An Ignoble Experiment: WCI March Real Estate Newsletter

Welcome to the Monthly White Coat Investor Real Estate Newsletter!

Thank you for being a member of the WCI Real Estate Opportunities Group! We hope you find the enclosed information and introductions helpful. Remember that we have a financial relationship with each company listed in this email, you generally need to be an accredited investor to invest, and you are still responsible for any necessary due diligence. Consider these to be introductions, not recommendations. This newsletter should be the first step in your due diligence process, not the last one.

Today's Topic: How to Use the BRRRR Method

When you get started in real estate investing, there are several options at your disposal, including the BRRRR method—which has nothing to do with chilly temperatures. While this method should not be used by everyone and certainly increases risk, it is important to understand.

BRRRR is an acronym. It stands for, "Buy, Rehab, Rent, Refinance, Repeat." The method involves buying a distressed property, renting it, and then refinancing it to get money to fund another rental property (and another and another). The BRRRR method may sound like traditional real estate investing, but there are two key differences. The first is that the properties acquired are distressed and need work. The second is the owner refinances their property so they can buy another one and repeat the BRRRR method over again.

Let's dive deeper into what BRRRR means. Here's a detailed look at all five steps:

Buy: Purchase a distressed property that needs some work so it's up to code and attractive to potential renters. The reason you're buying a less-than-perfect property with the BRRRR method is that it will likely be less expensive than something that's move-in ready.
Rehab: You purchased a distressed property, remember? Now's the part where you get the place fixed up. This might include underdoing structural renovations, making the property more visually appealing, or doing what's necessary to ensure it's a safe place to live. The key is you don't want anyone to look at your property and think "distressed."
Rent: Before you get to the next step (refinance), you have to show banks that your property is generating income. That's where renters come in. Once your property is presentable, you'll want to decide your rental price, find good tenants, and start collecting income. You may want to consider hiring a property manager to save you time once you have tenants.
Refinance: You specifically want to do a cash-out refinance on your property. This allows you to turn your equity into cash. Equity can be gained by taking out a larger mortgage—more money than you actually owe on the property. Once you have the cash on hand, you can use it to buy your next property.
Repeat: Now you start the process all over again. Take the cash from your refinance and buy your next distressed property. You'll then rehab it, rent it out, refinance it . . . get the picture? The BRRRR method can be used for various rental properties—including single-family homes, duplexes, and apartment buildings.

Here's an example for how this could work.

First, you'll find a property to purchase that will be worth your ideal value once it's been rehabilitated (say $300,000). The money you put in should be less (about 70%) of the property's value, so you have the cash to take out when you get to the refinance stage of the BRRRR method. When it's time to rehab the property, you have to create a budget for repairs, including materials and labor. Working off that $300,000 property value, the 70% you're working with totals $210,000. Determine how much you want to spend on repairs, and the remainder is what you can offer the property sellers.

Once the sellers accept your offer and your mortgage payment is in place, you can start renting the property. The monthly rent checks will provide you with a healthy, sustainable cash flow, which is necessary for when you're ready to refinance. Your bank will let you refinance your mortgage for a percentage of your rehabbed property's value—ideally, the value is what you were aiming for when you bought it. Following the cash-out refinance, you can repay the money you put into the property and take what's left to invest in another property (repeat).

Here's a simplified version of the BRRRR method (we're not including fees or taxes in this example):

Buy a $300,000 house ($60,000 down payment; $240,000 loan)
Spend $60,000 Rehabbing the property ($60,000 down payment + $60,000 rehab costs = $120,000 total investment)
Rent the property for $1,500 per month
Refinance the property. It now has an appraisal of $480,000. You can take out a bank loan for 75% of the appraised value ($480,000 x 0.75 = $360,000)
Now, you Repeat the process. You pay off the original loan of $240,000. That leaves you with $120,000 to find and buy the next property (which happens to be the same total investment you made on the original house).

The BRRRR method of real estate investing can be rewarding, but it's not for everyone. It takes patience; remember the idea isn't just to find a property to rent. You want to find one that's distressed but one that has the chance to go up in value once it's rehabilitated. You have to do your homework (or perhaps hire someone to help you), but you'll also be spending time fixing up the place. If you believe you're up for putting in that much time and effort before seeing a return on your investment, then the BRRRR method could be for you. It's also ideal for real estate investors who are comfortable with some risk and have the funds available to make that first down payment. Real estate investors who want to work hard and grow their portfolio quickly may find BRRRR to be an ideal real estate investing strategy.

