Ever wonder how an investor can acquire or purchase so many rental properties in a short amount of time?
By using the BRRRR Method and Hard Money in combination an investor is able to:
- Buy a property,
- Rehab the property,
- Rent the property to a tenant,
- Refinance the loan, and
- Repeat the process.
After a short seasoning period the investor can go to a local bank or mortgage broker to refinance the rental property in order to payoff the hard money loan and reimburse themselves for any out of pocket money if they purchased the rental at a great deal.
In this video Bryan Schroeder will explain how the process works while doing a walk-through of the property. During the walk-through he explains what he would rehab and what just needs to be cleaned up.
Here is a full transcript:
“Hey guys, Brian Schroeder here doing a little video for FasterFunds Lending, a hard money lender here in the St. Louis area. We’re at a house right now over in Florissant.
It’s on a nice Street. It’s a nice quiet street here for whatever reason all these houses on this street are split level. So this is like split-level street here in Florissant.
Lots of big trees when you’re in Florissant, you got to look at the trees because there’s a lot of big trees and in general trees can be a bit of a maintenance headache.
I don’t know. This tree’s big. I don’t know if I’ll get rid of it or just trim it up. I’d probably just trim it up.
You can see the split-level, three bedrooms, one bath up and then basement has sort of some finish, but I would probably make it into like a rec room and a bedroom downstairs. So, legitimately, you can be a four-bedroom, one-bath house.
Probably rent for $1,200 – $1,250 somewhere in that range. And anyway, it’s a nice house.
So we’re going to talk just briefly about the BRRRR method here because of a lot of investors that are trying to build up a portfolio of single-family rentals.
They don’t have enough money to put 20% down on every house and if they did they could only buy maybe one or two houses a year where they maybe want to grow faster. So the way to do that is what we call the BRRRR method.
So the BRRRR method is buy the house at a discount. You can buy this house at a discount. And the reason you can buy it as a discount is you can put some value into the spruce up. It needs some work inside and we’ll show you that here in a minute.
So buy it at a discount, rehab it, gets it up into ready condition then rent it which I like I said, I think we could rent this one for about $1,250. Refinance it so when you buy another discount on the front end, you can use a hard money lender like FasterFunds Lending and when you’re rehabbing it you can use the hard money lender if you got a little savings to just temporarily use, but you can definitely borrow the rehab money from FasterFunding, so long as you bought it, right?
You gotta buy it at a good discount. So buy it at a discount, use special funds, rehab it using FasterFunds if you want to rent it out go to the bank and refinance it. If you bought it right there going to refinance it based on the appraised value because it’s a refinance at that time.
It’s not a purchase. So they’re going to decide how much they will lend you based on what the appraisal will come in at this house. I think it would appraise around $110,000. So they’re going to lend you somewher,e depending on the bank and the circumstances, around 75% to 80% of that appraised value.
So that puts you in, I don’t know. Is that like somewhere in there $90,000 area that you can get, so you got to buy it at a discount enough or you can buy it and spruce it up and still be into it around $90,000.
So when you go to the bank to refinance it, you can get your money back and do it again or if you’re a little over that maybe just get most of your money back instead of putting 20% down in the rehab put money out of pocket.
So hard money lending is great because the hard money lender doesn’t care that it’s not in good shape, you know that it needs work and we understand that it’s a short-term bridge loan to get you to the point where you can refinance it get your money back and do it again.
The repeat is do it again.
So we’re going to go around back and show you around back but out front, I think that’s it. All right. We’re out in the backyard over here at this house over in Florissant.
Trees can be a long term maintenance issue. So you have to decide whether to trim them up or remove them.
Got a little deck out back. The deck needs a little sprucing up. Probably the way that railing is the Florissant inspectors are not going to allow it as you can see how it could just climb up those railings. I don’t think that would fly so you probably have to redo that deck a little.
Big yard is kind of a nice little fence backyard. It’s you know, I think most tenants would love this yard. And I don’t know if you can tell but there’s a school right back there and then we’re right at the back of the common area or their playground. Which in general I think that’s a good thing.
You know, young families good chance going to rent this have kids that can walk to school. And you know on the weekends and stuff they can probably play in that little playground area. Sometimes if they’re like right in your backyard it can be noisy, but I don’t think that’s really an issue here I think it’s a positive.
So we are walking back to go inside and shoot a video the inside and… Inside the basement you can tell that there’s been some water damage. It’s drywall down there so you can’t see the walls, but you can see the water damage on the drywall.
And we’re looking at this driveway area here. It’s sloping back towards the house. You can see at one point it was probably up this high and it’s kind of drop down and therefore the water is sloping towards the house and it looks like it’s getting in the basement here.
So it’s definitely something to be concerned about. I think the proper way to fix this is to bust this whole thing out and repour it, so the water is pushing away from the running away from the house.
