2022 Deal Highlight
The BRRRR Method Real Estate
FIRE Realty facilitated the perfect example of a BRRRR cash out refinance with no rehab…. and it was just sitting on the MLS for 78 days. Here’s how FIRE found a goldmine of a Detroit investment property for $77,500 with zero rehab and an ARV appraisal value of $102,000.
BRRRR Real Estate Method
where it began
FIRE Realty noticed this particular property, a very large 2 bedroom home in a solid location. Typically, nice 2 bedrooms sell for $115K+ and this home had the sq. ft. of a 3 bedroom home. Also, in November of 2021, I knew home values would be higher in the Spring of 2022 to give the ARV even better comps. All to say, FIRE knew the home was undervalued and for some reason no one wanted it.
Identifying property potential
The listing write up was short, poorly written, and uninformative
Listing photos were bad, we’re talking google street view as the front picture type of bad
The listing agent was difficult to get ahold of and unreliable
It was nearly impossible to get an approved showing which is how it is about 80% of the time on these types of homes
The tenant was Section 8 and just like that, there goes 75% of market interest
Additionally, the tenant was paying way under market rent at $940. This is another factor many aren’t willing to face. Remember, you’re buying a long-term investment, not a 1-year investment. Market rent is at least $1,200, it’ll get there.
DOM were accumulating
The BRRRR Method: Buy
All of these observations typically deter demand. Not because there isn’t potential, but because it’s hard to visualize it working out. However, FIRE wrote a “sight unseen” cash offer saying we’d go straight to inspection and wouldn’t waste time with a showing. $77,500 cash and the deal was closed.
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We're Skipping a Step
Typically, the next step of the BRRRR Method is Rehab. However, an inspection with Elevate Home Inspections reveals that the property was in “good enough” condition. The house will definitely needed some cleaning and updates for a turnover or resale, but we luckily already had a paying tenant. With that in mind, we were able to skip directly to the Rent portion of BRRRR.
FIRE met with the tenant who was an exceptionally nice lady and bumped the rent to $1,050. We didn’t feel the need to go in super aggressive with the increase, it wasn’t necessary. It’ll go to market eventually and we were more interested in maintaining a good relationship without turnover. The necessary Section 8 paperwork was sent in and approved for rent increase. Hopes were that the house would appraise for $100k+ or worst case scenario a little above purchase price. However, even then ROI would be very high.
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The BRRRR Method: Refinance
FIRE didn’t walk into this deal needing it to be the perfect BRRRR. Our team went into it knowing there was sweat equity and we were about to exploit it. The thing about real estate is most people aren’t hitting home runs by waiting for the perfect pitch and then swinging for the fences. Instead, they are taking what the pitchers give them, consistently hitting singles or doubles. Then, occasionally the nail one out of the park as we did with this property.
Let’s fast-forward six months. FIRE reaches out to Kristopher Natschke at Natschke Loans (shoutout to Team Natschke!) and asks to get the property refinanced. The appraisal comes in at $102K. Kris’ team closes the refinance in impressive fashion, as they do every investment.
Through the cash-out refinance and 6 months of cash flow, this was an infinite ROI deal. Every penny went back into my pocket (plus more) through a more unorthodox sweat equity method of buying a low-demand, poorly marketing property with barriers to entry.
There are a few other little tips, tricks, and insights FIRE uses for ourselves and our clients on deals like this. Honestly, we could write another 1,000 characters from the perspective of just this one deal…but I’m aware we’ve crossed the threshold of too long.
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