The BRRRR method probably isn't the best fit for real estate investors who want to see returns right away. Once you acquire a property, it could take a while for it to cash flow, depending on how long the rehab stage takes. If you want to start collecting rent checks more quickly, you might want to look for a property that's closer to being move-in ready. The downside is the better shape a property is in, the more it will likely cost.

There are plenty of potential upfront costs involved with the BRRRR method. Besides the down payment, you also have to pay for renovations. You could go through a significant amount of money only to find out the property didn't appraise for what you were expecting. It could also take longer to find renters than you hoped, putting you on the hook for mortgage payments until you fill those vacancies.

If you don't have the capital to handle all of these upfront costs or lack the appetite for risk, the BRRRR method might not be the best fit.

While not for everyone, the BRRRR method offers an opportunity to build and expand a real estate portfolio in a faster manner because you don't have to save up to buy properties one at a time. The BRRRR method is just further proof that there are many ways to be clever using leverage and strategy in real estate. The key is to be smart and plan for contingencies—just like you would with any other investment.

Recently Published Articles That Relate to Real Estate

Check out these recent articles and podcasts that relate to real estate from across the WCI Network:

Current Real Estate Opportunities

DLP Capital (Multiple Funds)

DLP has been around for a long time and treats investors better than any similar company we know. Their investments are straightforward, easy to understand, and profitable. They even pay preferred returns before they receive their management fee, which is unique in the industry. DLP has five funds: 2 equity funds, 2 debt funds, and a notes fund. DLP has agreed to lower that minimum to $100,000 if you go through the links in this email and/or tell them you're coming from The White Coat Investor. Jim is invested in the Debt and Equity funds with DLP.

To learn more, watch the DLP Capital Webinar.

Check Out DLP Today!

MLG Capital (Multiple Funds)

MLG Capital is a real estate investment firm, founded in 1987. Focused on serving accredited investors, investment advisors, family offices, and more. Each of the MLG Private Funds target to acquire a geographically diverse portfolio of 25-30+ commercial real estate assets across several key U.S. markets.

Since its inception, MLG Capital and its associated entities have had active, exited or pending investments of nearly 46 million square feet of total space across the United States, inclusive of more than 39,000 apartment units, with exited and estimated current value exceeding $±.6.7 billion.

MLG Private Fund VI is now open for investment.

To learn more, watch the MLG Capital Webinar.

Check Out MLG Capital Today!

Southern Impression Homes (Turnkey Homes)

Southern Impression Homes is the parent company of one the most successful Build To Rent Ventures in the United States. They specialize in helping individual investors build successful rental portfolios in high growth, landlord friendly markets in Florida. Focused on new construction homes in desirable neighborhoods designed to maximize landlord profit with better inventory, less tenant turnover, lower maintenance and repairs and a better overall growth strategy for both rents and values. Their system provides full-service in acquisition, building, construction, property management and ongoing client support and education. Most clients come to SI Homes looking for an alternative to the stock market because SI's strategy creates ongoing cash flow, real estate appreciation and an excellent hedge against inflation. For the right investor, their system delivers amazing results to help overcome those issues quickly and completely.

To learn more, watch the Southern Impression Homes Webinar.

Check Out Southern Impression Homes Today!

Origin Investments (Funds and Syndications)

Origin Investments is a private real estate manager that helps individual investors protect and grow their wealth by providing tax-efficient real estate investments in the multifamily sector. We build, buy and finance multifamily real estate projects in fast-growing markets throughout the U.S. We also offer credit Funds through our affiliate firm, Origin Credit Advisers, an investment advisor registered with the SEC.

Since our founding in 2007, we have executed more than $3.1 billion in real estate transactions and our principals have invested a total of more than $90 million alongside our investors. We rely on our market experience and employ Multilytics^SM, our proprietary suite of machine-learning models that forecast rent growth, to help us choose the best properties and markets for investment.

We are accepting new investors for our open QOZ Fund III and IncomePlus Fund, which seek to provide tax efficiency, enhance portfolio yield, maximize growth and minimize portfolio volatility. Our affiliate partner, Origin Credit Advisers, also offers the Strategic Credit Fund, a private credit Fund open to qualified purchasers (an individual or a family-owned business that owns $5 million or more in investments, excluding their primary residence or any property used for business). The Strategic Credit Fund's objective is to provide a consistent stream of risk-adjusted income with capital protection.

To learn more, watch the Origin Investments Webinar.

Check Out Origin Investments Today!

