- Sam Primm uses bank and personal loans to buy and modernize real estate.
- He then switches to conventional mortgages to repay the original lenders.
- With this method, one should not underestimate the renovation of the rental property and not overestimate the final value, says Primm.
Together with his best friend, Sam Primm bought his first property at the age of 26. Today Primm is 33 years old and has been in the real estate business for seven years. The desire for financial independence and provision motivated him to work in the real estate industry, as he explains in an interview with Business Insider. In other industries this has become difficult, said Primm.
It was then that Primm became aware of a popular rumor that 90 percent of millionaires could achieve their financial status through real estate. It is one of the safest facilities ever. So Primm decided to get into the real estate business together 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 run the “Faster Freedom” educational platform and “Faster” House, 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 it was precisely for this reason that real estate seemed a good option. Instead of investing in stocks or cryptocurrencies, he could use other people’s money through private loans and mortgages to get started and keep investing. So they bought a first family home and renovated it.
During the renovation, Primm learned about what is known as the BRRRR method, which is very popular in the United States. The letters “BRRRR” stand for Buy, Renovate, Rent and Repeat. His original plan was to renovate the house and then sell it again. That way, he could get a quick cash payout and use that money to buy a long-term investment property to rent. But then he realized that there was a better, faster way to make money in real estate.
Once a property was rented out and raised cash, Sam Primm could turn to a bank and get a cash-out refinancing. 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 insiders what the advantages and disadvantages of the method are in his opinion.
The advantages of the BRRRR method
The biggest benefit is that you can use someone else’s loan to buy yourself an asset that will later produce money and increase in value, says Primm. The method allows faster expansion without having to invest your own money.
Another advantage is that in the end you will have a newly renovated property in good condition. This increases the value of your property and can therefore generate more rental income.
Furthermore, you don’t have to constantly look for new properties. If you renovate and then sell them, you have to constantly look for new objects in order to generate steady income. This method allows you to earn money with originally less valuable real estate after you have renovated it. Learning how to renovate and refurbish objects can also be of great benefit.
Risks in using the BRRR method
Using outside resources can be challenging because there is much less room to make mistakes. Especially when it comes to renovating an object, it can get you into trouble. Mistakes such as underestimating the amount of money or the amount of work required for a renovation as well as excessive prices for renovation work can happen quickly. However, emphasizes Primm, they can also be avoided.
He explains that aesthetic improvements such as floor coverings and countertops as well as painting are in order. Structural problems, on the other hand, can get you into a mess because this work can be very expensive. Even experienced buyers can find themselves in this situation.
One way to prevent this from happening is to hire professional workers such as structural engineers. They can take a look at the property and estimate the necessary work and costs. Primm advises buyers to watch out for any signs that suggest that something may have shifted. These include sloping walls or large, horizontal cracks. The doors should also be examined carefully to see whether they can be closed properly or whether they have gaps in the frame and are possibly warped.
Once you have an idea of your renovation costs, Primm recommends adding about ten to 20 percent of the amount to your estimate. This gives you a small buffer for miscalculations and unforeseen challenges. You should also make sure that you have three quotes for all work involved or that you have a trustworthy construction company that you work with on a regular basis.
Furthermore, you should be able to predict exactly what value the property will have after the repair, says Primm. This also means that you are aware of how much you can charge as rent in the future and whether it covers your monthly expenses.
Last but not least, a big problem for buyers is to find 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 many more good tenants than good landlords,” says Primm. “So if you yourself are good landlords and offer a good property, you will have the opportunity to choose between very good tenants.” It just depends on you sticking to your requirements. Make sure you have strict selection criteria and are following them. “People could get you into trouble if you’re too lenient or if you don’t follow your guidelines,” said Primm. “Establishes certain guidelines, certain criteria for creditworthiness and income, and checks the applicants’ background.” Then nothing should go wrong.
This article was translated from English and edited by Julia Knopf. You can read the original here.