You might be able to temporarily fix it by, you know, putting some tar and sealing that good really good and maybe pushing the water to the backyard because it does slope away well, but the proper way to fix this is to replace this section of the concrete here, I think.
Cause you want a dry basement and there’s a couple of little hairline cracks here to that aren’t helping either.
So and in the basement, there’s a little rec room dear that you’d want to use. It’s a great little room. So you got to fix this make sure the basements dry.
All right guys were standing in the living room of this split-level house over in Florissant. You can see it’s got hardwood floors through most of the house because I had love in a rental because it’s very low maintenance.
Also needs to be painted.
Needs new light fixtures.
Come on come around this way. There’s a nice little dining area here and then this kitchen which has this funky thing, I would get rid of this all together just to open up the kitchen nice.
It really needs a brand-new kitchen in here because that’s just an ugly. But if you get rid of this, put in a new kitchen, open this area up a little bit. This can be a really nice kitchen-dining-living area. And very low maintenance to like I said with the love hardwood floors in a rental.
Coming down the hallway here…
We got three bedrooms and one full bath. The bathroom would probably spruce this up probably a new vanity. The toilet might be fine, but there’s a soft spot over next to the toilet.
You can see it when we’re in the basement also I don’t know if you can see that but it’s a soft spot there see some of the tiles crack and stuff.
That could be just from the people shower and not keeping the shower curtain closed. Or it could be something worse if there’s a plumbing leak or something that we’re not aware. Definitely need to pull out this floor put in new plywood and underlayment and make it a nice secure floor bathtub.
With the bathtub there’s some funkiness going on here. I would probably just replace it.
But you could if you wanted to keep it on the low-end, download as first cost goes you could probably spray all this tile and redo this plastic parts, but I probably just redo it.
There are the wood trim and doors. Generally in a rental like this. I would just paint all the walls either a gray or beige color whatever you’re happy with. And paint all the doors and trim white.
It is what I would do, but there’s three really nice bedrooms in here. Check out how big this bedroom is. Nice-sized bedroom good closet space new windows in this house.
So anyway, that’s In general, I like a split-level for a rental it provides a lot of space at an affordable value and in general, I haven’t had any trouble renting split-levels.
I’ve had several split-levels over the years and they’ve always random pretty well in for a pretty good rent. So good cash flow of them, generally.
All right. So back down the hallway.
We’re going to go down the stairs to the lower level front door here and go down the stairs to the lower level here. Alright, so use the lower level we got right when you come down the stairs.
They kind of got this sort of a half-finished area. They put drywall up and like we talked about on the outside. There’s a little bit of dampness down here in the basement. So you got to get that fixed.
But once you get that fixed, you got nice drywall here and I would put something I don’t know probably like a Pergo type floor or something like that down on the floor and paint all these ceilings. Just paint a black and put up like the can-light thing. So it feels like it’s a finished area.
I would probably throw up a wall right here. Make this a bedroom since you got a egress window. That way you got a rec room and a bedroom down here.
And you got three bedrooms and bath upstairs. So you got a four-bedroom house, which a lot of people really love. There’s not that many for better rentals out there.
And then over here is just your laundry area. Got to clean this out and stuff.
But this is kind of funny, I don’t know if you can see this on the video, but this is a cast iron stack the somebody put black tape on to fix it.
So that is not an approved method to fix a plumbing stack. Need a new plumbing stack here.
All right. Oh, yeah, and then you can see up here where it was leaking in the bathroom upstairs. So got a little plumbing issues and stuff to deal with.
Here is the furnace, you know, it’s not new but it’s I would you know, what a rental or just do a clean and check on it. Make sure it’s working properly. It’s probably fine.
Hot water heaters obviously old, you know, people have different opinions on this. If it were mine, I would just see if it’s working. As long as it’s working, leave it. But you just got to know that sometime in the not too distant future you’re going to have to do a new water heater here.
Electric boxes back here in the corner, which you know, it’s got a main disconnect. It looks like it was it’s even got the inspection sticker on it. So it was all done properly. So I think you’re fine there.
Then you got this little storage room over here. Which honestly you could if you wanted to make another bedroom or another rec room down here. I don’t know. I probably just leave it the way it is and call it storage. But it’s definitely potential for an additional room down here.
So let’s some this place up guys. Got a nice four bedroom rental over in Florissant worth about a $110,000. Maybe a $115,000. Would rent for about $1,200 to $1,250 per month.
I think you get $1,250 on this.
So using the BRRRR method. You can buy it at a discount which this house is available at a discount. Buy it. And FasterFunds Lending would lend you the money to purchase.
This is a hard money loan, short-term, six-month note, which should give you plenty of time to get this house bought, fixed up, get it rented and go to a bank and refinance. Get most of your money back and do it again.
So for houses like this keep FasterFunds Lending, hard money lender, here in the St. Louis area. Arielle and Suzanne will help you out. So give them a call.
Call (636) 223-4262 to find out how FasterFunds Lending can help you with your next rental purchase.