Hey, what's up guys welcome back to a new video Shawn's, the name finance is the game today, that's why were wearing our green shirts, but what are we specifically talking about today? Yeah we're talking about the BRR our strategy today, if you don't know what that is, do not worry. I'm gon na be going over everything about this if you've never heard of it before as well as maybe some pros and cons to this. So here we go so. First of all, I just want to say that I've actually helped a lot of my clients.

Do this very strategy, and I had no idea it was a mainstream strategy until one of my co-workers actually told me, hey Shauna, do you heard of the bird strategy? I was like no, I haven't heard of the bird strategy and he goes well. You should look it up. Knowing me I was like alright. I got to do tons of research on this.

That's what I did. I started reading a bunch of articles listening the podcast watching a bunch of videos. Marko's whiteboard finance actually had a great video on this, but the problem was: is all these articles podcasts and videos I was watching. They were only really talking about the pros with this strategy and maybe some challenges here and there, but there's a lot more cons to the strategy that most people don't realize and a lot of these people pitch this strategy as the easiest thing in the world.

That's not necessarily the case again. I work in mortgages in Arizona a lot of my clients do this. I know the challenges firsthand, so I figured let's make a video talking about what this strategy is, and maybe some challenges or some cons that come with it. Ok, so what is the bird? Are you well like? I said it's super simple also.

I love how we've got a really nice black board really high end stuff, but we're using a paper towel, because you know got ta save money where we can alright. So first strategy, like I said, super simple concept: all you've got it's an acronym right. You got bi and my handwriting aka, my hieroglyphics are gon na be terrible. You've got your bi.

You've got your Ren, Oh Vey man. This is gon na get really bad renovate right, so you're gon na buy it you're gon na renovate. It then you're going to rent it out. You're gon na buy renovate rent you're going to re finance.

That's where I come in refinance! Oh my god. That's terrible die just fell, all right, yeah refinance and then you're going to repeat - and hopefully you can read that, even though that is probably terrible handwriting but again it's very simple: buy renovate, rent, refinance and repeat the process and again, if I was just explaining what This whole thing is, I would pretty much end the video right here, because we all know what each of these means. Now I erase this cuz I'm going to need this space. I wrote it up here in case you need to reference what each one means it's getting hot in here I live in Arizona, it'll, probably be the first ever financial video.

You see where a guy rolls the sleeves up, so I get tank top, but I I am sweating, I'm gon na show you why it's so successful and how people are so successful with it and then we're gon na kind of poke some holes to it. So first thing: I'm gon na write on the board is actually going to be the letters A or the ARV, which means, after all, right after repair value all right. So I'm going to talk about what that means. In just a little bit, I'm gon na write the formula on the board of why this is so successful and what people follow to make sure this is so successful and they're gon na break it down.

You do not need to be very proficient in math. It doesn't matter you could have failed algebra. You could understand this. In fact, I'll tell you what download this excel sheet I'll leave a link in the description for you, this excel sheet is the formula in Excel form.

All you have to do is input the numbers of a certain property that you're looking at, and it will tell you if it is a positive cash flow investment or if it's a good property you invest in. I use this with clients that work. So I figured I might as well just give it to you again check the link in the description to download it again. The formula is super simple: alright, we're gon na start with our price, so the price that we buy the property for right here in step 1, the price is going to equal and I'm gon na go over this.

The price is going to equal or ARV right. Our after repair value times 0.7 for 70 percent minus our repair value, okay. So, let's, let's just put in we'll put in the formula right now, repair cost we're a pair cost. So ARV.

What's a RV mean, imagine you live in California and you know that a 3-bedroom 2bath house is gon na go for $ 400,000 all day long. You know you know no matter. What's in that house, it'll get us $ 400,000. You want to be conservative by the way, so this is $ 400,000 right.

This in California, 400 K we're gon na get to price later right. Well, we actually buy it for that's what we want to solve, for you might see a home listed for $ 250,000, but I say totally ignore what the price that'd be asking prices for, cuz you're gon na determine what you're gon na be willing to pay for That house so just ignore what the list price is, because it doesn't even matter all right. So, let's say a RVs 400 K. We're gon na multiply it by 0.7.

