How To Build a Real Estate Empire with a Small Amount of Cash

It’s no secret real estate has created more millionaires in the last 100 years than any other type of business or asset.

However, investing in real estate can be intimidating and complex, especially if you don’t have any capital. 

The median sales price for all home types (single-family, townhomes, condominiums, and co-ops) was $284,600 in May 2020 according to the National Association of REALTORS® (NAR).

Not everyone has a quarter million dollars laying around to get started in the real estate investment game.

However, through the use of other people’s money, purchasing real estate is easier than most think.

Both the BRRRR strategy and fix and flip method offer real estate investors creative forms of financing to acquire properties.

The BRRRR Strategy

BRRRR stands for buy, rehab, rent, refinance and repeat.

• BUY an undervalued or distressed property
• REHAB the property, thereby increasing it’s value
• RENT it out to a long term tenant
• REFINANCE it at the new higher value and a lower interest rate
• REPEAT the process with a long-term mortgage from a big bank or credit union

The market for distressed and undervalued properties can be competitive due to the fact investors are constantly searching and competing for the best deals.

Often when there are multiple offers on a property, making a cash offer will help make you stick out and win the deal.

This can be accomplished through the use of a hard money lender who can provide an investor with a short-term loan.

BRRRR Takeaways:

• The BRRRR Strategy is more complex than your average Fix and Flip
• It is focused on creating wealth and passive income over the long-term
• To be successful you must follow and understand long-term real estate market trends
• You also have to manage the properties either directly as a landlord or through a management company, which will eat into your profits
• Be sure to add enough value during the rehab phase to be able to pull cash out when you refinance and move on to your next deal

The Fix and Flip

Fast Facts

• 7.5% of all US houses sold in the first quarter of 2020 were fix and flips
• Around 44% of all flips are purchased by an investor with financing
• Average ROI’s are anywhere from 14% to 86% depending on state (Source)
• Average time to fix and flip a house in the US is about 6 months

The fix and flip strategy has become popular in recent years due to a boom in real estate prices, low interest rates and HGTV shows such as Trading Spaces and Fixer Upper.

The first part of the process is exactly the same as the BRRRR Strategy – purchase an undervalued property and renovate it.

Like BRRRR, in order to fund deals quickly, it is common for fix and flippers to use financing from hard money lenders, rather than big banks and credit unions.

Private money loans come with higher interest rates than traditional banks, but can be funded in a short amount of time (5 days is not unheard of in the HML industry).

Most traditional financing institutions come with large amounts of time consuming paperwork and red tape.   

Additionally, these large institutions prefer to fund long-term mortgages rather than lend to investors who only borrow capital for 6 to 36 months.

The key difference between the BRRRR Strategy and the Fix and Flip is the exit plan.

Whereas the BRRRR Strategy aims to grow passive income and a portfolio of properties over the long-term, the fix and flipper sells the renovated property on the open market in the short-term.

This makes the Fix and Flip a much easier investment strategy as there is no need to understand long-term market trends, maintain properties or manage tenants.

Fix and Flip Takeaways

• For real estate investors who are inexperienced, it is advisable for them to partner with a fix and flip expert in order to gain experience and contacts
• Understanding local market trends and applying this knowledge to efficiently execute floor plan and renovation changes is key
• Many fix and flippers finance their projects through short-term hard money loans

Conclusion

The old saying, there are many ways to skin a cat, applies well to the real estate business.

Contrary to some people’s belief, not all property must be purchased with traditional big bank financing and then held for 40 years to make a profit.

Real estate investors who find creative ways to finance deals can close deals quicker and move onto to their next project.

Following either of these strategies discussed will put you well on your way to creating a real estate empire.