Wellings Capital (Fund)

Wellings Capital seeks to help accredited investors passively protect and grow their wealth through investing in self-storage, mobile home parks, RV parks, and more throughout the country. Over 700 accredited investors have invested in Wellings Capital funds, which aim to provide value to investors in four primary ways:

Instant diversification across private real estate asset types, operators/sponsors, geographies, properties, and strategies
Extensive, professional due diligence on operators and properties
Access to deals and operators
Better terms

Their sixth fund, the Wellings Real Estate Income Fund, is accepting new investors with a $50,000 minimum investment. The Fund only accepts new capital when properties are identified, so all capital is called up front.

Check Out Wellings Capital Today!

37th Parallel Fund II (Fund and Syndications)

37th Parallel has been doing multi-family syndications for years. Since their inception in 2008, they've completed over $1 billion in multifamily transactions while maintaining a 100% profitable investor track record. Their Income and Total Return Fund II is now open for investment. This $40M-$80M fund has a $100,000 minimum. Fund II is focused on acquiring and improving 200-plus unit Class A & B apartment complexes in 13 markets across Texas, North Carolina, South Carolina, Florida, and Georgia. Capital will be called as needed to acquire properties with a goal to have all investors' capital called within 12 months. Their goal is to begin liquidating or recapitalizing fund assets in seven to eight years from inception. Fund II has two share classes - Class A (Current Income) and Class B (Total Return). Class A shares have a 9% annual preferred return and first access to cash flows from operations but capped upside. Class B Shares have a 7% annual preferred return and second access to cash flows from operations along with an initial 80/20 split. Jim is personally invested in Fund I, and we have negotiated a $500 fee discount for you if you go through our links. If you prefer individually choosing which properties you invest in, 37th Parallel still does individual syndications too at a $50,000 to $100,000 minimum investment.

Check Out 37th Parallel Fund II Today!

Mortar Group (Syndications)

Mortar's approach to investments is simple. We are a vertically integrated firm with an experienced team that delivers consistent returns. Specializing in multi-family real estate, Mortar has been the driving force behind over 30 distinctive and successful developments in prime and niche New York neighborhoods since 2001. We leverage over two decades of experience in architecture, development, and asset management to build value and minimize risk for both investors and the residents who live in them. Our winning combination of high-returns and risk-adjusted strategies has led to an excellent track record of investment success.

Check Out Mortar Group Today!

EquityMultiple (Real Estate Platform)

Offers equity and debt investments to accredited investors. Equity Multiple is very transparent and invests alongside its investors in every deal, which is unique for a real estate platform. Since it has skin in the game, I expect EquityMultiple to be a little more conservative with its due diligence. Its volume is not as high as some companies, but perhaps that is a reflection of the higher quality of the deals that do show up. Jim owns a syndication purchased through Equity Multiple. Minimum investments are typically $5K-$20K.

Check Out EquityMultiple Today! (Management fee waived on your first investment when using this link)

AcreTrader (Real Estate Platform)

AcreTrader is an investing platform that makes it easy to buy shares of farmland and earn passive income. US farmland has historically outperformed most asset classes, with almost no correlation with the stock market. Further, it has experienced positive returns during economic downturns. Unfortunately, buying and maintaining farmland directly is extremely difficult, which has prevented most investors from participating. AcreTrader makes it easy to place direct investments in farmland and handles all aspects of administration and property management. AcreTrader carefully reviews each farm, selecting less than 1% of the total parcels considered, then places each farm offering in a unique legal entity and offers shares to investors through its online platform. See AcreTrader's current offerings to view what is available today! Minimum investment is $10K.

Check Out AcreTrader Today!

Fundrise (Private REIT Provider)

Fundrise offers REITs and funds to non-accredited investors. It now has 7 REITs/Funds with various focuses, including income, growth, and various geographic areas. Minimums are the lowest we've seen, just $500. Jim has invested with Fundrise in the past, although that was before they started this REIT.

Check Out Fundrise Today!

CrowdStreet (Real Estate Platform and REIT)

CrowdStreet is the premium provider of online commercial real estate investment marketplace, technology and professional services. Investors can directly access institutional-quality commercial real estate offerings with CrowdStreet's online investing platform. CrowdStreet's REIT provides investors with easy access to a diversified portfolio of growth-oriented private commercial real estate projects from multiple sponsors through a single fund managed by CrowdStreet Advisors. This is a portfolio of 20-25 private commercial real estate projects selected by CrowdStreet. You can invest with lower minimums ($25K) and expenses than traditional private funds. The REIT election allows for simple 1099 tax reporting instead of multiple K1's.

Check Out CrowdStreet Today!

We hope you find these monthly newsletters helpful. We appreciate your feedback, both positive and negative, about the real estate opportunities you learn about here and elsewhere.

Jim and Brett

Jim Dahle, MD, FACEP
Founder, The White Coat Investor

Brett Stevens, MBA
COO, The White Coat Investor