Sam Primm bought his first property with his best friend at the age of 26. Primm is now 33 years old and has been in the real estate business for seven years. The desire for economic independence and provision motivated him to work in the real estate sector, according to Business Insider. According to Primm, this has become difficult in other sectors.
At the time, Primm learned of a popular rumor that 90 percent of millionaires could achieve financial status through real estate. It is one of the safest investments in history. So Primm decided to go into the real estate business together with his best friend, who also wanted to buy his first property at the same time.
Seven years later, the two best friends are co-owners of a total of 167 rental properties. The portfolio consists of 85 single-family homes and 82 apartments. They also run the educational platform Faster Freedom and the real estate purchase company Faster House in St. Louis.
In an interview with Business Insider, Primm said that when he started, he had little savings to invest in a project. But that’s exactly why real estate seemed like a good option. Instead of investing in stocks or cryptocurrencies, he was able to use other people’s money through personal loans and mortgages to start and continue investing. So they bought a first family house and renovated it.
During the renovation, Primm was introduced to the so-called BRRRR method, which is very popular in the United States. The letters “BRRRR” stand for Buy, Renew, Rent and Repeat. His original plan was to renovate the house and then sell it again. That way, he could get a quick cash payment and use that money to buy a long-term investment property to rent. But then he realized there was a better, faster way to make money in real estate.
Once a property was rented and money raised, Sam Primm could approach a bank and get a cash-out refinance. With this he was able to pay off the original lender. The rental income from the property would cover the mortgage and all other monthly payments. The businessman explained to Insider what he believes are the advantages and disadvantages of the method.
The advantages of the BRRRR method
The biggest advantage is that, with the help of loans from other people, you buy an asset that then makes money and increases in value, says Primm. The method allows faster expansion without having to invest your own money.
Another advantage is that you will end up with a newly renovated property in good condition. This increases the value of your property and, as a result, allows you to generate more rental income.
In addition, you do not have to constantly search for new properties. If you renew them and then sell them, you have to constantly strive to get new items in order to constantly generate income. This method allows you to make money even on originally less valuable properties after you’ve renovated them. Learning to refurbish and restore items can also be of great benefit.
Risks of using the BRRR method
Using external media can be challenging because there is so much less room to make mistakes. Especially when it comes to renovating an object, it can get you into trouble. Mistakes like underestimating the amount of money or work required for a renovation, as well as inflating the price of renovation work, can easily happen. However, as Primm emphasizes, they can also be avoided.
Says cosmetic upgrades like flooring, countertops, and paint are fine. Structural issues, on the other hand, can get you in trouble because this job can be very expensive. Even experienced buyers can find themselves in this situation.
One way around this may be to hire professional workers such as structural engineers. They can view the property and assess the work and costs required. Primm advises buyers to be on the lookout for any signs that something has changed. These include sloping walls or large horizontal cracks. Doors should also be closely examined to see if they can be closed properly or if they have gaps in the frame and possibly warpage.
Once you have an idea of renovation costs, Primm recommends adding about 10 to 20 percent of the total to your estimate. This gives you a little room for miscalculations and unforeseen challenges. Also, make sure you get three quotes for any work you need done or have a reputable contractor you work with on a regular basis.
Plus, you should be able to predict exactly how much the property will be worth after the repair, says Primm. This also means that you are aware of how much rent you can ask for in the future and if it will cover your monthly expenses.
Last but not least, a major problem for buyers is finding suitable tenants for properties. You don’t want to get into a situation where one party doesn’t pay the rent or damages the property. “There are far more good tenants than there are good landlords,” says Primm. “So if you are a good landlord yourself and offer a good property, you will have the opportunity to choose among very good tenants.” Make sure you have and follow strict selection criteria. “People could get you in trouble if you’re too lenient or don’t follow your guidelines,” Primm said. “It establishes certain guidelines, certain solvency and income criteria and checks the background of the applicants.” Then nothing should go wrong.
This article was translated from English and edited by Julia Knopf. You can read the original here.