Again, right put that in parentheses and let's say it needs a new roof and it needs a kitchen remodel and a bathroom remodel. Let's call it 30, let's call it 30 grand, I don't know yeah, let's call it 30 grand. Let's call that $ 30,000 to do so. That's what our formula looks like with numbers.

I didn't do the math on this for a thousand times point seven that would be 30 % down. I'm gon na go with 280. Someone fact-checked me on that. I'm gon na write it out and I think it's 280, I'm so confident.

It's 280 I'm gon na write it down and then check my math. So we're gon na do 280 K in here and I don't like writing zeros, because it's just waste time and then again this is 30k. So we'll just leave that. Please tell me that my math is Rex.

I don't want to have to rewrite that 400 K times. 0.72. 80. Baby.

Let's go okay! So then we got our quick mass here. We're gon na go price. What we are willing to pay for this house is gon na be 250 grand to make sure we are 100 % successful with the bird strategy. Is this home? That's listed for sale that we did the math on and we go hey any 3-bedroom.

2Bath houses, they're gon na go for a foreigner K in California right now and if this house only cost me $ 30,000 to do the repairs, I am willing to buy the house for 250,000 dollars. I know I will be successful and get a good return on. My money, if I buy the house for a quarter million dollars now, a lot of people actually use this strategy and they stop right there. So a lot of people do fix and flips and they only go all right.

All I'm really interested in doing is buying and renovating and then selling call it. The BRS model just came up with that. Buying, renovating and selling a lot of people stop right here they do their math on everything they go. Okay.

My return on this property is gon na, be X amount of dollars, so I'm just gon na fix them flip. It call it a day done and you can make some good money that way, but you can make even more money. I'm talking if you've got a good 5 to 10 year plan, you can make a million easily on this, and profit is, if you continue on with these next three steps, which I'm going to go over right right now, but just remember this is the buy stage And the renovate stage, so let's say we bought this house with cash just for simplicity reasons. I know a lot of people might not be able to buy a house like this for cash, that's fine, you can still finance it and the strategy is still successful.

It's just a lot harder now, I'm gon na talk about that in a little bit again, I am going to be punching holes in this strategy in a little bit, but if you were to follow this strategy kind of - I guess word for word or how other People do it, then this is what we're looking at bought the home for 250. We put 30 grand into it to to get it up to our ARV of $ 400,000. So now what we want to do is you want to rent it out? We want to make some money, we wan na start cash flowing on this, so so far we're two hundred and eighty thousand dollars deep into this property and we haven't made any money. So when you start making some money now in California, I don't know the average rent is on a 3-bed 2bath home.

I would say somewhere in the 2200 range, probably more since California and living costs in California is that's really small in living caught. The cost of living in California is just stupid, expensive, meaning correct me. If I'm wrong in the comments, but I'm assuming we're gon na say we can get $ 2,200. That's probably conservative $ 2,200 a month in rent for a 3-bed 2bath property that costs us about.

Two hundred and eighty thousand dollars to get so now we're rinsing out now we're cash flowing the property, but the reason why this strategy is so successful is because we do this right here, which is where I actually come in as a mortgage lender as we refinance The property remember we're two hundred and eighty thousand dollars deep right now. If you're, like most people, you don't have another. Two hundred and eighty thousand dollars in your bank account going yeah. Let's go to another house.

Let's start cash flow. I mean now we're making twenty two hundred bucks a month. If I do the math out on this, if I've got this house for X amount of years I'll make this much money in blah blah blah blah blah. You can make even more if you've got multiple properties right.

Well again, most people don't have two hundred and eighty thousand dollars just chillin their bank account to do another one of these. So here's what you do you do a cash out refinance. Now you want to keep at least 20 percent equity in the home, so you don't have mortgage insurance. I want to stay kind of above all that stuff don't want to dive into that, but you want to have at least 20 percent equity in the home and again, I'm gon na punch holes in the strategy after this why this is gon na be kind of An issue for us, but we want to keep 20 percent equity, so we're going to cash out, refinance me as a mortgage lender.

I don't really care what the purchase price is for the most part. What I care about is something kind of like the after repair value. I care about the appraised value of the home when you go to get a cash out, refine and appraisal talks about how much the home is actually worth. So I might think that I can get 400,000 for it, but until an appraiser actually comes out to the home and says yeah you've got three car garage.

