The BRRRR Strategy makes a lot of sense…but with such a repetitive acronym, keeping the strategy’s steps in order is the tricky part. The basic steps are buy a house at a discount, rehab the property, rent it out, refinance it, and repeat. When it comes to finding a renter, is it as easy as just putting a tenant in the property?
Today our trusty loan officer, Dustin, returns to answer some common questions about the third step in the BRRRR process, which is renting.
Once the property has gone through all the channels of rehabbing, the inspections are done, and it is time to rent it out, what are some good things to keep in mind? Dustin has the answers!
Self-Showing a Rental Property
When you rent your property, you don’t want it to suck all your time. A major time saver is to show the property yourself. There are systems out there for self-showing. This has saved us a ton of time once we started. Self-showing is where you get a digital lock box through a different company, and we can share those companies–ShowMojo is one, Tenant Turner another—and you put the digital lock box on the property. This makes it so that you do not have to be present to show the property to prospective renters, and it eases the process of scheduling walk throughs. If a person is interested in seeing the property, they would contact you first. They have to submit their driver’s license to get the code. That code only works for them during their window to show. So it saves you a bunch of time with those no-shows.
This leads us to think about renter reliability.
Qualifying Tenants for Rental
Our second thing to keep in mind when going through the Rental stage of the BRRRR Strategy is finding quality tenants. This is a huge one! To make this step work, you have to make sure that you’re qualifying these tenants. That means you’re going to do a credit check on them, you’re going to need to do a background check, you’re going to need to see their paycheck stubs, and I would ask for references from their landlord they have now, plus the one before that. If they’re not a great tenant, maybe the landlord now just wants to get rid of them, so you want to talk to the people before that. And ask questions!
Another qualifying step we recommend doing is a home visit. Once they are approved and you want to move them in, go to the property they live in now. Do a visit. Because how they are keeping that property is how they are going to keep yours. Also, social media tells you a lot about people. Always go and check out profiles and sweep for red flags that would result in a bad fit at the property. Once you have gone through some of these steps, you are ready to move them in, which leads us to our next thing to remember.
Have a Move-in Process in Place When Renting
Something that can ensure the new rental goes smoothly is to make sure that you have a process in place when you’re moving in these tenants. Once a renter is in place, walk the property with the tenant and show them some certain things that will help them be both at home in the property, and in a good position to care for it. For example, show them the water shut off. If there’s a water leak in the house, you don’t want them to call you and then before you can get over there, the water is just spewing out everywhere. I would also encourage you to get professional pictures of the space before the tenant moves in, in order to document the condition prior to move in. That way, if they move out and there’s a hole in the wall, you can say “Hey, well there wasn’t a hole in the wall when you moved in” and deal with it fairly from there. You should also have them sign a form so that if they do see damage, that gets documented.
This is kindof a big synopsis of the Rent section of the BRRRR process. Our things to remember today are that self-showing will save you a ton of time, qualifying tenant will save you a ton of headaches, and don’t forget a procedure for the move in process. So that is the Rental aspect of the BRRRR strategy. And we’ll see you next time!
Video Transcript
What’s going on world? It’s Dustin here with FasterFunds Lending and we are going to go over the second step of the BRRRR process. So, to recap: what is the BRRRR process? It is: buy a property at a discount, rehab that property, rent that property, refi that property and then repeat over and over and over and over again. So, second step is the rehab portion, which scares a lot of people. Which, I can understand that, especially if you’re not a handy person or you’ve never rehabbed a property before. So what we’re going to do is, again, we’re going to rehab. We want to remember the three C’s when we’re in the rehab portion. We’re going to go over those three C’s real quick: they are Comps, Contractors, and Contingencies. First of all, let’s talk about comps, because we know our formula of 75 percent of ARV minus repairs is what our max allowable offer is. So we have to know what the comparables are out there to make sure that we’re going to hit the value we want to hit on that property, if that makes sense. So while we’re looking at comps, we have to make sure that we are rehabbing our property to the specificity of the comps out there. For example: if all the other companies in the neighborhood have granite counter tops in their kitchen, we should probably put granite counter tops in our kitchen, because again, we want that appraisal to come back as high as it possibly can. So we have to make sure what the comps are to see what our value is going to be. Number two is contractors. Contractors can be a…it can make or break a project honestly. So we have to make sure that we’ve got these contractors. When you’re searching for these contractors, ask for referrals from other real estate investors. We talked about going to real estate investment associations, clubs–hey, a lot of contractors will be there. Talk to them. “Hey, are you guys used to working with investors or do you guys use more of the retail side of things?” The investors, er, the contractors that you send for an investment property versus the resale property are probably different because investor friendly contractors, they work on volume, right? So the prices might be a little lower because they can do so so much, right? Hope that makes sense. So, vet your contractors. I would also want you to go to Menard’s, Home Depot, vet your contractors. I would also want you to go to Menard’s, Home Depot, contractor desk or a pro desk. Say, “Hey, who’s the contractor that I can talk to, because I need this done?” who’s the contractor that I can talk to, because I need this done?” Also a great time to meet contractors? Between six and seven in the morning at those hardware stores, because they are loading up for the neighborhood and about to go start work. A lot of times they have their name on their truck, they can get their business cards, whatever it is. But again, ask for referrals and vet these contractors. Number three: stuff happens, right? It’s not gonna be IF stuff happens, it’s going to be WHEN stuff happens, when you’re rehabbing a property. Make sure you have a contingency budget. I recommend: I have 10 percent of my budget is staying for contingencies to make sure when those things happen, and unforeseen things happen, we are protected and our numbers still work. So, to recap: make sure that it is comped correctly and make sure that you’re rehabbing to comps specifics. Make sure we’re vetting our contractors and make sure we’re talking to a lot of them. And make sure we have money in our contingency plan. Guys, this is the second part of the BRRRR process. We’ll see you next time. when it gets to the rent part. We’ll talk to you soon!