Thursday, February 22, 2024
The HOLY GRAIL of House Flips or BRRR is being able to do a (or multiple) deal without using a dime out of your own pocket. So how the heck do you actually pull that off? Well my goal in this article is to give you the 8 steps you need to follow to get there.
Before getting into the steps you first need to understand that if you are looking for the easy answer you are in the wrong place! Basically my solution to any problem is by being disciplined, consistent and patient (I could use some help with that last one) and finding a strategy that has been proven to work. If you are wanting to get rich quicker and easier go buy some crypto or even some tulips (kudos if you get that).
If you are still here after that disclaimer, let's get into it.
One more thing: There are other advanced strategies that you will learn down the road. Today, we will learn the most basic, tried and true approach to acquiring houses with no cash.
Education is free folks! READ, WATCH, SOAK in every bit of information you can. Listen to people who have actually done this thing. Education that is applied to experience equates to SKILLS! Skills get you tickets to the game.
Now don’t get yourself frozen on this. You are going to be learning forever if you’re doing it right. You are just not going to be an expert before you start. In fact, most of what you “learn” won’t even make sense until you couple it with experience. So at some point you just need to get froggy and take the leap!
Here is your syllabus:
Yeah, there’s plenty more. Get a good understanding of those things and you’ll be well on your way.
You’ve heard it “cash is king!” You have to save money. CASH IS POWER in this game(and probably most others). Cash lets you not have your back against the wall. This allows you to make every decision for what is best for the investment, not what is necessary to pay the next bill. Cash reserves give you the Strength to stand in the pocket and throw the ball down field. You need to have at least enough cash to pay 1 year of interest payments saved up before you get started. The goal is to grow your cash reserve to a level that lets you not have to worry about it and then never use it!
Also, saving cash proves to yourself and your lender that you have the discipline necessary to be successful in this game.
This is the most important of all the steps. Finding deals. You need to gain this skill. It is going to be painful but you’ll survive. Or you won’t. Things don’t have to be hard. I’m sure there are some jobs at the DMV.
Here’s the thing. I was able to make everything work because of my ability to get good deals on the front end. There are basically 3 things that impact the success of the deal.
PS…I go into more detail on this subject in the Blog post "Who Buys the Materials".
For the construction and sales price you are not going to be able to have much impact and I have plenty of other literature/media about that specifically. To summarize, they cost what they cost and your job is predicting those things and then executing on them. Therefore the only thing that you have real control over is THE DEAL. I might even argue that the only step is getting a good deal on the front end and the other 7 steps are only supporting steps to the TRUE KING……the Deal.
Down the road you will be able to get some killer deals by finding ones that need a lot of work (after you learn Step 5) but for your first few, keep it simple with a cosmetic rehab that doesn’t require permitting. This Deal will be harder to find and maybe not quite as sweet but that’s ok for now. We are gaining experience.
To assess the deal and find the right acquisition price you will need to be able to quickly underwrite a deal. More to come on that in other content.
Now that you have a deal you can find money. It’s important that they go in this order. You are going to use Hard Money or Private Money. Basically the same thing (there are differences, but not for today). You will be looking for these vendors before you find a deal and have talked with multiple lenders to make sure you understand the process and what they will need from you. Some will even underwrite YOU first. Although, the truth is, they don’t really care about you all that much (unless you’re a total loser, but I doubt you would be here learning if that was the case). They are looking at the DEAL that you will be using as your collateral. If you have a deal that’s strong enough they will lend on it in first position (meaning there are no other loans in front of theirs). If you mess up, they get that great deal. NO PROBLEM (other than the having to foreclose on you).
Ultimately you need to find a Deal, get it under contract, THEN you go get your money for it through a hard money or private lender. They are typically going to give you 60-75% of the ARV (after repair value). So if the ARV is 300K they would give you 180K-225K for acquisition and construction. You see now what the Acquisition price has to be strong to make a $0 out of pocket deal work.
I call it the Firehose, because once you turn it on it's hard to stop and very powerful. It can turn on you in an instant so you need to have a plan. You’re talking about a high rate loan that typically has a maturation date of 6-12 months.
It’s time to learn construction. On your first couple projects, I suggest you do some of the work yourself. Now I have said before that you shouldn’t be doing stuff like this. I said you should be focused on getting deals and project managing, but when you are just starting out you really need to be gaining as much experience as you can and focusing on cutting all possible costs. Scaling will come later. So paint the house, learn to lay LVP, set some cabinets, heck maybe even do some plumbing work. I promise it’s not as tough as you might think. I learned everything through YouTube, books, and hands on experience. My first big flip was basically spending a day doing work, the next day reading about the next step and learning the work I did the day before was wrong, then the next day was tearing out and rebuilding the stuff from day 1. It took me 550 days, but man did I know what to expect from the contractors I hired on the next one.
Now I’m not saying you need to go through all of that, but I’m saying that you will be a lot better equipped as a house flipper if you have some basic experience here. Also you’ll be way less inclined to get duped by contractors if you know what you’re talking about.
PPS…I wrote a whole blog about the 10 Dirty Contractor Tricks. This will help you see those coming.
It’s Sell or rent? I think you should start by flipping a few. Yes it is great to hold real estate. Ultimately that is how you gain true wealth, but you have your whole career for that. It will be a nice long career if you just stay in the game through the tough part (the beginning). So right now just focus on flipping so you can gain the experience you need and the cash reserves to be able to really start ripping through properties in whatever way you want.
My belief is that you need money on 3 time horizons:
When you’re a beginner you need to really focus on number 1. Once you feel like that is beginning to get stabilized you focus on horizon 2 while keeping 1 stable and steadily growing. Then you start focusing on horizon 3 while keeping 1 and 2 stable and growing. If you are totally out on your own, 1 might be wholesaling, 2 is flipping, and 3 is rentals. You could also have a nice day job and have a side hustle of flipping and ultimately renting. There are pros and cons to each way.
The key here is to stay in the game long enough to learn your lessons then start moving your income further towards the Long Term. The gift that keeps on giving.
After you get some of these under your belt and I mean like a few years of it. You have truly gained a seat at the table and can start focusing on some more advanced and creative options. This is where things really start getting fun and your wealth will start to explode. You won’t have to even think about using your own cash unless you choose to. This is where you get money partners, start a syndicate, raise and operate a PE fund, buy on creative financing and special option plays, etc.
This is where people will see your huge success and say something along the lines of “man he just blew up over night.” You will respond, “it was a LONG night!”
If you try to do that kind of stuff before you complete steps 1-6, you are playing with some real FIRE and most likely will get burnt. Make sure you are ready to take that on by getting true skill in your arsenal.
Yeah, you probably guessed what this one was. Get on that mail list so you can get some more stuff like this. If you already have. Thanks!
CEO Of Larossa
After flipping over 300 houses, holding a portfolio of 150 properties, and creating a successful construction company for over a decade, I felt compelled to pay it forward by sharing the wealth of knowledge and experience I’ve accumulated on my journey.
One tip at a time...
We spent over a decade focusing on one thing: creating systems to remove the complexity and headaches that come along with renovating a home.
This allowed us not only to scale to flipping over 300 homes, but to have predictable, reliable returns, and most importantly peace of mind knowing that we would never have major unexpected construction costs.
Each week I take the time to make sure I send you something valuable and useable
We sit down each week and figure out how we can send you the most valueable and useable tips possible to help you increase your skills and ultimately your profit in Real Estate Investing.