November 4, 2021

BRRRR method: How to achieve financial freedom in 5 years?

“It’s not just a catchy title; it’s actually my life story,” joked (and clarified?) real estate investor Ehab Shoukry right at the beginning of his webinar at Real Estate IQ, “Five years to financial freedom through multi-family short-term rentals.” Then, he dedicated almost an hour to explain how he managed to accomplish financial freedom in such a short time – it took him four years, by the way. The secret behind his success? The BRRRR method.

The investor noted that there were a lot of information (and misinformation) out there. However, there was a lack of precisions towards an effective strategy to do fewer deals and reach a certain point to earn enough income to replace a regular job. So, he started looking for precisely that.

“I learned two important lessons in my life. The first one is that you can try and learn this on your own, which will take years and cost you thousands of dollars in mistakes, and you still may never reach your goal. Believe me; I’ve been there. The second one is that you can hire a mentor to teach you the right way to invest and give you the confidence to step outside of your comfort zone to take action.

Ehab Shoukry, real estate investor and coach

After more than a decade flipping houses, he realized he wasn’t anywhere near his desired financial freedom. Thus, he changed his strategy to long-term rentals. And while his properties provided him with a steady income every month, it just wasn’t enough. So, he switched his approach one more time and tried the BRRRR method.

Real estate events.

What is the BRRRR method?

Also known as “buy, rehab, rent, refinance, and repeat,” the BRRRR method is an exit strategy where real estate investors acquire deteriorated properties, fix them, rent them, use them to access more financing, and repeat the cycle. And according to Shoukry, this process will allow you to scale the strategy and grow.

But each step of the BRRRR method has its secrets, and here are the speaker’s recommendations:

  1. Buy – The cycle starts with buying a property that’s a fixer-upper with a significant discountlike to ones you can find with Real Estate IQ’s Off Market Leads! The goal is to purchase and rehab the property at (or below) 70% of its ARV minus repairs. So, the uglier the property, the deeper the discount and the greater the value-add opportunity. At this point, you can use the due diligence period to look for other ways to add value (like increasing square footage or creating additional units).
  2. Rehab – Once you get the property, you need to perform a high-quality renovation that must include new plumbing, electrics, and A/C. This will save you from future maintenance problems, which are the second thing that tires landlords the most. In addition, Shoukry suggested leveraging an architect to create a design that optimizes space and helps you make the best property you can. After all, the nicer the remodel, the more you can charge. Plus, you’ll be able to attract quality renters.
  3. Rent – Depending on the property and location, you can rent it as either a long-term or Airbnb rental. The first ones typically need a deep cleaning after the renovation but will yield lower returns. Meanwhile, short-terms require furnishing the unit and additional automation but will result in higher returns.
  4. Refinance – Or cash out into a long-term low-interest loan. You should begin the refinance process once your renovation is a few weeks out from being completed. By doing so, you’ll recoup out-of-pocket costs during the renovation and get the cash flow for the next step. Don’t forget that banks will order a new appraisal. To get the highest appraisal possible, it’s crucial to perform a quality remodel.
  5. Repeat – Since the goal of refinancing is to get as much cashback as possible, you should be able to replenish your bank account and buy another property. The more you repeat these steps, the greater your monthly cash flow. Plus, you’ll have the ability to take on more extensive renovations and more significant multi-family properties.
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How to achieve financial freedom?

Even though you can repeat the BRRRR method cycle forever, Shoukry’s strategy doesn’t require it. His objective is to have a certain amount of regular cash flow from his rentals that allows him to retire. So, it’s not about the quantity but the quality of the properties you invest in. For instance, the speaker owns only four Airbnb that generate over 100,000 a month.

To achieve that, properties should be located strategically to attract temporal tenants, and they should also be high-quality properties to lure quality renters that can afford them. Don’t forget what Jamie Bounds said here a while ago about short-term rentals: “The most important thing when running short-term rentals is to switch your mindset from housing to hospitality. You have to be hospitable; short-term rentals are all about the experience.”

So, once you locate the perfect properties and perform the necessary improvements, you’ll have a source of passive income. Shoukry’s wealth-building strategy has three pillars: he focuses on how he buys (BRRRR method), what he purchases (multi-family), and what he does (short-term rentals). And it also has three premises in order to work:

  • You have to own property – Financial freedom comes from owning a portfolio of properties that consistently generate monthly passive income without you having to put in a lot of work in your business.
  • You have to be protective of your cash – Any buying strategy that uses up your money (like for a down payment) is not scalable, and you will run out of money.
  • Highest and best use of a property – Taking the same property and changing it from a long-term to short-term rental Airbnb can increase profits three to five times. Evaluate your deals, and allow yourself to make the most money out of a property.
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What does it take for you to do this?

Until now, it might seem that this is just a case study to understand how this real estate investor and former IT consultant managed to retire early by investing in real estate. But this is a proven strategy you can replicate to get enough passive income to do the same!

To do so, Shoukry ended his presentation with five items that will set you on the right path:

  1. Have the right mindset – Start by believing that wealth is possible for you.
  2. Find and analyze deals – Decide where to look, learn how to make firm offers, and what’s a good deal for you.
  3. Gather a great team – Have trustworthy professionals by your side, like a general contractor, an architect, an inspector, realtors, wholesalers, etc.
  4. Ask for financing – You could go to short-term and long-term lenders or money partners.
  5. Have discipline – Take massive daily imperfect action. You’ll need both discipline and consistency to create this business.

The first and last items are particularly critical since Shoukry noticed that not paying attention to them is one of the biggest mistakes investors make along the way. “Some investors only focus on the technical tools, which are pretty straightforward. What will determine how far you go and grow is your mindset. So, take the time to nurture it, read, follow other people, and keep yourself healthy. When you get discipline in other aspects of your life, you’ll start getting discipline in your real estate business as well,” he concluded.

Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.