The last step of the BRRRR method of real estate investing, is to repeat. In order to repeat the process, you will have to successfully refinance your first property in order to pull out funds to invest in growing your portfolio.A simplified example of BRRRR financing is below:Property purchase price: $200,000Down payment: $50,000Loan: $150,000Cost to rehab property: $40,000Total investment (down payment and rehab costs): $90,000Monthly rental income: $2,400After-repair value within 12 months: $320,000Refinance loan for 75% of the appraised value: $240,000Pay off initial loan of $150,000Cash leftover: $90,000 ($240,000 - $150,000)The cash leftover is the same amount as your initial investment, which enables you to go out into the market to find a similar property to repeat the process, while continuing to maintain your existing property with a steady monthly rental income.
How often you use the BRRRR method depends on a number of factors, including the speed at which you can rehab a property, the terms of financing, and your ability to consistently rent your existing property. Many investors have found great success in using this method, and some as often as multiple times in a year. The amount that you will apply this method to your own portfolio also depends on your own financial goals, risk appetite, and wealth building strategy. Some, for example, rely on real estate investing as their primary source of retirement income. Run the numbers and find the right scenario for your short and long-term goals.
Even real estate investors who hire a local property management company may still need to remain involved in the oversight of their investments. For example, investors may be asked to authorize certain improvements or repairs and to regularly review monthly and year-end financial statements, such as the income statement and net cash flow report.
Notwithstanding the associated responsibilities, a good investment property can provide the perfect trifecta of recurring rental income, long-term appreciation in property value, and tax benefits related to mortgage interest, operating expenses, and depreciation.
A good place to begin looking for a rental property loan or refinance is the Stessa Mortgage Center. Simply answer a few questions online, and the platform will generate competitive mortgage quotes specifically designed for investment property purchases and refinances.
Return on investment (ROI) is a financial metric that real estate investors use to help determine how potentially profitable an investment property might be. To calculate the ROI of a property, an investor needs to:
Once you've closed on your rental property acquisition, it's time to focus on tenant relations and other important operational aspects. Two key areas that require immediate attention include tracking income and expenses and sorting out property management.
With Stessa, investors can easily maximize rental property profits through smart money management, automated income and expense tracking, and personalized recommendations for maximizing revenue based on unique portfolio and investment strategies.
This information is believed to be accurate. It has been provided by sources other than the Realtors Assoc. of Maui and should not be relied upon without independent verification. You should conduct your own investigation and consult with appropriate professionals to determine the accuracy of the information provided and to answer any questions concerning the property and structures located thereon. Featured properties may or may not be listed by the office/agent presenting this brochure. Copyright, 1995-2015, REALTORS Association of Maui, Inc. All Rights Reserved.
For those of you who've read Rich Dad Poor Dad, I have a question. Author Robert Kiyosaki advises to own assets, not liabilities. He says that buying your own house is a liability, since cash leaves your pocket each month for the mortgage. Further, you're locking up your capital (down payment) which you could've invested used to buy an asset. His advice is that you should first acquire all the assets possible, and then when ready, you can buy your first primary residence house, using the money that came from your assets.I fully agree with him on this, except I'm wondering if this applies to expensive/high-appreciating markets, such as LA or SF.
Assets add to your income. Liabilities add to your expenses. And the job of a poor person pays you an income that then covers your expenses. The job of a middle-class person pays you an income then pays down liabilities then pays expenses. However, for a rich person, their assets pay them an income. For example, their assets may give them rental income, dividends, interest, or royalties.
In one example, Robert Kiyosaki paid $45,000 on the house worth $65,000 that the owner was struggling to sell. The first year he rented it out to a local professor. And after expenses, he nets $40 a month. However, a year later, when the market picked back up, he sold it for $95,000. Since he had used the money to buy a bigger property, a 12-unit apartment, he was able to defer the payment of capital gains. He spent $300,000 on the apartment. And only two short years later sold it for $495,000 and bought a 30-unit apartment building with a cash flow of $5,000 a month. A few years later, he sold it for $1.2 million.
Having 2 homes may also mean having 2 mortgages, which can potentially create a financial burden. Before buying a second home, experts suggest paying off high interest debt, creating a livable financial budget, and setting aside enough cash as a rainy day fund for personal emergencies. Speaking with a financial planner or property manager may be two good ways to understand the costs of keeping the first home as a rental.
This simple spreadsheet by Roofstock provides an easy way to view the potential financial performance of a given property. You can use it to forecast the potential return of a property. Simply enter some information to view projected key return on investment (ROI) metrics, including cash flow, cash-on-cash return, net operating income, and cap rate.
Managing a rental property takes a lot of knowledge and work, which is why many investors hire a property manager. Local property managers make it easier to enjoy the benefits of renting the first home without the traditional hassles of being a landlord.
In fact, property has long been the alternative investment of choice for many investors -thanks to the fact that it provides an excellent hedge against inflation, and offers the valuable long-term rewards of equity growth and appreciation. With rental property investments, there's the added benefit of immediate cash flow in the form of rental income each month. Not to mention, income property provides the opportunity for some decent tax breaks as well.
But for many first-time investors -getting started with real estate investments can be tricky. Not only is it overwhelming; navigating the ins and outs of real estate investing, it can also be difficult to secure traditional financing -especially when it comes to the 20 percent -or higher, down payment that banks often require for investment property.
If you're finding it difficult to meet the bank's strict lending standards -don't feel discouraged. The good news is that there are options available that can make it easier for you to get your foot on the property ladder. Familiarizing yourself with the myriad of different financing methods that are available for first-time investors will give you a considerable advantage -and help you to find a financing option that will work for you -one that will give you the best returns possible.
If you're interested in making your first real estate investment -but not sure where to begin, here are some tips that will help you to get started. Read on to see how you can secure a favorable loan, discover different financing options that are available to you as a first-time investor, and find out how you can choose a property that will provide you with a good rate of return.
Any lender is going to require proof of your financial situation -and will ask you to prepare some important documents. Be prepared to produce at least two months of banks statements -and if you're self-employed, you'll need to obtain a certified letter from your CPA that proves two years of self-employment. You'll also need statements for your investment and retirement accounts, at least two recent pay stubs, your driver's license, Social Security card; as well as any bankruptcy, divorce, or separation papers, if applicable.
As we touched on above, one of the most feasible ways to begin your foray into real estate investing -is by purchasing your first property as a primary residence, and living in it as an owner occupant.
Banks generally require a much lower down payment for an owner-occupant loan than they do for investor loans -think 5 percent down or even 3.5 percent if you qualify for an FHA loan, rather than the typical 20 percent, or higher-down payment that's usually required for an investment property. In most cases, as an owner-occupant, you will be able to qualify for a lower interest rate as well.
Just keep in mind that you'll want to check the rules surrounding owner-occupied property. Most banks will require you to reside in the home for a specific period of time, usually one year, before you will be able to sell it, or rent it out as an income property. Once the year is up, though, you'll be free to find another property -and will be able to purchase it as an owner-occupant, while keeping the first house as a rental, or selling it.
If you already own your own home -and have equity, you may want to consider tapping into the equity and using it to finance your investment. A home equity line of credit, or HELOC, is relatively easy to get, and will save you from the hassle of having to finance the investment property itself. In many cases, you'll be able to borrow up to 80-90 percent of the home's total equity. 59ce067264