BiggerPockets Real Estate Podcast - Sneak Peek: Excerpt from “Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple”

Episode Date: April 26, 2019

In this special half-episode, David reads from Chapter 2 of the brand-new book he’s written on the BRRRR strategy. This particular passage goes to the heart of what makes BRRRR work: buying great deals. So how do you pull that off? In this chapter, David reveals: what he looks for when targeting properties, how to practice analyzing deals so you won’t be afraid to pull the trigger, and how to find team members and align their incentives with yours. Order “Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple” today at www.BiggerPockets.com/BRRRRbook. Physical copy, eBook, or audio version (read by a professional narrator) are all available. Or you can also get EVERY format if you order the Ultimate Package. That includes the exclusive eBook, “Long-Distance BRRR,” a bonus video on how to interview and hire a great contractor, and access to a live Q&A webinar with David. In the meantime, enjoy this bonus episode! Learn more about your ad choices. Visit megaphone.fm/adchoices

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for your free proposal and find out how much you could save this tax season. This is the Bigger Pockets podcast show 327 and a half. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. What is going on, everyone? My name is Brandon, host of the Bigger Pockets podcast,

and you're about to hear a different type of show, actually a show with my co-host, Mr. David Green. Because yesterday here on the Bigger Pockets podcast, we talked for like a good hour about the Burr strategy, which stands for buy, rehab, rent, refinance, repeat. One of my favorite, if not my favorite strategy in all of real estate, how I built my entire portfolio. You heard about it yesterday.

If you didn't listen to that, go listen to that show. It was incredible. David Green just tells us everything you would ever want to know about Burr investing. Because we launched yesterday the Burr book. It's called the official title, Buy Rehab Rent, Refinance, Repeat, the Burr rental property investment strategy made simple. And so today, this half episode, we'll call it a half episode, we've got kind of a special treat.

It's actually just David is reading an excerpt, excerpt from the book. I never know how to say that. right here. And we're going to listen to that. So by the way, if you get the audio book, if you end up actually getting the audiobook from Audible or whatever, just don't be thrown off. There's a professional narrator actually recording that one. But today, we actually got David the man to record this episode. So anyway, and speaking of which, if you liked today's or yesterday's show or today's snippet of the book, you can actually pick up the Burr book by just going to BiggerPockets.com slash Burr book. That's Burr with 4R's.

Burr book. The ultimate package comes with every format of the book and a ton of bonus content. I'd highly recommend that. So you get the audio, digital, physical, and a back rub from David. It's amazing. So you get an exclusive also like a 20-page, not really a background. You get an exclusive 20-page e-book from David on long-distance burying. You get a burr PowerPoint presentation that you can use to show private lenders a deal

and access to a live Q&A webinar with David. So check it out. The ultimate package is like $49. It's totally worth it. Without further ado, though, let's get to today's show, which is just David Green, the man, reading part of chapter two of the new book about how to buy properties under market value. Hope y'all enjoy it. Finding property deals and analyzing them. As I mentioned before, the most important step in the entire investment cycle is finding a great deal.

There is no substitute for it, and if you learned how to do just this one thing well, you'd probably do great with, investing. Finding great deals is party number one if you want to burst successfully. Before you can find a great deal, you need to be able to recognize one. Every investor needs to know what they're looking for, and only then can you know where to find it. I highly recommend writing down your criteria and sharing them with other investors. I know my own criteria very well and share them with everyone I know. My criteria are simple and logical. I look for three things in a deal. Number one, to be all in for 75% of the ARV. Number two, to cash flow positively.

Number three, to be in an area that won't cause me a headache. Now, these criteria might seem oversimplified, but take a deeper look and you'll see why they work so well for me. If you want to be all in at 75% of ARV, there needs to be a significant amount of equity in a deal before I'll even look at it. This weeds out marginal deals and prevents me from talking myself into a medial, broker deal just so I can say I bought something. It protects me from making bad decisions and ensures I have a built-in safety net in case something goes wrong with the rehab or the ARV. If I need my

property to cash flow properly, I won't be spending much time looking at anything that isn't in a 1% rural area. This saves me time and energy. Number three, if I'm avoiding headache areas, I'll also be avoiding a lot of long-term bad investments. Investing is more fun when you're not calling. constantly frustrated with evictions, destroyed properties, and late rents. I also end up buying in areas that appreciate faster than the surrounding neighborhoods so I can refinance several times over the period of time I own the property and reinvest the money I pull out. Because I know what I'm looking for, I also end up knowing where to find ideal properties. I spend very little time analyzing the vast majority of properties that other investors waste their time looking into.

