New investor, in contract for house hack, advise on brrr

[Micah Louden]

Hey bigger pockets members, my name is Micah and I am new to bigger pockets, I am in contract to purchase a duplex to house hack and save on expenses, what would be the best way to start the brrrr approach, I make about $50-60k at my day job and I am going back to school and will make around 80k when I am finished in about a year, I am only 19, those of you that have brrrred how did you go about saving money for your first project, should I just save in a savings account or are there better ways? I also have considered maxing out my 401k at work for a couple years and using a “loan” from that to help with the brrrr since it is tax free, let me know what you think and any ideas that would help me, thank you so much! glad to be here! also I could purchase a run down brrrr home here for about 40-60k if this helps.

[Andrew Postell]

@Micah Louden congrats on buying your first home!  That's a big step in the right direction for sure.  It sounds wierd but only about 25% of Americans own a home at all.  And only about 4% own two homes! It becomes rarified air very quickly when you are in real estate.

Now, the question about cash is ALL of our questions.  Cash will always be your biggest limitation to growth.  So let me share some basic things first and then we can dive into what you will need.

First, the BRRRR method is designed to help LOWER the cash needed to purchase a home. An "average" investor - one that doesn't know what the BRRRR method is might have to put 15% - 25% down payment on an investment property. That's a lot of money. But the BRRRR method could have 0% down payment if you purchase it right. Now learning how to do the BRRRR method is very hard. But to me having $60,000 for a down payment was IMPOSSIBLE - so I had no choice but to start with the BRRRR method.  Over time I have gotten better and better at it.

Secondly, you can't just BRRRR any property you come across. You have to target very specific properties. Usually these properties are off market properties that are in a state of disrepair. Usually. So if you come across one, and the numbers don't quite fit - you should be offering a LOWER amount on the property. It's not your fault that someone is asking too much for a property. You need to make an offer anyway. There have been plenty of properties where I was the only person offering because the price scared everyone else off of the property. Make an offer! Can you buy a BRRRR property with nothing out of pocket? It's hard to do but yes you can. The right expectation is that you will likely need SOME amount out of pocket though. You'll need to know how to calculate the numbers when you are doing this method.

BRRRR SKILLS NEEDED

Generally speaking you will need several things to successfully complete a BRRRR:

1. ARV - being able to calculate the Value on your own (meaning, without the wholesaler telling you the value) is really important.
2. Repairs - You will likely need to know how to budget the repairs as well. Getting a contractor can be extremely frustrating especially if you need to make an offer without even looking at the property. How do you calculate repairs without a contractor? You may need to lean on other local real estate investors in the beginning. Or maybe even just focus on properties with a very light rehab?
3. Lenders - You will need a lender on your BUY step and on your REFINANCE step. And I would HIGHLY recommend to read this article I wrote for Bigger Pockets on how to find good lenders that you can find HERE. If they are good, they should be absolutely definitive on rate, terms, costs, etc. Trust me, many lenders will tell you they can do this...but it's very rare to find. When I first started BRRRR'ing my properties lenders would tell me "That's illegal"....it's not, they just didn't know anything about it.
4. Finding Properties - and this is the absolute hardest step of anything right now. So network like crazy and find some good resources. It's going to be hard...but if it were easy then anyone could do it.

Hope all of that makes sense.  Thanks!