The Wisconsin Investor
Each week, we bring you interviews with some of Wisconsin's top real estate investors who share their tips, tricks, and strategies that you can implement right away. This show is dedicated to helping Wisconsin real estate investors elevate their game. Along with interviews, I'll also dive into hot topics in solo episodes and feature experts from various real estate sectors across Wisconsin.
The Wisconsin Investor
The Secret to Unlimited Returns: Master the BRRRR Strategy for Wealth Building
Unlock the secrets to real estate wealth without the need for hefty upfront cash. Discover how Corey Raymond, alongside insightful guests, masterfully navigates the BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat—to supercharge property portfolios. Learn from Corey's personal journey and other investors' stories who broke free from the traditional 20% down payment cycle, revealing how resourcefulness and creative financing can change the game in real estate investing.
Explore a wide array of financing strategies that make property investment accessible to more people than ever before. Private and hard money lenders, despite their higher costs, offer the flexibility needed for properties requiring significant rehabilitation. Dive into the process of buying undervalued properties and transforming them to unlock equity growth. Gain insights on managing market rents, refinancing, and overcoming appraisal challenges, all while considering the current real estate market climate.
Unleash the potential of leveraging other people's money (OPM) to maximize real estate investment returns. Corey highlights the advantages of working with private lenders for infinite returns and the importance of maintaining cash reserves for unexpected expenses. Compare funding methods like bank loans, HELOCs, and strategic credit card use, and understand the nuances between single-family and multifamily property valuations. By optimizing property management and rental income, investors can significantly boost property value, harnessing the power of real estate to build substantial equity and optimize tax strategies.
To get access to the BRRRR for Beginners Course and $1500 off, use this link: https://www.coreyandcarrie.com/offers/F5sC3dnL?coupon_code=PODCAST
Welcome back to another episode of the Wisconsin Investor Podcast. I am your host, corey Reyment, and today, guys, I am going to be doing another solo episode and I'm going to be talking about one of my favorite topics in real estate. But before I do that, I've been starting to tell you guys that this show is sponsored by Wisconsin Discount Properties and I'd like to highlight a deal that we had out to our buyers list. For those of you looking for off-market deals, we want to be the number one source for you to acquire those deals and we had a deal that just closed the other day, at the time of this recording, in Nina. So in the Appleton area. The investor bought it from us for 127. I think we had it out to our buyers list for like 110, maybe 115. So he ran his numbers, wanted to go above the minimum suggested offer we had out there. The ARV is about 190. It's a little two bedroom house, cute little thing, and he's going to put about 15 to 20,000 into it after realtor fees which he's a realtor, so he saves some money there and closing costs and holding costs and all that sort of stuff. He's hiring everything out, so he is not getting in there swinging a hammer. He's going to make about $20,000 on this deal, so an awesome investment for him. It's not a home run deal. I know some investors I talked to. They say they got to make 50,000 on a deal to make it worth their time. So that's where some folks can be more competitive than others. But he's going to make $20,000. He does 10 of those a year. Boom $200,000 in his pocket every single year. So that's the deal of the week. If you guys are looking for off-market deals and you want to get in on some of those, go to wisconsindiscountpropertiescom, plug your information in and you'll start getting access to the off-market deals right away.
Corey Reyment:All right, let's get into today's episode. So today I wanted to talk to you guys about my favorite strategy for wealth building in real estate and really anywhere. I have not found anything to match this strategy. I was at the REI success meeting here in Green Bay recently and I was talking to another investor who's just getting started, just bought his first duplex and we started talking about his goals and I said well, what do you want to accomplish this year? And he said, oh, I want to save up and put 20% down on another duplex. I was like all right, I said what's your overall goal, like how many are you trying to get to? And he had a pretty big number of how many doors he wanted to get to, and what we basically said was man, that is going to take you forever if you are putting 20% down on properties and putting 20% down on properties.
Corey Reyment:And so I guess I just didn't understand that a lot of folks are not familiar with this strategy, and the strategy I'm talking about is the BRRRR strategy. This is by far my favorite strategy. In fact, I have a course that I teach online on the BRRRR strategy. If anybody's interested in that, I'll put a link in the show notes. You can go check that out. I'll put a discount code in there for you. I would give it away for free, but we all know people don't value things that they get for free. So if you pay for it, most likely you're going to follow through and do it and it's very action oriented, and so I'm going to give you guys some of the main topics today, basically what I cover in the course. I'm going to give you a lot of the free stuff here on the podcast, but if you want more step-by-step, more granular details that I can't cover in a 30 minute podcast episode. Go ahead and go, you know, go get that course.
