The “Buy” of BRRRR
So we discussed the BRRRR method. Now we’ll dive into the “Buy” portion of this a bit deeper. This is how we buy houses. You obviously have to find a good deal on a property. In an imperfect market, this means looking for opportunities that others don’t see or don’t want. Typically this isn’t a gem of a home but more of a fixer-upper. The seller may not be able to, or may not want to, fix the property. They may have other reasons that they need to sell fast. You are looking to solve problems. Problems with the house or, more importantly, with the people. The house may be in decent condition but the owners have other motivations for wanting to access their equity quickly. This was the case for our “midnight infomercial house”. The owners wanted to use their equity and have no surprise expenses in keeping up their property. We bought it and rented it back to them and were able to provide a true win/win solution.
How do you find the houses like this?
Several ways. It could be knocking on doors. It could be driving through neighborhoods looking for houses that have tall grass and peeling paint – often referred to as “driving for dollars”. You could then find the owners address; which may or may not be the same as the house you found. Then you can mail them a letter to see if they’d be interested in selling.
We originally made offers on the MLS or Multiple Listing Service. This worked but we never created a perfect BRRRR deal out of these. As the market became more competitive, we switched to finding all of our deals “off-market”. The advantages here are that you aren’t competing against the entire market. Once a property is listed on the MLS, the market helps to set the price. I am certain that there are still opportunities out there and this may be one way that an investor could benefit from getting their real estate license. If you hire a realtor, some may not want to make a ton of low offers knowing that the majority will be rejected. This is a lot of effort for a small payoff to most realtors. If you have your license, this is one way to use it. I’m not sure it justifies the expense of maintaining the license unless you intend to do some sales as well to supplement your income. That is up to you.
Call Bandit Signs
You might call all of those cheap handwritten signs you see stuck in the ground that state “house for sale worth 150K selling for 100K” etc. These are commonly known as “bandit signs” presumably because they are illegal. The people who put these out are often wholesalers who go out and find these distressed properties and get them under contract and offer to sell you the rights to the contract for a fee. We’ve bought several houses from wholesalers in the past. They sometimes make several thousand dollars for the work of finding the deal and negotiating it. This is absolutely fine if the numbers still make sense for us.
Some people buy houses at the county auction and tax sale. Usually these are bought without ever seeing the inside of the house so the risk is higher for the investor. There are also rules that need to be understood prior to bidding at either auction. If you’ve never been to an auction at the courthouse, I recommend you go. It is chaos to the uninitiated but I know many people who have bought great deals there (and a few who have bought very bad deals because they didn’t understand the process or the property they were bidding on).
Networking is one of the things that changed our trajectory. We attend as many real estate networking events as we can and have met a lot of other investors this way. Think “collaboration” not “competition”. This can lead to opportunities. Many of these events have a portion of the meeting for “haves and wants” where people can pitch a wholesale deal they have or pitch that they are looking to loan money etc. Through this networking you may find some people may have more deals than they can work at the moment and would rather wholesale a deal for quick easy money instead of flipping it over months for a bigger payday. Just getting to know the players in the market will allow you to see deals and see what others are doing in your market. Many of the meetups have a guest speaker but the real value is in the experienced investors who are also attending. There will likely be a lot of beginners there but you will begin seeing who is actually doing deals. These are the people to watch and get to know. Most are willing to share everything about their business. It’s a pretty unique environment in that way.
Funding your deals
If you intend to use the BRRRR method because, like us, you don’t have hundreds of thousands of dollars lying around; you should be looking for potential private lenders. Hard money lenders are an option but we try not to use them due to higher rates and fees. If you need to, and the numbers still work, by all means do so. We like to use other individuals’ money for our cash offers and we offer the lender a great return on their investment for the use of their funds for a few months. They love the return and the strong collateral we offer. Without exception, our lenders come back to do future deals with us. This is another opportunity to create win/win partnerships. ALWAYS take care of your lenders and keep your word. They will come back to lend with you again if you do.
Sum it up
These are a few of the ways to find discounted properties. I hope that some of these ideas help you see the opportunities that are out there. Remember that you either need to find a person with a problem or a house with a problem (which is generally a person’s problem) to solve, or you need to pay someone to find these opportunities through their marketing and negotiation.
For us this is a “lifestyle business” in that we grow in a way that fits our lifestyle. We do this for a purpose but we try to keep balance planning for the future with the here and now. My Grandaddy who planted this seed in my head gave me some of the best advice ever and so I’ll pass it along here and possibly every post. As you accomplish your goals and dreams and live your life: “Keep the main thing the main thing”.