The more I know what my target looks like, the quicker I realize it, when I see it. You should do the same. Knowing what you're looking for in a deal comes first, but you still have to be able to analyze a deal in order to know if it makes sense to buy. In my experience, the number one factor that prevents investors from building wealth is the fear of what could go wrong. The more fear someone has, the less likely they are to take the steps required to move forward. We can't learn if we aren't moving forward. If you want to overcome fear, get good at analyzing deals. As Brandon Turner, the bestselling author of the book on rental property investing and the Bigger Pockets podcast co-host says, overcome fear with math. Math won't lie to you. It's not subjective.

Math won't confuse you or leave you feeling disillusioned. What Brandon is really saying is this. If you're feeling afraid of the deal, get better at understanding what the deal is with concrete numbers and the fear will disappear. Understand how to analyze a deal will take so much of the fear and uncertainty out of the decision. When I talked to would-be investors about what holds them back, almost every one of them tells me the same thing. A laundry list of fears or concerns they have about what could go wrong. When I ask these same people what they have done, learned, or studied about how to handle

those problems, they almost never have an answer. The solution is simple. Learn to analyze properties, and you'll find yourself feeling much better about the decision to be made regarding whether or not you should buy. The best way to get good at analyzing deals is through practice. Repetition and practice, build mastery. When you first start to analyze properties, there are two things you should focus on. Not coincidentally, there are the same top two things I consider in my own criteria.

The first is how much you're buying a property for under its value, how good the deal is. The second is if the property will cash flow positively or not. To know how far below value you are buying a property for it, you need to understand a few things. The first is comps. Learn how to find comps and compare them to the property you're evaluating. Other people like agents, appraisers, and wholesalers can help you with this. You can also do some of this research yourself using listing portals like zillow.com or realtor.com. The next thing to understand is rehab costs. Learning how to estimate rehab costs is really beneficial.

Talking to contractors, handymen, and other investors is a great way to build. up your confidence in this area and know if you're overpaying. You want to see the projects from their eyes. If you're using the Burr method, you're very likely to be doing significant rehabs. Learning how to estimate rehab costs is a skill that will come in handy. The last thing to learn is being able to determine whether or not a property will cash flow. My favorite method is what I call the napkin method. You're basically taking the five different inputs involved in just about every purchase and quickly calculating them by writing them down on a piece of paper or a napkin. The five inputs in deals are, number one, rent, number two, mortgage payment, number three, property tax, number four, insurance, and number five, property management fees.

We'll talk more later in the book about how to calculate these numbers more accurately. For now, I would recommend creating a baseline in your mind for an average amount of each one. When you look at enough homes in a specific area, you start to get a basic idea of what they cost to own. This basic idea becomes the baseline you will use to help recognize a deal that stands out. For instance, if you're looking at houses between $100,000 and $120,000 in an area, and you look at enough of them, you'll start to recognize patterns in the numbers behind them. Rents may average $1,000 to $1,200 a month. Mortgage amounts may be around $450 to $5.50. Taxes may be about $100 to $125.

Insurance costs may run about $40 to $50. and property management fees at 8% would be about $80 to $96. If you use all conservative numbers in these estimates, you could come up with a baseline to add up either in your head on a calculator or on a piece of paper, or a napkin, of course. If you continually do this often enough, you'll start to find patterns in the way the numbers read. Once you recognize these patterns, a good deal will stand out immediately.

That is what you're looking for. The only way you get to this point is by repeated, analyzing deals over and over and over. Those who can make the fastest decisions are those who have the most experience. Just like new quarterbacks struggle in the NFL because they don't have much experiences reading defenses yet, new investors will struggle because they haven't analyzed enough deals. Commit yourself to analyzing several properties a day, five days a week. Do it until you feel you know the result before you even run the numbers.

Once you get to that point, you'll find your confidence skyrockets and your fear of the unknown decreases significantly. We want to commit to mastering real estate. You can't claim to be a master of something until you can anticipate what is likely to happen before it does. In this specific circumstance, you want to be able to anticipate which deals will pencil out and which won't before you make the time to analyze them thoroughly. Still don't believe you'll ever be able to do this well. Compare it to other everyday chores you do without even thinking about it. As you walk through the grocery store, you recognize a good deal when one of your staple food purchases is on sale. The reason is simple. When you're used to looking at something over and over, your mind remembers what falls within the pattern of normalcy for that item.

