantageous to you because i'm sure a lot of you are saying okay cool strategy but what are the perks of this well here's the deal we're going to use a very simple example these are just made up numbers but it's so that you can understand exactly how the numbers should pan out and why it can be so advantageous to you so we're going to imagine that you purchased a property at 55 000 now is that an absurdly low price that you probably couldn't find anywhere yeah it is but we're going to end it a hundred thousand dollars so it's going to make the math simple for you but again you've purchased a property at 55 000 so we're going to put that right here now you've gone and spent fifteen thousand dollars on renovations this means that you're now seventy thousand dollars into the property in total cash so you're now seventy thousand dollars in the hole in money that you've spent on this property and you're able to get it rented at eleven hundred dollars a month so if things fall into place properly according to the one percent rule we're going to say you've now made this property worth a hundred and ten thousand dollars so now that the property's worth a hundred and ten thousand dollars you go into the bank to get refinanced now the bank says here's the deal we can give you a refinance on this property but we're only going to give you back 70 of whatever the value of the property is now you're good to go because you've got rents at 1100 you are set and you're in a great place so the appraiser comes back and says hey rock on it's worth a hundred and ten thousand dollars the bank goes awesome rock on it's worth a hundred and ten thousand dollars because we can now give you a loan and let you take out seventy percent and just leave thirty percent in that means you now get to take 77 000 out of the property well guess what you only had 70 000 into the property this now gives you the ability to pay back your interest and have a little extra in cash out or to go into closing costs but if the burn method is done properly this gives you the ability to pay back all of the money whether it's to you or to whoever you borrowed it from and you now own an investment property with absolutely none of your own money locked up in this property now i'm sure some of you are saying well chandler what do you mean the bank kept 30 percent down on the property they did but remember you only spent 70 000 on this property they now value it at 110 000 so the 30 that they kept that was just value you added to the property that was appreciation you forced so you essentially forced equity on this property that you didn't have to pay in cash or borrow from anyone's cash so when it comes to your own cash you had in the deal all of that is back plus even a little extra if you did things properly now this is the bur method executed perfectly however there are other ways to do this that aren't necessarily perfect a good example of this would be finding a property buying it in cash doing renovations and getting it up to only a hundred thousand dollars now at this point you had seventy thousand dollars in it plus interest maybe you still lose a couple thousand dollars of your own money at the end of the day but here's the deal you still own an investment property for almost no money so whatever variation you use of the bur method as long as you're in a situation where you get all of your money back or at least a majority of your money back even if you've got some of your money still locked up in the property as long as you're cash flowing and getting the return that you need to be getting then you're set and this method can be absolutely incredible because you can own a property that's now going to be appreciating that's going to be cash flowing you're going to be getting principal pay down and tax benefits when you have no or just a little bit of money locked up in that property now i'm sure there are some of you saying chandler this sounds incredible i can own a property with hardly any money down or no money down sign me up i want to get a burr property right now well here is the deal there are a couple huge mistakes that new and even experienced investors make when it comes to the bur method that can burn them bad and so i want to talk about those because if you don't use this method properly you can end up in a real crappy situation okay the first thing that i see investors do where they really get screwed over on properties like this is they don't buy right so they buy it wrong they add fifteen thousand dollars into it they're unable to increase the value to where it's worth enough to be able to pull their money out so now they've invested in a property they've gone through the work of renovations and they own a property that's getting a worse return than a turnkey property would have and they still have money locked up in it that they weren't expecting to have locked up in it now if you're using your own cash this is fine because now you own an investment property with a crappy return it is what it is where it really sucks is if you're in a situation where you borrowed hard money because now you can't refinance to get out the money that you borrowed so you're in a situation where you own a property you're still over here paying like 10 to 12 interest on whatever money you haven't been able to pay back and that absolutely sucks that'll eat up all of your cash flow and potentially put you in the negative for a long time if you've bought it improperly the other thing i see investors do where they really get burned is they go through the whole process and then they're not even able to refinance at all they didn't make sure that their credit was in the right place or they were pre-approved or that this property was going to be able to get financed because maybe there's some weird situation with the property and if you get into a situation like that now you're paying the 10 percent interest on the hard money you borrowed on a property you can't get any of that money back and this could really put someone under because a 10 interest rate is killer especially if you borrowed all that money to begin with because you didn't have the cash on your own now if you've got cash and you want to go blow money on a burr property and just see what happens you can do that because it's your cash you're going to be fine you're just going to get an absolutely terrible return on that money but that's one thing that's safe about using your own cash is then if you do run into issues refinancing or pulling the money out worst case scenario is you're just stuck with a property that doesn't have great cash flow now i know that's still a crappy situation but it's a heck of a lot better than owing someone seventy thousand dollars on a ten percent interest rate when you don't have that money so when using the bur method there are a couple things you've got to make sure you do perfectly you've got to make sure that you buy correctly now if you don't know how to run the numbers on an investment property to know what buying correctly is you can click the link right here i'll show you how to run the numbers on an investment property next thing you've got to do is make sure your financing is locked in and you know what your time frame is so you don't get burned and make sure that at the end of the day you know they're going to be able to finance you make sure you're pre-approved and you talk to them about the property before you close on it the first time with cash finally make sure you understand your markets that you know with the renovations you're going to do you can get the property up to where it needs to be to guarantee the value of the property will be where it needs to be so that you can refinance now if you do all of these things you make sure you buy right you make sure renovations don't come in over where they need to be you make sure that your refinance is good to go and that you understand everything in between then you are 100 right if you're thinking that the burr method could be an incredible opportunity for you now if you guys enjoyed the video please make sure you push the like button and subscribe to the channel and hit the little bell because my goal is to help you to build a huge passive income thanks so much guys have a great day [Music] you

Channel: Chandler David Smith

Views: 75,321

Keywords: real estate investing, biggerpockets, grant cardone, real estate for beginners, brrrr, brrrr method, brrrr method explained, brrrr investing, brrrr strategy but better, brrrr strategy hard money, brrrr strategy step by step, how to do the brrrr method, brrrr real estate investing, bigger pockets, how to brrrr real estate, rental property investing, real estate strategy, cash out refinance, brrrr strategy biggerpockets, brrrr strategy, passive income, real estate investing 2020

Id: JW1sKiUIBt4

Length: 15min 42sec (942 seconds)

Published: Mon Jul 27 2020