At LME Investments, we unlock value through the BRRRR method. What’s BRRRR? More than just a fun acronym to repeat, BRRRR stands for: Buy, Rehabilitate, Rent, Refinance, Repeat. It’s one of the most powerful means of building wealth in multifamily real estate. This is especially true in a market like Los Angeles. Let’s take a look at each step:
Buy
To execute the BRRRR strategy, you need to buy a property which is undervalued, and offers potential for improvement. Perhaps the property rents below market rates, because it needs upgraded interiors, and more hands on management. Or, maybe the property’s expenses are too high, thanks to inefficient heating and utilities. Reducing those costs would make the property more profitable.
Rehabilitate
Rehabilitate, or “rehab”, refers to the process of improving the property, through both physical and operational changes. This could involve upgrading kitchens and bathrooms, or even adding more rooms to select units. In some cases, it might require more involved work, such as improving plumbing and electrical systems. Rehab demands skilled contractors and subcontractors, supervised by a team which understands how to make projects run smoothly. Rehab can also involve bringing on a new management team, to better serve tenants, and reduce vacancies. This process puts you in a position to increase rents, and thus generate more rental income.
Rent
Renting involves the process of leasing units, at market rates (i.e. more than the units were renting for before). It also involves reducing vacancy, by offering tenants a quality place to live. Rental property management is an intense, hands-on business. Through effective management, you can increase the rental income generated by the property (known as Net Operating Income or NOI), which increases the market value at which you might sell the property.
Refinance
By increasing the NOI of the property, you’ve raised it’s value considerably. This means that you can refinance the property (i.e. obtain a new mortgage, based on the value of the property). Typically, you’ll want a cash out refinance, which lets you take out cash (tax free) based on the property’s new value. This cash can be used to return money provided by investors, who now own a portion of an asset that is worth considerably more than it was when they purchased it.
Repeat
If you and your investors are up for it, you can take the money paid out from the refinance, and purchase more properties. This allows you to build wealth in real estate - and hopefully have some fun in the process!
Our Step By Step Process
Sourcing Deals
We review deals from various sources. These include:
● Off market opportunities , obtained through our direct owner contacts.
● Properties presented by brokers.
● Distressed property sales
● Referrals from lenders, contractors, attorneys and other sources.
● Relationships with fellow landlords.
● Referrals from local landlord associations.
Underwriting
We review dozens of deals for each opportunity we end up pursuing. Some of the factors
we consider include:
● Current NOI vs. future NOI after improvements.
● Costs and timeline of improvements needed
● Submarket trends and population demographics.
● Potential for creative strategies to increase cash flow.
Financing
We have access to many sources of funding for acquisitions. These include:
● All cash purchase, using our and our investor’s funds.
● Fannie Mae and Freddie Mac financing – only accessible to experienced investors.
● Seller financing
● Private money
Rehab & Management Improvements
We follow a time tested approach to improving properties. Our steps include:
● Selecting skilled construction vendors through relationships, competitive bidding.
● Assessing which improvements will add the greatest value to the property.
● Supervising rehabilitation process.
● In house property management.
● Maintain relationships with local safety and building departments.
● Marketing upgraded units through various channels, online and offline.
● Ensuring compliance with all state and local rental laws
● Collect rents and recieve maintenance requests online.
● Minimizing tenant turnover
Refinance
● Use existing relationships to obtain long term, low interest debt, thanks to improve
property value.
● Return 75% to 90% of investor capital, within 3 to 4 years after purchase.
Long Term Holding
● Hold properties for the long term, allowing investors to enjoy steady cash flow, and
long-term appreciation.
● Benefit from the many tax advantages of income-producing real estate
● In some cases, after consultation with investors, arrange a strategic sale of the property,
to trade up to another opportunity (i.e. a 1031 exchange).