You've got nice bathrooms, you got, you know a pool all this stuff. Alright, you know your home's actually worth $ 400,000. So now the appraised value, I can pull money out of the house based on the appraised value. So that's where we do our refinance here again.

We want to keep 20 % equity in the home, so we're not gon na get a loan of $ 400,000 we're gon na get a loan of. I want to say it's like three hundred and twenty thousand I don't know check my math. I might be wrong on that. One three hundred and twenty thousand dollars is 20 - is 80 grand 20 %.

I don't know, Oh excellent, okay, so, okay, why don't you 2019? The homes we're gon na get a loan of three hundred and twenty thousand dollars right now? We're gon na pull this out of the home, but now we're going to have a mortgage payment. Let's say our mortgage payment is. I don't know that I'm at $ 320,000, it's probably gon na - be at least a minimum of eighteen hundred dollars sometime. I don't just I'm ballpark right now, but now we've got a mortgage right, so we've got a mortgage of let's call it for simplicity reasons.

Let's just call it 1700 a month that we're paying on this mortgage, but remember we're getting $ 2,200 a month in rent. So now we're making $ 500. Now we've got a profit. Will you profit of $ 500 ha got man writing just terrible.

I go back to you so a profit of $ 500 a month and the best part is is now we have three hundred and twenty thousand dollars cash in our pockets ago. All right now we're on to the next step. Let's do another one and then you repeat the entire time process. Remember we started this property with two hundred and eighty thousand dollars.

Now we've got three hundred and twenty thousand dollars. That's 40 grand more. We just made 40 grand off this and we're cash flowing the property so now we're making money on the mortgage payment right, so we're paying our mortgage payment still walking under $ 500 a month the home is appreciating in value. Let's say we keep going for 10 years and you sell that we make a bunch of money and we sell for you more than we bought for all this good stuff.

That's how you make absolute bank this formula strategy very high success rate, and as long as you can follow this and you're gon na make a lot of money on it. Now there are hurdles with every single step in this process and I'm going to go over each one, because most people do not talk about how hard each one of these steps are they break out. The math like that, like, oh all, the strategies awesome, make sure you use this. You're gon na become a millionaire of no time and if you're able to do all that, then yeah you can make a lot of money.

But here's where I run into some issues. The buys trap the by part of the bird strategy hardest part. It depends on where you're, not in the in the country, but the hardest part with this right now is the market is so hot. It is h, a WT hot.

It is so hot right now that it is going to be incredibly hard to buy a property at the value you want to buy that. With that point, I just broke out the next one are renovations right or rehab to the property. Now the hardest part. With this is you know we could throw a number and go? Oh yeah, 30 grand we're good, but in reality we really don't know.

We do not know how much it's gon na actually cost us to you, and we don't know how long it's gon na cost us to do that. So we might think all it just needs a roof or we got inspections who got a really good idea? What it needs, but then, once you actually start the work it's gon na be even more expensive, can take us even more time and that's just the stress, a risky part of this entire strategy. But it can't really put an exact number on here's. What its gon na cost us to renovate - and I know I'm gon na - make money on this property, because I know people have done loans to people who have been like Oh easy, I'll buy it for 250 renovations will be 25 and also for 300, and we're Good, a renovations actually end up being like $ 60,000 $ 70,000 after the realtor from everything was like he almost broke even on, and I felt really bad.

So it's really hard to know exactly what our rehab cost is gon na be all right. Our next hurdle is gon na, be something that a lot of people can probably relate to watching this video, the renting portion of this strategy becomes very challenging because we all know the same out to rental. Who cares it's a rental? Who cares? We've all read it. Just ease before cars or whatever and we're like that's a rental drive it hard ruin it.

Who cares we're just renting it same thing is gon na happen with your houses. Renters are very, very, very careless right. A renter can come into your property and I'm gon na try to draw a bomb here, and I don't really think it's gon na work. But it looks like more like the Sun, I'm terrible, but but they can basically just destroy your voice and they might be like dirt poor.

They might not have anything in the bank so sure you can take it on record and you're, not gon na get anything out of it and then also you got a job. What do you more money? How prepares into this property because your renters basically destroyed it or your renters, are like not paying you rent your you've, you probably look up the worst nightmare, a rental stories out there when sometimes renting your stuff. It's never going to be treated the same way. The same way as you treat it so just keep that in mind a lot of people like to brush past this and go oh wow, making money on it.

