We’ve got a fun case study today about a Denver area investor who went to Pueblo, bought a single family home, and executed a BRRRR with great results. Eric, an investor based out of Lakewood, joined Chris and me to share his story and explain how he was able to successfully BRRRR in today’s market.
- Listen to the podcast “#97: How a Denver Investor Successfully BRRRRed in Pueblo” on the Colorado Springs Real Estate Investing Podcast
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Eric is pretty new to real estate investing—he bought his first property in September 2019 in Lakewood. At the time, he was living in California and his wife was living with her grandmother in Evergreen. They did what he called a hybrid flip model—performing major work on the house while they weren’t living in it, then continuing to make improvements after moving in.
They saw the appreciation they were getting from the house and wanted to use the equity to invest. The stock market didn’t have the returns they were looking for, so Eric started listening to podcasts on real estate investing and reading books like Rich Dad Poor Dad. He learned about the BRRRR method but wasn’t sure if it would work in today’s market.
Finding a BRRRR in Pueblo
The BRRRR method stands for: Buy, Rehab, Refinance, Rent, Repeat. Typically, people use cash, a Home Equity Line of Credit (HELOC), or a hard money lender to buy a property in cash so there’s no permanent financing on the home. Then, they do the rehab and get the property rented out, and find take out financing. This is a great strategy to build wealth over time through real estate, but it’s tough to execute in an extreme seller’s market.
Eric looked at markets with a lower cost of entry all over the country but ultimately decided he wanted to be able to put sweat equity into the property. They settled on Pueblo, which is about a two hour drive from his home and cheaper to start investing in than Denver or Colorado Springs.
He found a house originally listed for $140K that had some price cuts after sitting on the market. After looking at some comps and talking to lenders to figure out the After Repair Value (ARV), he was confident a BRRRR on the property was feasible. As long as he could get to $168K ARV, he’d be able to pull off the BRRRR. He worked with investor friendly realtor Leah and they closed at $111K.
Lending Options for a BRRRR
There are two major lending components for a BRRRR: the initial lending to purchase the property and the take out financing when it’s refinanced. A lot of people focus on the first one and forget about the second, which can hurt them on the backend.
To purchase the house, Eric had three lending options: hard money from his dad, a HELOC on his Lakewood home, and a third party lender. He went through all of his options and ultimately decided to use hard money from his dad.
He got a loan of $135K, enough to cover the price of the house with some cash left over to pay for the rehab. They documented the loan on a deed of trust and a promissory note.
After he finished the rehab, he had the option of waiting for the seasoning period or refinancing immediately. Due to the pace that interest rates were climbing, he opted to use a rate and term refinance. This isn’t a cash out refinance, but he only needed to pay out as much as the $135K promissory note.
Rehabbing the Home
The home needed some major work in order to be ready to rent out. The biggest issue was that the entire roof needed to be replaced. It wasn’t up to code in its current state, and Eric couldn’t even get it insured in that condition. Eric contracted out the roof and ended up going with a local company who could replace it for $11K.
In addition to the roof, they also replaced the boiler, windows, and did some minor upgrades like new paint and carpeting. The windows ended up being the biggest hassle because supply chain issues prevented the windows from arriving for four months. Eric and his dad did the rest of the work themselves and ended up spending $27K in total, under their $30K budget.
Renting out the House
He put the home on the market in mid-February with the help of a local property manager. They started the rent at $1400 but had issues with people qualifying, so they dropped it to $1295. They soon found a tenant who moved in at the end of March.
Having a property manager is an adjustment for Eric. He prefers to fix problems quickly, so when he gets a notification of an issue, his instinct is to drive down and take care of it himself. He has to remember that he has someone managing these things for him, and that a two hour drive to fix a small problem isn’t worth the time or gas money. As he shifts his mindset, he’s learning to appreciate a more hands off approach.
Long-Term Investing Strategy
Eric’s overall goal is to achieve financial freedom. To get there, he hopes to purchase 10 properties in 10 years, with 20 properties by the time he’s 40. With all of the changes happening in the real estate market, though, he thinks it’s more important to find ways to take advantage of opportunities rather than strictly stick to his goals. He’s willing to change those goals in order to keep growing.
By implementing a BRRRR strategy now, Eric is giving himself more flexibility in the future by having equity in the property. He may use a 1031 exchange to trade up in the future, or try another BRRRR if he can find the right deal. Now that he understands the process, he has a sense of relief and isn’t in a hurry.
Connect with Eric
If you want to get in touch with Eric to learn more about the BRRRR process or being a landlord in Pueblo, email him at firstname.lastname@example.org.
If you have any questions about your own investing strategy, reach out to me for a free consultation.