To quickly understand the quickest steps to build a rental property portfolio much faster, you will need to make good use of some strategies. These strategies use leverage levels and there are few numbers of leverages you can use to make this work effectively. I will like to go straight to the point on this post as this topic is one of the most searched for in real estate investing business. And if you will want to test out the free software that can help you put these steps in practice, grab your Rehab Valuator Lite Free here.
Leverage Level One Involves Buying and Renting
This stage involves buying and renting. Let’s say for example you took out 20k in cash and buy a 100k asset and rent it out. In overtime, your tenants will pay off your mortgage and you can recycle the same capital again. But how long are you willing to scale? For example how long can you wait to save up the 20% you can use to buy another deal?
Leverage Level Two Involves You Using Percentage of Your Disposable Income
This level of thinking is an upgrade to the first one above. Here, instead of waiting to save up 20%. you can go and find equity investors to put up that same 20% as a percentage of your disposable income. Then take out a bank loan and buy the deal together. Which frantically sound good and less complicated.
The good news here is you now have partners you can grow your portfolio faster with.
The not so very good news is that you now sharing cashflows and profits with other people. Which is basically managing other peoples money. Although a lot of multi-family real estate investment portfolio are built this way so its a good approach.
Leverage Level Three Involves Forced Value and Money Velocity
This leverage level uses the concepts of:
- Forced appreciation – which is massively improving the asset either through improvement or in the renovation. This approach enables you to create value in a non-moving market as every improvement or renovation means asset value appreciation.
- And Velocity of money – This concept simply measures how fast your money works for you. The faster you can turn a fixed amount of money from one deal to another, the more deal you will do. And according to Daniil, “Velocity of money and, moving your money from one deal to the next the key to the BRRRR strategy”.
This leverage level uses these two concepts to completely do without the equity partners and get into the deal with zero down payment. The final result is an income producing portfolio where your partner or you have any cash of whatsoever tied up.
Building A Rental Property Portfolio Much Faster
You can rapidly build a large real estate portfolio by using the buy, rehab, rent, refinance and repeat method. This strategy was pioneered by Danill Kleyman of True Vision Analytics, who is one of the best, if not the best real estate expert of all time I ever come across I happened to attend one of his online training and the above strategy simply blew my mind.
Today, I am happy to share my own take and also hope that you can put this method to use as soon as possible.
If you are into the following market category and has been struggling:
- property ownership,
- buying and selling,
- Commercial property buying and selling
- Commercial building for purpose of refinancing or selling
- House flipping for profit
- Landlord or homeowner
- New construction
- And residential and commercial developments
Then this article will definitely benefit you the most and you can come back and thank me later.
From what I noticed, the strategy works with property owners meaning if you own the property. Then sell and buy more. Commercial property buying and selling will benefit from this as well too if your overall objective is to increase your portfolio. Same goes to house flippers and homeowners who want to increase their real estate portfolio.
One great thing about this strategy is that it works in a flat market and it works in a volatile market as well. The juice behind it is that you only use one fund and then recycle that fund over and over and over until you reached the expected or intend portfolio limit or your target. Just like the Richa Dad Poor Dad investing principles has been stipulated but the question of if it still holds or not remember unanswered. Now let’s look at what these strategies really are, and how you can use them.
What Is Buy, Rehab, Rent, Refinance and Repeat Strategy?
The strategy according to Daniil is called BRRRR which stands for:
- Buying of property which is the initial stage of every homeowner of intending property real estate investors.
- Rehab means rehabilitating the property toward selling or renting it for profit.
- Rent. which means renting out for returns on capital investment.
- Refinance. Which means recycling the finance used on the initial purchases to buy another property as a result of good returns.
- Repeat. This simply means repeat the process.
Benefits of BRRRR Strategy
- First, it is the most powerful money building strategies you will ever encounter in real estate building and investment industry.
- The strategy takes advantage of the concept of “velocity of money” to help you roll over the same cash deal after deal.
- It enables you to rapidly build your portfolio using private money or a limited amount of cash.
