How to start Real Estate Investing using the brrrr method

Question

I have a job right now making about 2000$ a week. I just started this job and I’m 20 years old. I want to start investing on the east side of Houston around Baytown area using the brrrr method I think. Which ever strategy makes the most money the fastest. How do I start... I want to get a house that needs some work around 50k 70k. How much would I need to save and what are some good tips

Jeff Wallace · Answer

You are making an incredible income for a 20 year old!  That's the good news.... the hard part is going to be not acting like an A$$ho!e and spending the bulk of that cash.... You should live in a bedroom in someone's house (think mom and dad) and SAVE and INVEST 75% of that salary for the next five years. stay the course and you will easily be retired by 30.  As fo how to BRRRR - that's easy save aggressively until you can pay cash for the purchase and renovation of those cheap Baytown houses (it won't take as long as you think if you focus) and after the rehab is complete and the tenant is in place, refinance all your cash back out for the next property....then do it all over again.

Mike Van Groningen · Answer

I'm new to the Bigger Pockets community but have experience (albeit, not much) in real estate. You are making a fantastic income for your age...most 20 year old's would consume all or most of that income instead of thinking about investing, so I'm impressed with your maturity to consider real estate investing.

As a bit of encouragement, I entered the workforce at 22 years old making $1,100/wk in June 2009 (just had my 11 year work anniversary yesterday). I lived with my folks for 6 months and saved the bare minimum (3.5% down) on a 30 year FHA loan. I closed on my first house Thanksgiving 2009, just after the real estate bust. The house was 3BR/2BA in an A+ area in Fresno, CA and cost $265k. My mortgage w/ taxes & insurance was around $1,800/mo. I ended up renting the other two rooms for $450/mo each. My excess cash flow went toward paying off my student loans ($12k) and then toward some basic upgrades (paint, finishing the garage, etc.). The house was only two years old when I bought it and needed zero work.

I kept that house as a rental after purchasing a new primary residence in September 2015. I sold the first house for $360k in March 2018, which landed me with a big chunk of money to completely renovate my new house. Thanks to a friend of mine (@Tyler Caglia), I am now using this equity via a HELOC to purchase rental properties utilizing the BRRRR method.

I wish I would have started learning about real estate investing at your age and leveraged myself more. You are getting an earlier start, have a higher income, and have just as much opportunity. Good luck!

Moises R Cosme · Answer

Why do you want to do the BRRR method?  What is your plan?  How will you buy the property?  How will you finance it?  I realize that you are looking for an answer, I am posing these questions in order to figure out how to best answer the question.

Moises R Cosme · Answer

Tyler,

I think this will be helpful; its my answer to another forum post:

If you had to start all over again, what would be your strategy?  I would have bought a 3 or 4 family with an FHA loan and used the left over money from my down payment to do a small flip; I then would have kept the money from that flip rolling into as many flips as I could do within 2 years. After 2 years I would move out of the 3 or 4 fam and purchase another multi family (you qualify as a first time home buyer for mortgage purposes every two years) and done the same thing as above. After another two years I would have bought my house to live in, by this time I would have at least 5 rental units and would have financed my down payment for my primary residence through the flips. I would borrow as much of the money as possible every single time in order to get maximum tax benefit out of interest payments.

Would you start with a turnkey property?

Begrudgingly, I would be willing to start with a turnkey property as described in my answer to question 1.  I am generally opposed to paying full price for a property, but if I had to do it all over again I would use my money much more efficiently by getting a low money down loan & using rental income to pay down my mortgage and subsidize me.  All money is to some extent binary.

Would you start with a BRRRR or Flix and Flip strategy?

I would stay away from BRRR until I had some experience with lenders; check out the forums, there are posts on a daily basis from people that tried BRRR but do not know how to refi out. Check my answer on number one for the balance of this question.

Would you start with Wholesale?

Only if I didn't have enough money to put the 3.5% down to get the first multi family. I actually did not have any money at the very beginning, so I became an Agent to generate income - I became a successful Agent and used the earnings to do my first deal.

Market area:Would you try staying local for your 1st deal or go OOS?

Local.  Stay local until you understand how markets function generally.  General knowledge is underrated, most people give weight to excessive expertise... I think general knowledge helps you filter; by filtering you can make better decisions.  Having a general knowledge of how properties are rated helps you stay away from a 4 family on your first rehab; 4 family properties are generally considered commercial properties & have altogether stricter and more expensive standards.  I have seen lots of inexperienced investors jump into deals that look good on paper, but if they had working knowledge of markets they would have stayed away from the deal in the first place.  An business acquaintance is suffering through this right now and the consequences of the decision are going to be significant.

Jon Kelly · Answer

@Tyler Williams 1. Have cash or access to cash from others (people/lenders) 2. Find properties that meet your criteria, 3. Make offers.

Sounds like you make a strong income, so continue working and saving for your first purchase and you'll be well on your way!

Jeff Wallace · Answer

@Tyler Williams to take complete advantage of the brrrr in your target area, I would save $75,000-$100,000- paying cash for the properties will open doors to buying options that aren’t available when using loans - I have a client who bought a foreclosure two months ago in Baytown for $31,000 - it had to be a cash sale - after rehab, he has about $50,000 in equity - THAT is how multi-millionaires are made! But.... without the cash available, he wouldn’t have been able to make the purchase

Tyler Williams · Answer

@Jeff Wallace I like to save my money. I’ve saved 5k just this month. I’m super excited about how fast I’m gaining capital. How much should I plan on saving up before I do get my first property

Tyler Williams · Answer

@Moises R Cosme my ultimate goal is to retire in my 30’s and eventually get into multifamily apartment complexes. 30+ units or so, rv resort, storage units, and etc. I’ve been working for about a month now and I already have 5k saved so in a year that makes 60k if I continue doing the same thing.

Mark Sewell · Answer

Give me a call.  We can run some scenarios.

Basically you need (a) buy it right and (b) have some reserves.  I'll help you calculate that.

You will might hit a snag on the REFI part, since you are new in this role and brokers/lenders are tight on verification of income requirements.  There are some non-QM loans out there, however, but the rate is a little higher.

Caleb Brown · Answer

1) Finance, will you be using cash or hard money/private financing for the buy? If you have zero saved up then that's the first step. You can always partner with someone but what would YOU bring to the deal?

2) Rehab, are you going to hire it out or do it yourself? Again this is crucial. Hard money lenders usually want written out bids for the work even if you are doing some or most of it yourself.

3) Numbers, all in ideally you want to be at 65%-75%. So if you bought a home for 50K and you put 25K into it then ARV would need to be 100K+ to make sense.

If it was me I'd house hack. Save up 3.5% for a down payment an d get an FHA loan. Learn as you house hack and save money. Then in 6-12 months you can try to BRRR. Don't get impatient, you are 20 so you have plenty of time.

How to start Real Estate Investing using the brrrr method

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