Corey Reyment:But so, talking to him, you know again, I think he had a goal of like 50 doors or something like that in like five years and I thought, you know, we just said, man, you were going to have to save up a lot of cash. What are you doing on the side to get more cash? And it really wasn't anything. You know, he got a promotion at his job, so he's making a few more bucks now, which is great. He's house hacking a duplex, so that's awesome. He's getting basically his living expenses free, so his cost of living is very low, so he's able to save a lot of money every single month. But again, to get to that goal, and as quickly as he wanted it, was going to take a long, long time.
Corey Reyment:I remember when I got started in real estate my goal was get to a hundred doors cashflow and 200 bucks a month as quickly as humanly possible so I could quit my job. Now that I, you know, job was good, I just wanted. My intensity level of wanting to get out of my job was extremely high and when I looked at how much cash I had. I think I had $8,000 in the bank. I had gotten fired from a job and at that job I had a profit share thing that I rolled into a self-directed IRA. So I had like $27,000 in the IRA that I could use. Or maybe it was in a different account, Because I think if you use it from an IRA I don't remember the rules on the IRAs, but anyway I was able to use it or take it out and pay the penalty on the interest gain and there wasn't much. So I did that. And then I borrowed money from my parents, who I gave a nice return on the money but borrowed the money for that, and we were able to do the first one. But when I looked at the goals, the only way to get to 100 doors in that shorter period of time with limited access to capital was to do the BRRRR strategy.
Corey Reyment:So how this differs, I'm going to explain this example from the gentleman I was speaking with at the event and why the birth strategy is superior for wealth building strategies. Now there's some downsides to the birth strategy. The number one downside is you're going to have less cash flow. You're going to be higher leveraged. Amount of reason, the world went to heck in a handbasket and we had another 08,. You're going to be in a vulnerable position because you're going to have a higher leverage on your portfolio than somebody who pays the 20% down, okay, and then fixes it up.
Corey Reyment:But what we are looking for in the BRRRR strategy to start with is we have to be able to buy, so BRRRR is just an acronym. Have to be able to buy, so BRRRR is just an acronym. Buy, rehab, rent, refinance, repeat, okay. That is the process to build an exceptional amount of wealth with very limited amounts of capital in your own name. So if you're out there listening to this and you're like man, I don't have any money to even get started, corey, 8,000 bucks sounds awesome, I don't even have that. Cool, you don't need that. Who do you know? You're just going to have to be more scrappy and more determined than somebody who's sitting on reef cases full of cash. So the buy piece is the most important piece of this strategy. You have to buy things that have value add opportunities.
Corey Reyment:So in a single family house or a duplex, typically, where you're going to add the value is through renovations. You're going to fix it up. You're going to fix it up. You're going to make it nice. You're going to get top market rent for that asset class, okay. Now that doesn't mean anything. Like we just bought one in downtown green Bay. I am not going to fix it up because the market doesn't need me to to, with granite countertops and you know the the finest finishes in the world. You know the finest finishes in the world. Okay, that's not what we're talking about. What we're talking about is we're talking about, you know, fixing it up to what the market demands, like making it nice, okay.
Corey Reyment:But unless you're in like some high luxury areas, you don't need to be going. You know full blown rehab. In fact, one of the biggest mistakes I see new investors make is when they go to rehab these properties. They make it how they would want to live in the property with, okay. So they fix this baby up Beautiful. I mean, this thing could go in a magazine. It's so nice, all right, you don't need to do that when you're doing rentals.
Corey Reyment:I personally like to leave it up to property management to do. Now, every area here in Wisconsin is going to be a little bit different as far as the quality of property management companies that are available to them. So if you're in a different area here in Wisconsin and you don't have great property managers in the area that can do quality renovations at a reasonable price, you may have to self-manage that or self-contract that. But my biggest piece of advice don't over-renovate a rental, okay, because that throws your numbers out of whack. You got to stay within the budget, and what I mean by that is what you're looking for is a property that you can buy at a discount, okay. Or when I say discount, some people's mental defense goes up. It's like oh, I'll never be able to buy a property at a discount. Buy it for what it's worth. In the current condition it's in All, right, let's say that. So if the property needs a lot of work, you have to be able to buy it at a number that makes sense because of the work that it needs.