When a sale occurs that is outside the normal pricing, it immediately catches your attention. Real estate isn't any different. Maybe you just haven't been looking at it as much because it feels more intimidating. Rockstars, no rock stars. Finding talent to help you find deals. Once you know what you're looking for and how to recognize if it's what you want, the next step is to find people to help. help you do it. A person alone can only do so much, but by leveraging others whose goals align with yours, you'll find that your success will start to come much, much faster. Rockstars help you accomplish as much as you can in a short amount of time as possible, compared to painstakingly going at it alone. Rockstar is a synonym in the world of real estate for someone who is really, really

skilled at their job. There are many musicians in the world, but there are very few rock stars. If other people can help you succeed fast, a rock star can help you succeed at ludicrous speed. They are the cream of the crop, masters of their profession, and are equipped with life-changing talent, and often have already endured years in the crucible of real estate investing. Having just one rock star in your corner can make you immensely successful. One of the core principles of your business practice will be to find, attract, and work with as many rock stars as possible. When I look to buy in a new area, my first priority is to find my core four. The core four are the four people I need to invest in any market anytime. These are the people who will be running my business for me, making me money, and helping me

become successful, all while returning the favor. They are my dream team. Even if you're looking to invest where you live, you'll still need a core four. The following examples of what it looks like to have a rock star at each position. Number one, the agent. Rockstar agents have the best referrals because they only work with top lenders, contractors, handi men, and property managers. These agents are never hurting for business. Don't lower their commission and no real estate like the back of their hand. Rockstar agents got to where they are because they know how to close deals. They found the right people who can fix problems when they arise and they have very low tolerance for people who don't.

Rockstar agents are usually very resourceful, knowledgeable, and creative. These are all the traits you want working for you when it comes to building your wealth. finding a rockstar agent should be your first priority because they can help you find the rest of your core four. You'll recognize a rockstar agent because they aren't bending over backwards to win you over. They are professional, courteous, and helpful, but they have a confidence in their process that won't take a second place to a newer investor. Rockstar agents want to educate you on the process, but also get right to the point. If you want to work with an adept agent, you'll need to be comfortable following the process they have in place. It's there because after hundreds of deals, they've learned the best ways to secure them.

Number two, your lender. A rock star lender is the one who doesn't throw in the towel easily. They have access to the most loan programs, and when a loan doesn't work, they know how to go find one that will. Rockstar lenders know how to help you repair your credit, how to find ways to manipulate data to get you better rates and terms, and can solve problems when they arise. They are tenacious, resilient, and they hustle. Finding a stellar lender can open up refinancing doors for you that a regular lender cannot. Rockstar lenders become that way because great agents brought them clients. They understand customer service and they need to go the extra mile.

A rock star lender won't say no without proposing an alternative solution. When you find the right lender, ask them about the best agent they know when it comes to finding investment property or other lenders they know that do the kinds of deals you need. They can't do the kind of deal you need. a great lender will know someone who does. The best way to find a great lender is to ask top producing real estate agents who they recommend. If the agent you're speaking to works with a lot of investors, they are more likely to know lenders who will do loans for investors.

Tell your agent you want to buy properties with them, but you need financing. Then ask who they know. If they don't know of anyone, ask them who they can talk to who does. If your agent simply won't make an effort to find you a lender, look for another agent who will. When you do find a rock star lender, they often have too much business to handle on their own and have hired team members or employees to help them keep up with the demand. For many of those inexperienced in real estate, this can feel uncomfortable or off-putting. Try to remember it's a good sign if your lender is doing so much business they need help. At the end of the day, this is a business transaction.

And if you don't always speak to the main lender on every phone call, that's okay as long as the transaction closes. Number three, the contractor. Rockstar contractors may not look like what you think at first. They may not answer your calls right away or be the best communicators. That's not what makes a great contractor, at least not for an investor. An ideal contractor for an investor is someone who understand what needs to be done, how to do it, and how to save you money on it. They are the contractor who understands your business goals, not just their own.

