Skills required for BRRRR investment
If you choose to go the active investment route, it will require more effort and skill, but in return you will have more control over your real estate transaction.
First, you need to learn how to find a good deal on a property. Some investors use a real estate agent to buy properties that are listed on the MLS, but the best deals aren't just publicly advertised. That's the definition of market price. If you want to get a real bargain, you need to find off-market deals, which takes time and money.
Not only do you need to learn how to find deals, you also need to source financing. That means building relationships with as many lenders as possible. For traditional mortgages, try Credible, which only applies to your first two or three deals and isn't flexible. Build relationships with multiple portfolio lenders like Kiavi, Forman Loans, Visio, and New Silver. Remember, you need a purchase rehab loan and a long-term mortgage.
Next, consider setting up an unsecured business line of credit that you can tap into as needed. Check out Fund&Grow, which can help you open up unsecured business credit of $100-250,000. This flexible credit can be used for closing costs, renovations, a down payment on an investment property, or even outright purchasing cheaper real estate.
Contractor management and ongoing property maintenance
You'll also need contractors. You'll need lots of them: electricians, plumbers, roofers, HVAC specialists, foundation and structural contractors, budget handymen, etc. Network with as many contractors as you can, and get used to both negotiating with them and managing them with constant quality checks, feedback, and revision requests. Contractors are notoriously difficult to work with, checking every detail and only doing the quality work that you require.
Don't forget to get permits and negotiate with local home inspectors too – that's always fun.
Once renovations are complete, you’ll be responsible for advertising the property for rental, showing it to potential buyers, screening tenants, signing leases, collecting security deposits and following local laws regarding how they should be stored, inspecting the property regularly, and overseeing ongoing repairs.
Nobody said becoming a real estate millionaire was easy!
Step 4: Invest consistently
If you want to become an investing millionaire, you can't just “see what's left at the end of the month.”
Your savings rate needs to be your number one financial priority — your budget priority — investing first and everything else second.
If you want to become a millionaire fast, you need to increase the amount you invest each month. For example, with a 10% return, you would need to invest about $12,750 per month to become a millionaire in 5 years. With a 20% return, you can reduce this to $9,750 per month (in our Real Estate Investment Club, we aim for an average return of 15-30%).
Of course, over a longer time frame, it would cost much less: at a 10% rate of return, it would cost about $4,900 per month to become a millionaire in 10 years, and at a 20% rate of return, it would cost just $2,700 per month. Try our compound interest calculator to calculate the figure.
10-Year Investment Growth Projections
If you change your monthly investment amount and rate of return, here's how much you'll have in 10 years:
6% 8% 10% 12% 14% $500 $82,309 $91,707 $102,446 $114,733 $128,805 $750 $123,463 $137,560 $153,670 $172,099 $193,208 $1,000 $164,618 414 $204,893 $229,466 $257,610 $1,250 $205,772 $229,267 $256,116 $286,832 $322,013 $1,500 $246,927 $275,121 $307,339 $344,199 $386,415 $1,750 $288,081 $320,974 $358,562 $401,565 $450,818 $2,000 $329,235 $366,828 $409,785 $458,932 $515,220 $2,250 $370,390 $412,681 $461,009 516,298 $579,623 $2,500 $411,544 $458,535 $512,232 $573,665 $644,025 $3,000 $493,853 $550,242 $614,678 $688,397 $772,830 $3,500 $576,162 $641,949 $717,125 $803,130 $901,635 $4,000 $658,471 $733,656 $819,571 $917,863 $1,030,440 $4,500 $740,780 $825,363 $922,017 $1,032,596 159,245 $5,000 $823,089 $917,070 $1,024,464 $1,147,329 $1,288,051 $6,000 $987,706 $1,100,484 $1,229,356 $1,376,795 $1,545,661 $7,000 $1,152,324 $1,283,898 $1,434,249 $1,606,261 $1,803,271 $8,000 $1,316,942 $1,467,312 $1,639,142 $1,835,727 $2,060,881 $9,000 $1,481,559 1,650,726 $1,844,034 $2,065,192 $2,318,491 $10,000 $1,646,177 $1,834,140 $2,048,927 $2,294,658 $2,576,101
Infinite returns: recycling the same investment capital
But here's where it gets interesting: if you manage to make infinite profits on your investments, you'll need less cash to become an investment millionaire. How much less? It all depends on how quickly you can turn over your investment capital and what kind of cash flow you continue to make after you get your money back.
For example, let's say you invest $50,000 in real estate using the BRRRR strategy and refinance within 6 months. Each property will increase your monthly cash flow by $200. This means that for every $50,000 you put towards investing, you can add 2 properties to your portfolio each year, increasing your annual income by $4,800. This means that a one-time investment of $50,000 will add 10 properties to your portfolio over a 5-year period, increasing your annual income by $22,000. Not to mention reinvesting that passive income along the way to compound your returns.
Invest early, invest often, and invest for unlimited gains where possible.
Step 5: Diversify carefully
Imagine you invested BRRRR-style in Flint, Michigan in the 1970s and 1980s. You lived there, worked there, and built a portfolio of rental properties. Then the major manufacturing jobs disappeared and the town's population dwindled. Rents fell, property values fell, and your portfolio value and income dropped substantially.
If you fail to diversify your investments, you run the risk of being wiped out by a single shock.
But there's also the opposite risk: if you succumb to shiny object syndrome and chase every new investment strategy you come across, you'll never master any of them. You'll continue to make rookie mistakes because you never developed expertise in any single strategy or real estate market.
This is why I invest passively in syndications: I invest $5,000 per deal with different sponsors operating in different states, allowing me to buy a variety of asset classes, from multifamily properties to self-storage facilities to mobile home parks to industrial properties.
Investing from afar according to the BRRRR method is much harder. Buying a turnkey property from afar is hard enough, but buying a property that needs repairs? Who cares?
That doesn’t mean you shouldn’t invest locally using the BRRRR strategy, provided the market you live in has high rental returns and landlord-friendly laws – if not, stick to passive investing in real estate syndicates.
You can further diversify with real estate crowdfunding platforms and stocks. I aim to have about half of my investment portfolio in stocks, as they allow me to diversify across many sectors, market caps and countries around the world. Stocks play a different role in my portfolio, offering quick liquidity, growth and ease of investing with tax-free accounts.