🔑 Can’t Close a Deal? Try This.
Happy Monday!
Here is an Idea, an Action, and a Question to consider this week.
Idea
While conventional loan and cash purchases make up over 90% of the work that agents and lenders do, buying a house doesn’t have to involve a bank or putting 20% down. These conventional methods may work great for some deals, but they certainly don’t work great for all deals. When alternative options are needed, there are so many other ways to close deals beyond the conventional. You just have to get more creative with your approach.
As an investor-agent, you need to understand the various options for creative financing that exist so you can help your clients (and yourself) find the best way to fund investment opportunities as they come up. Understanding and executing creative techniques like the BRRRR or SRRR strategies can really help you stand out.
The BRRRR strategy stands for: Buy, Renovate, Rent, Refinance, Repeat. It was coined by Brandon Turner, and it’s a great way to grow your wealth through maximum leverage. A quick example to illustrate: If you buy a distressed property for $80K and renovate it for an additional $50K, you’d be all in for roughly $130K. From there, you would place a tenant at market rents. Now, let’s say that this cash flowing property is worth $200K because of your rehab, and you are able to refinance with a 75% LTV cash-out refi. This would mean the lender effectively cuts you a check for $150K. You’d pay off your current all-in expenses of $130K and walk away with a $20K check. At the end of the day, you now own a $200K cash-flowing rental property and you don’t have any of your own money left in the deal––in fact, you profited $20K. Seems like magic, right!?
You can also use the SRRR strategy to execute a similar concept but in conjunction with a sub-to closing. SRRR stands for: Sub-to closing, Renovate, Rent, Repeat. You’d purchase the property and just take over the loan payments for the seller. The biggest difference with the SRRR strategy is that you typically wouldn’t refinance, as the underlying debt is probably advantageous to you. It’s common in a BRRRR strategy to leverage hard money for the acquisition and rehab funds, so you are really forced to refinance out of the high interest debt; however, that’s not typically the case with a sub-to closing. Another benefit of a sub-to closing is that the loan is often more mature, so you are paying off more principal than you would otherwise be doing with a brand new amortized loan.
These are just two creative financing strategies available, but there are many others that you should add to your arsenal. I’ve found these two books to be helpful when it comes to creative financing:
Brandon Turner’s book The Book on Investing in Real Estate with No (and Low) Money Down: Real Life Strategies for Investing in Real Estate Using Other People's Money.
Pace Morby’s book Wealth Without Cash: Supercharge Your Real Estate Investing with Subject-to, Seller Financing, and Other Creative Deals.
Action
Create a hypothetical scenario for a distressed property investment in your area. Apply the BRRRR or SRRR strategy to this scenario, including detailed calculations for each step. Evaluate the potential risks and rewards of this approach.
Question
Are you the kind of investor-agent who uses creative financing when the traditional path isn’t an option?
See you next week,
Matt “Roar” Gardner
Real estate investor-agent, Author of Supersonic Real Estate: Light Your Afterburner to Accelerate Your Investor-Agent Career (Coming Soon!), and keynote speaker.