These are people who can tell you with the best plan of action for your property is before you even look into it. Rockstar contractors get the job done inexpensively and correctly. These are the people who know when they can save you money with tile they found on sale or can make repairs to existing structural components when an average contractor would go make you buy new materials. These contractors are always looking for ways to make themselves money by saving you money. They understand your needs. Great contractors can communicate with the city for you to get permits approved and can provide you with recommendations at other contractors wouldn't think of. Great contractors know the best roofers, HVAC services,

plumbers, electricians, and more. They are concerned about your bottom line, but they are also concerned about their own. Knowing a rock star contractor can open up doors for you to buy deals that you couldn't even consider without them. And number four, your property manager. A first-rate property manager is someone who knows the areas you're investing in. They manage many rental properties in the area you're investing, and they have a large sample size of properties they've learned from. These people know which areas work and which do not, and they will share that information with you if you let them. Rockstar managers likely own properties themselves, and that's why they get into property management. They have access to the best handymen or repair

crews because they've been looking for them for their own properties. They can be an excellent source of referrals for you, and they can also oftentimes be an underutilized deal source. These property managers know other investors who want to sell before anyone else does. They are the ones managing those properties. Top-rated property managers tend to take care of your problems without getting you involved and are better at handling them

than you would be yourself. They are more experienced than you, more connected than you, and more knowledgeable than you. When you find the right property manager, they will teach you more about investing than you could hope to teach yourself, and they make you better

just from being around them. You know you have found a rock star property manager when your first inclination is to call them when a new deal comes your way. Rock stars play with rock stars. When you're a rock star and you know you're an actual rock star, you don't waste your time playing with mediocre bandmates. The best will always surround themselves with top talent and demand everyone put in equivalent effort. They search for the best drummers, the best vocalists, best guitar players, everything.

In my experience, top level talent only works with loyal and honest clients. If you aren't someone who's serious, they're going to figure that out pretty quickly. If you aren't someone who's honest or fair, they'll know that too. If that happens, you'll likely find yourself kicked out of the concert and listening from the parking lot while everyone else rocks out. In the world of real estate investing, that can end up costing you a lot of money. Don't let that happen. If we already know rock stars play with rock stars, start working on becoming one yourself. Everyone asks me, how do I get the best to work with me?

But the answer is simple. Become someone worthy of working with them. Agents are in this business for the same reason you are, to make money. So we're lenders, contractors, property managers, and everyone else. Too many investors think it's okay for them to make money, but expect everyone else to serve their needs for free. This kind of thinking will never get you anywhere but frustrated. Top talent expects to be paid for their work and they aren't shy to admit that.

If you are too worried about what someone else is making, you're not focused enough on the role you're supposed to be playing in your business. If you want the best to work with you, start acting like you're the best. Learn to give value first. Learn to find what these rock stars need in their business or their life and bring that to them. Take the attitude of the servant first, putting your fears behind you and instead focusing on proving to them why it's in their best interest to help you. I know this sounds counterintuitive, but it's the best thing I've done to help grow my own

business. Now, if you're reading this section and think it's bad advice, my guess is you probably trusted the wrong person in the past and got burned for it. Don't make the mistake of trying to prove yourself to mediocre or a low average talent. That is the fastest way to get taken advantage of. Bad agents, contractors, lenders, and property managers will screw you over if you let them. Rockstars won't. Practical advice for proving your value to top level talent. If you're looking for some easy ideas for how to bring value to the core four you want to surround yourself with, here are a few that worked for me. What I found is

before I could learn what others need, I had to first learn how their job worked. Once I figured that out, it became apparent how I could help each person. Trying to bring value, you to someone before you recognize their business model is an exercise in futility. But taking some time to walk in someone else's shoes will help you find the best way to assist them. Agents. Agents live by referrals. If you can send an agent business, you will be making them money. And that is going to lead them to be very loyal to you and make them very happy. An easy way to send referrals is by talking to your friends about real estate and sending the serious buyers to the agents. Start an online blog, meet up,

discussion group or chat room and send interested buyers to the agents you want to make a good impression on. This will help people remember to send you deals as well as score you points with agents. Remember to only send serious buyers to the agents. Sending them, quote, referrals who have no intention to buy but instead only want a free education is a great way to prove you bring work without pay, not the reputation you want. Communicate openly with your agent. Tell them exactly what you'd like them to do. and share your thoughts. Agents want to help you, but they can only do so if you know what kind of help you want.

Take it from me as an agent. This one is big. Give them great reviews online. Giving your agent a great review on Facebook, Zillow, Yelp, or Google can earn you some major brownie points. Call your agent's boss and tell them how great they are. Find out who supervises them and give them a great review. Ask them what they need in their business and help them find it. If they work with a lot of investors, they may very well need a solid handyman to fix dry rot or a great roofer who doesn't overcharge.

