- Sam Primm uses bank and personal loans to purchase and modernize homes.
- Then switch to conventional mortgages to pay off the original lenders.
- With this method, you shouldn’t underestimate the renovation of rental properties and not overestimate the final value, says Primm.
Sam Primm bought his first property with his best friend at the age of 26. Primm is now 33 years old and has been in the real estate sector for seven years. The desire for financial and procurement independence motivated him to work in the real estate industry, as he tells Business Insider. According to Primm, this has become difficult in other areas.
At the time, Primm learned of a popular rumor that 90 percent of millionaires were able to reach their financial status through real estate. It is one of the safest investments ever. So Primm decided to go into real estate along with his best friend, who also wanted to buy his first property at the same time.
Seven years later, the two best friends are co-owners of a total of 167 rental properties. The portfolio consists of 85 single-family houses and 82 apartments. They also manage the educational platform “Faster freedom‘ and the ‘Sign fasterHouse, which buys real estate in St. Louis.
In an interview with Business Insider, Primm said that when he started working he had little savings to invest in a project. But that’s exactly why real estate seemed like a good option. Instead of investing in stocks or cryptocurrencies, he was able to use other people’s money through personal loans and mortgages to start and continue investing. So they bought a first family home and renovated it.
During the renovation, Primm learned about the so-called BRRRR method, which is very popular in the United States. The letters “BRRRR” stand for Buy, Renew, Rent and Repeat. His original plan was to renovate the house and then resell it. That way, he could get a quick cash payment and use that money to buy a long-term investment property to rent. But then he realized there was a better and faster way to make money in real estate.
Once a property was rented and brought in money, Sam Primm could go to a bank and get a cash refinance. With this he was able to repay the original lender. The rental income from the property would then cover the mortgage and all other monthly fees. The entrepreneur explained to Insider what he thinks are the advantages and disadvantages of the method.
The advantages of the BRRRR method
The biggest benefit is that, with the help of other people’s loans, you buy an asset that later produces money and increases in value, Primm says. The method allows for faster expansion without having to invest your own money.
Another plus is that you will end up with a newly refurbished property in good condition. This increases the value of your property and, as a result, allows you to generate more rental income.
Plus, you don’t have to constantly search for new properties. If you renew them and then sell them, you have to constantly look for new items so that you can consistently generate revenue. This method allows you to make money even with originally less valuable properties after renovating them. Learning to refurbish and refurbish items can also be of great benefit.
Risks of using the BRRR method
Using external means can be difficult because the space to make mistakes is much smaller. Especially when it comes to refurbishing an item, it can get you in trouble. Mistakes such as underestimating the amount of money or the amount of work required for a renovation, as well as inflating the price of renovations, can easily occur. However, as Primm points out, they can also be avoided.
He says aesthetic improvements like floors, countertops, and paint are fine. Structural problems, on the other hand, can get you in trouble because this job can be very expensive. Even experienced buyers can find themselves in this situation.
One way to avoid this can be to hire professional workers such as structural engineers. They can view the property and evaluate the necessary works and costs. Primm advises buyers to pay attention to any signs that may have changed. These include sloping walls or large horizontal cracks. Doors should also be examined closely to see if they can be closed properly or if they have cracks in the frame and are possibly warped.
Once you have an idea of your renovation costs, Primm recommends adding around 10-20 percent of the total to your quote. This gives you a small buffer for miscalculations and unexpected challenges. Also, make sure you get three quotes for any work that needs to be done or have a trusted contractor you work with on a regular basis.
Plus, you should be able to predict exactly how much the property will be worth after the repair, says Primm. This also means that you are aware of how much you can ask for in the future and whether it will cover your monthly expenses.
Last but not least, a big problem for buyers is finding suitable tenants for the properties. You don’t want to get into a situation where one party doesn’t pay the rent or damages the property. “There are a lot more good tenants than good landlords,” says Primm. “So if you yourself are a good landlord and offer a good property, you will have the opportunity to choose from excellent tenants.” It is only important to stick to your needs. Make sure you have and follow strict selection criteria. “People could get you in trouble if you’re too lenient or don’t follow your guidelines,” Primm said. “It sets some guidelines, certain solvency and income criteria, and checks the applicants’ background.” So nothing should go wrong.
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This article was translated from English and edited by Julia Knopf. You read the original here.