- It works in a market that is not appreciating
- The strategy allows you to build a portfolio with little or zero money on your own tied up, yet with at least a 20% equity position as against debt that will protect you in a down market.
How Does BRRRR Strategy Work?
First and the most important rule here is to make sure you don’t get stuck on the first deal before jumping over to the next deal. Yes! I myself I was confused at first when he explained in detail, my jaws dropped, figuratively.
Because these deals when done properly are maths intensive and according to Daniil, the best way to not get your numbers stuck it to make sure your numbers work before buying the next deal.
For the sake of not wasting your time, let me jump right into how this strategy works
Step 1: Buying A Property
This is the first and most important step into the strategy. This shows that you are ready to build your portfolio and you are committed to making it work
You can use a various source to get funding and this include:
- Your own cash if you have savings
- Private Lender. Only just make sure they refinance your rehabs as well.
- Bank loan if you know how to prepare a convincing presentation.
- A line of credit from members of the family, friend/s, partners, private lenders or even seller financing.
- To learn more about how to find private money and how to structure private deals that will get lenders begging to invest with you, watch this video.
Step 2: Rehab
Once you have secured financing and bought your first house, you will need to rehab it. Always bear in mind to keep the property with the market tune as you will be renting it out and don’t overdo it.
Aspire to create more the highest property appreciation through bigger rehabs. To achieve this, you have to do this:
- When you go reappraisal, make sure to indicate to the bank that you have just made major renovations and improvement on the property.
- Improvements like broken boiler replaced, electricals, HVAC, plumbing, etc, should be mention. These will help increase the property appreciation rapidly.
Make sure you do all your rehab work now so you don’t have any maintenance call for the next 5yrs.
Step 3: Rent The Property
This step requires that you start showing the property to potential tenants before the renovation and improvement finished. You will proceed to step four quicker if you already have a lease in and a tenant to move in soon as renovation is complete.
Step 4: Refinancing The Property
This is a very crucial step in building your portfolio much faster. As much as the lease is in place and the rehab is complete, go to your local community bank for refinancing talks. This is because, your local community banks are often mandated by regulation, to give you a loan to local businesses. And they are going to lend you based on the percentage of the new market value of the property not based on your cost.
Step 5: Repeat
In this final step, you are going to repeat the whole process with the net result of step 4. This means you have paid off your short-term financing and you now have a cash flow asset that brings in money every month with zero cash tied up of your own. With the positive cash flow coming and a 20% equity on paper, your balance sheet looks and you can take to your local bank again for another loan.
These five steps; buy, rehab, rent, refinance and repeat are the steps that comprise BRRRR strategy you can apply from today to change and improve commercial real estate investment portfolio for better. This is how you can rapidly build a large real estate portfolio. Again according to Daniil, there are a couple of very crucial points to note so as to maximize this strategy.
- You can find such deals like that in almost any market.
- Investment Vs appraisal is what matters the most.
- This strategy can work on a 50k deal, 100k, deal or even 500k deal.
- Make sure you use short-term financing and a reliable refinancing.
- You can also use private lenders for refinancing but make sure they have a steady flow of money or a steady job that provides income.
- Always make sure that you can get a refinancing before you buy the deal. To avoid getting stuck.
- Avoid buying in an area you will have difficulties renting it out. Without a rent lease, you won’t be able to get refinancing from your local bank.
- The tradeoff to be watchful of is to avoid spending too much on the renovation. As this could slow down your “velocity of money”.
- Always read the small prints on the loan, get a Lawyer to go over it just to make sure there no sudden foreclosure clause buried within.
- Know your numbers first before you even go into any deal
This is how to rapidly build a large real estate portfolio using buy, rehab, rent, refinance and repeat the strategy. The most important point again is to know your numbers before you go into any deal. And your ability to get short-term finance and a take-out financing. Which is getting a funding upon the net profit of your first deal. You can use Rehab Valuator free software to calculate and master your numbers within a few minutes. And you can read more about Rehab Valuator software in the thorough review that explained how it works and how to find properties to quickly build a rental property portfolio with ease.