Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple

by David Greene

buying a property is really nothing more than buying a small business that produces income, it becomes very apparent the only income an investment property will generate is the rent.

Every single thing I do to market a home, every decision I make, is geared toward drawing multiple offers.

Buying near a hospital is one of the single most critically important things you can do to ensure you always have a steady stream of reliable, well employed, professional tenants willing to rent your property.

Traveling employees taking part-time positions in hospitals who know they will be leaving in a matter of months or years aren’t very likely to buy a property to live in when they know they’ll be leaving the area soon. So what are they going to do when it comes to looking for somewhere to live? They are going to rent. Where is the first place they are going to look? As close to the hospital as they can get!

properties near the best schools tend to appreciate the most. This leads to higher-priced homes attracting wealthier families, which oftentimes leads to more well-behaved children attending those schools, increasing the school scores even more. This “virtual cycle” can ensure property values don’t drop as much during a recession and will increase more during a good economy.

Below are some of the open-ended questions I use to start off a conversation with a PM. What got you started in the business? What do you find to be the most challenging part of this business, and why? What do you find to be the most rewarding part of the business, and why? What are some attributes of your favorite clients? How do you handle difficult clients? Which type of properties do you like to manage, and why? Which areas in town are you familiar with and manage? What are your plans for the future? What do you do for fun? If you were immediately gifted with five insanely talented employees, what are the parts of the job you would never want to give away because you enjoy it so much, and why?

My story would go something like this: “Well, I’m a police officer who started working lots of overtime and using the money to buy rentals. Because it took so much time and effort to save the money to buy these properties, I obviously value them very highly. They are representative of hours and hours, years really, of lost sleep, damaged relationships, and unhealthy living. I gave it all up to get the money to buy them, so the way they perform is really important to me! “Now I’m looking to buy one to two properties a month. If you do a good job with the properties I give you, I see no reason why I couldn’t bring them all to you. What’s most important to me is you are brutally honest. Anyone can manage a property halfway decently and collect rent. I need more than that. I need advice on which markets to invest in, which parts of town to stay away from, what kind of rehab work I should be doing, and who the best agents, lenders, and rehabbers to work with are. “In the future, I plan on buying three to five properties a month. I’d like to own 75 to 100 units in the next ten years, and I’d prefer to use the same property manager for all of them. What’s important to me is that my PM is handling all the issues I can’t, and making sure my portfolio is profitable enough for it to make sense for me to keep buying. I need repair costs to be low and for rents to be raised every year consistent with the market average.”

One big topic I want to make sure I cover with the property manager is who they will send to do work when something goes wrong. Most PMs have a system in place for sending someone to do work when a tenant requests it, but many of them don’t verify that the work is actually the landlord’s responsibility. It

To cover this problem, I’ll request the PM create a system of notifying me or my representative when a tenant makes a claim. I ask for a picture of the damage to be provided, as well as a description of how the tenant believed it happened and how they discovered it. After this, I ask the PM to send me an email with their recommendation on who should pay for it, and why. If the PM recommends I pay for it, I ask them what in the lease or in landlord case law justifies this opinion. Most PMs know if they can’t provide this, it’s better not to even ask me. In those cases, they tell the tenant they should pay for it before the request even makes it to me.

Many lenders are trained to quote you one specific closing cost—say, for example, the origination fee. Don’t get fooled by this. Ask for a “net sheet,” or a list of all the closing costs you’ll be paying, and compare these costs between lenders. Many investors will haggle over $1,000 on the purchase price but pay $2,500 more for one lender than they would for the next. Don’t be that person—ask for this information up front.

When reaching out to find the lender you want to pre-approve you, make sure you ask right away if they lend against the value or the cost. If they tell you they lend against the cost, they had better have a really high percentage (like 95 percent!). In essence, they are telling you there is a zero percent chance you will be able to pull out more than you’ve invested, or even all that you’ve invested. For this reason, I avoid banks that will only let me borrow LTC.

This is why so many investors claim long-term buy and hold is the best way to make money in real estate investing. You make money in so many ways! You make money from the cash flow your property produces. This is taxed but it’s not taxed at the same level of your normal income (like a flip would be) as there are natural tax shelters in real estate investing (depreciation, for one). You make money from the rent increasing every year and your cash flow increasing as well. You make money from the loan being paid down every month. This is essentially your tenants paying your house off for you. You make money from your property increasing in value over time (inflation will do most of the heavy lifting for you). You make money from increasing your property’s value through a rehab (forced appreciation). You make money from buying right (paying less for a property than what it’s worth through targeting distressed sellers).