So we're good yeah, but your renters might kind of destroy a lot of stuff end up costing you more money. Alright, now my favorite one, obviously because I'm a mortgage lender is gon na, be the refinance portion. I'm gon na draw a bigger Aragon here. It's a lot more room than this one.

This is the biggest portion of this entire strategy that everyone rushes over. They just think. Oh yeah, you buy cash, video refinance and you put you're running out and you're good to go and the math works out to where, yes, you do make it good good, good chunk of money on it, but remember we're using a 70 % ratio before. I guess you know what we want: our property, our purchase price, to be 70 % right.

Well, when you refinance a property, if it's an investment which obviously it's an investment because we're renting it out. If we have renters in the property, we are renting it out. All right so you're going to get an investment loan owning a conventional investment for the most part. When you get an investment loan, your rates are going to be much higher so that mortgage payment I use when I bust out the math, probably a little bit higher than that, because your rates going to be usually at least a percent higher, maybe a little less About Lisa percent higher a way to combat this, is you actually keep 25 percent equity in the home? So you get a much better interest rate most.

We don't know this. Do you get much better interest rate if you've got a 25 percent equity, you know so? Instead of pulling out, you know, 80 percent in the home you're only going to be pulling out 75 percent, which means your orange in for how much you make between the buy renovate and refinance stage is going to be a lot lower right. You're gon na lose basically five percent of margin right there, but you're gon na be able to cash flow, a lot better on the rental stage. One thing you can do and a lot of people like to do this - is they like to actually stay in the home for a little bit and maybe refinance the home as their primary residence? Now just keep in mind.

There are some waiting periods with your refinance. So, most of the time on most fix and flips, you've got to wait six months to actually refinance the property and almost in anything you got ta wait six months for the most part, but a way that a way to beat this is to go. Alright, I bought the property I renovated it and instead of renting it out right away right away, I think I want to live in it. I want to live in this home for a little bit.

You live in it for a few months and you go okay. Now it's time I'm going to refinance it, you refinance the property as your primary residence right, so you're, basically going to be saving a full percentage point right there, which is going to be a big deal in your monthly payment, and this is something that a lot Of people do if the margins get smaller and smaller because of these stages. They'll live in the property, keep it as their primary residence get a good interest rate when they refinance it and then once they live in it a little bit after their refinance, they go. Okay, now it's time, I'm gon na rinse it out, and now I'm gon na go ahead and make it to our next step, which is going to be repeating the process.

Now the biggest problem most people run into when they go to repeat the process is with any business, is scaling the business. So it's easy to do this once well, it's not easy, but once you do it once and you go down feeling really confident about this. You're gon na start this entire process again. You're gon na have this issue again.

You're gon na have this issue again. You're gon na have this issue again and you're gon na. Do this whole thing over and over again, so repeating the process is gon na, be a lot harder than you think, but for the most part, this strategy makes an obscene amount of money, an obscene amount of money. If you're able to stick to the formula we talked about earlier and you're gon na be prepared for all these barriers and challenges, as you work through it last tip, I'm gon na give everyone for this, and it's a little bit of a self plug to me And like all the lenders in this world, but basically which one do to make sure you're successful with this is talk to the necessary professionals.

Talk to a lender. I talk to your lender and go here's my plan. Here's my strategy. Do you think it's going to work, give me some actual numbers for what my monthly payments going to be? Give me some actual numbers from maybe what you think it's going to appraise for talk to a realtor talk to a bunch of different professionals to make sure your plan is solid before you go up and spend tons of money again, if you want to check out Lending stuff go to Lending Shaun now be calm.

If you enjoyed this video, then I would really appreciate if you hit that like button also share this video share this strategy and this process with someone else right share the video for me. I really appreciate it. I spend lots of time on this stuff and also maybe it's worth sharing it with someone. You want to go and invest on a property with this.

Initial cost of buying is very hard on your own, but if you've got a partner or two partners, it can make this process a lot. A lot less stressful, so share the video with the friend. As always, if you haven't already, I would really appreciate if you could subscribe to a lot of videos that I make and also check some of the videos out down below. I did some cool stuff on some other finance videos I think you'll like but other than that.

I think it's time we just go out. We make some money money, money, money, money.