Hey Bigger Pockets,
Taking the BRRRR Strategy to the Next Level with 198 Unit Apartment Building
📘New Book "Raising Private Capital" Available now on Amazon
In today's episode, Matt is going to show us how he's using the BRRR method to take his real estate investments to the next level. Matt currently has a 198 Unit building under contract in North Carolina. The current status of the property is that it isn't bringing in the current market value but it also isn't at the standard of the current market demands. So let's take a look at the numbers of how he'll use the BRRR strategy to INCREASE the VALUE of this property.
The BRRR strategy is where you Buy a Property, Renovate that Property, Rent out the Property and Refinance the Property. There is another R, which is to repeat. But for now, we'll just stick to getting the property to a point where we can increase the value, so that we can later refinance and get our money back.
Let's look at the numbers....
As of Now
1br - $450
2br - $515
1br - $575
2br - $675
Average increase per unit $140
The property currently needs a "Face Lift", the kitchens are date, old windows, stained carpets, etc. But the KEY factor is that the property has good "BONES", it's jus the Ugly Duckling. This is where the BRRR strategy becomes super valuable. You find a property in a good area with a good structure that just needs some cosmetic repairs. Bring the property up the the standard of the area and that's how you INCREASE the VALUE of that property.
By adding an average of $140 per month, per unit, we increase the yearly revenue to about $315,000 per year.
Notice that we didn't increase expense, we just did renovations. By dong this we're increasing the CAP rate that will justify our Refinance.
Cash Flow: Renovations will cost around $8,000 per unit, we'll get the money for this by using equity, investors, and loans. This is commonly referred to as a Bridge Loan. When we go to refinance we'll be pulling out this amount, which is the renovation expenses.
8,000 x 198 units at 6% debt cost will come in at $480 per unit per year or $40 per month. So for $40 per month, we can create an additional $100 per unit per month. Which equals out to $100 x 198 x 12 = $237,000 per year. This all going to be accomplished with the Bridge Loan where you're going to Buy, Renovate, Rent and Refinance. This will recapture the Loan.
Using the BRRR method is a great was to add Value and recapture Capital in real estate. This is great strategy is your just starting out and you're doing smaller multi unit family properties or if you're looking for a a way to elevate your portfolio to the next level.
As always, please email us any real estate questions to [email protected]
and we will answer them on an upcoming episode!
Learn more about The DeRosa Group at http://www.DeRosaGroup.com or on BiggerPockets.com - https://www.biggerpockets.com/renewsblog/author/mattfaircloth/
Matt & Liz, founders of DeRosa Group, were recently second-time guests on the BiggerPockets Podcast.
Check it out: https://www.biggerpockets.com/renewsblog/bp-podcast-203-finding-deals-funding-contractors-mentors-matt-liz-faircloth/
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