If you can give them a referral they need, you're likely to get to the top of their list when the next great deal comes along. Give them bonuses. Yes, I know to an investor this idea seems painful, but think about it. I often buy houses for $40,000 that are completely trashed. How much is my agent making on that? Giving them a bonus to at least help them make a decent amount of money is a great. way to stay in their good graces. Lenders. Lenders also want referrals. Send your friends their way. Online reviews. This works for lenders too. Let their boss know you appreciate their

hard work. Introduce lenders to websites like biggerpockets.com. Many lenders don't realize there are entire communities of people out there who are looking for an investment property and need a lender. Check in with them once you've introduced them to bigger pockets and see if they've gotten any clients. It never hurts to remind someone what you you've done for them. Give them great references to rock star agents. This is how lenders get their deals. If you do this, they'll love you for it. Give them a shout out on social media. Let everyone know how great they are by tagging them in a nice post and make sure they see it too. Contractors. Pay them on time. Seriously, just do it. You have no idea how much this means to a contractor.

Pay them in a way that isn't a pain in the butt for them. I've found wire transfer to be the easy. Don't ask them to work for free. If you want additional work done, ask them how much more it will be and make your decision accordingly. Don't micromanage. Nobody likes that. Don't beat them up over little things like $10 off on the paint quote. They'll remember and they'll return the favor. Ask them questions. Some contractors are willing to do certain jobs but don't enjoy it.

Things like laying tile as opposed to lamin it. If it doesn't matter to you, have them do the laminate instead so they know you have their back. Ask them what work they're doing and what they are contracting out. They can give you better prices on the work they do themselves. It puts them in a bad position when you want them to reduce the price significantly for work they are subcontracting to someone else. They won't feel comfortable negotiating someone else's money. Don't ask them to bid jobs if you're not serious. And if you do, pay them for their time.

sending someone to bid a job when you weren't likely to buy the property and not paying them is a great way to let them know you are not a rock star. Send them referrals whenever practical. Send them leads for people they can hire. Contractors are always looking for new employees and often frustrated with the process. If you know of a hard worker who is dependable, let them know. Property managers. Send them referrals.

Are you noticing the pattern here? People love referrals. Ask them what investors do that makes their job harder and try to stop doing it. Read the actual management agreement and address the issues you see before signing a contract with them. Don't be that person who throws a fit when you're charged for something you didn't bother to look at first, then blame them for it. Don't call them incessantly over unimportant things. Property management is a low-pay, time-consuming job. They have to be very careful with their time. Show them you respect that.

Ask them about properties before you buy them. Get them involved in the process and rely on their expertise early on. If the house doesn't rent for what you thought it would, don't automatically blame them. They can't control the market. Reply to them in a timely fashion like you'd want them to reply to you. Find other investors and introduce them to the property managers. They're always looking to grow their network. Find out if they are licensed and if they are, let them find you deals.

This has good supplemental income for a lot of them. Tell them what you need so they can be on the lookout for you. Communication here is also essential. Finding ways to bring value to others is one of the most important business skills you can learn. Considering that one good property can bring you hundreds of dollars in monthly cash flow and tens of thousands of dollars in equity, it becomes apparent just how much money you can lose by not treating people well. In business, there is a popular maxim. Your network equals your net worth. Relationships bring and build.

business. Understanding the Rockstars know rock stars concept is the first step in finding good talent to help you accomplish your goals. If you want to work with the best, you need to be the best. Finding a rock star is better than finding a deal because they can bring you many deals. The search for talent should be number one on your list when looking for great deals in the acquisition stage of your investment cycle. All right. And that was today's half episode of the Bigger Pockets podcast. Hope you enjoyed that. that little excerpt, excerpt of the, of the Burr book. Make sure you pick up a copy of that.

Just go to biggerpockts.com slash burr book. That's Burr with 4Rs. You could also just go to the bigger pockets store, or you could check it out on Amazon or Barnes & Noble, or you could just drive to David's house and, you know, get a copy from them there. So don't do that. Thank you guys for being a part of the Bigger Pockets podcast.

Make sure you're following Bigger Pockets over on all the social networks that you normally would at Bigger Pockets and follow David over at David Green 24 on Instagram. Let's blow up his Instagram today. And with that, I'm going to take off. Thank you so much for David Arthur Mann Green. My name is Brandon. Signing off.

You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the height, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

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