Corey Reyment:Okay, and you have to know your comps. You have to know what is this thing going to be worth once I fix it up? Okay, that's another challenge. When I started, I was like I have no idea what properties are worth. That's going to take some practice. Okay, you're going to have to run some comparable properties. You may have to work with some agents. You may have to work like at our company, and we provide you an ARV.
Corey Reyment:I always tell people do your own due diligence. Obviously I don't want you coming back to me and saying oh man, your ARV was 190 and it appraised at 180. How dare you right? And it appraised at 180. How dare you right? Do your own due diligence. Okay, but we're going to at least be able to give you some comps to get you started. And if somebody wants an explanation of why we chose those comps and why we're pretty confident in the ARV, we are happy to hop on a call and walk through that with them. But you may want to get a second opinion, you may want to get an agent. You may want to work with another experienced investor and partner with them, or just see if you can bounce ideas off of them. All right.
Corey Reyment:But that ARV what we want to come to is we want to start out. We want to be at 80% of that ARV when we have all of our costs into it. Okay, so what I mean by that is let's just use some simple math here. Let's say we think the property is going to be worth $100,000 once we fix the whole thing up. Okay, we need thing up In order for this to be an absolute slam dunk burr. We need to be all into that property for $80,000 when we go refinance the property.
Corey Reyment:And the reason that 80,000 or that 80% is important is most of your commercial lenders, or even your conventional lenders. If you're going to go that route, they're going to be able to go up to 80% of that loan to value. And why they do that is they say, hey, we want a little bit of a buffer here as well. In case the market tanks, we need to be able to offload this property and at least try to get our principal back. So if the market drops 20%, they may still be able to at least get out of it for a reasonable close to the principal or a small loss, versus leveraging you all the way to 100% of what the property's worth, fixed up and then having no wiggle room there if the market tanks and they need to take that property back over.
Corey Reyment:Now the difference here, why this is such a powerful tool, is if you go to right now, say that same property, okay, it's worth a hundred thousand. Where you're going to pick it up, let's say you could buy it for 60,000. Okay, you go to a regular lender any lender really and they're going to say great, corey, bring us that property, I love that you're doing the rehab on this and you're going to keep it as a rental. Smart decision, young man. So now you have to come up with $12,000 to just purchase the property. Then, let's say, this property needed $20,000 in repair, so bought it for $60,000. We're going to spend $20,000. So we're going to be up to $80,000 on this thing. All in. You're going to have to come up now with $32,000 because you have to put the $20,000 into fixing it up and you need the $12,000 for the down payment. And then there's going to be usually seasoning periods on these loans and things like that. So now that money is going to be tied up for a while in the property and it makes it a bit of a challenge.
Corey Reyment:The pro of this is typically, when we buy these properties we're using for lending. In order to purchase the property, we're typically going to use what's called a hard money lender and if you need a reference for that, there's an episode with Tony Breuer and Jairus Briskey's. In another episode they run Good Faith Funding most reputable hard money lender in Wisconsin Highly recommend you go back and listen to that and I'll explain a hard money lender in a second. Or you're going to use private money, like I use my mom's money. On that first example, friends, family, whoever and right away I know some of you that are more reserved you're going to say, oh, can't do it, I'm not going to talk to my friends or family or beg them for money. Okay, we're going to cover that in a second here as well. All right. Or there's other national lenders out there that'll do what's called a bridge loan, so they'll lend you a portion of the rehab. So maybe they'll fund 100% of the purchase price and 90% of your rehab. So still better than coming up with $32,000. Maybe you'll need to come up with $8,000, possibly or less, I don't know if my math was correct. Maybe it's $4,000 for 90, 90%, 2,000, whatever it is right and maybe a very minimal amount of cash that you need to come up with in order to purchase these.
Corey Reyment:Okay, and typically you're only using those lenders. They're going to be higher priced, right. When I borrow money from private investors, I'm paying them usually double-digit returns, double digit returns on their money. If you go to a hard money lender. They're going to usually charge you at least 12%, plus they're going to put on some points. So a point is 1% of your loan value. So if it's three points and your loan is $100,000, $3,000 is going to be just fees, like origination fees, okay. So the hard money lender is more expensive, but they like fixer upper properties, right. They're not going to be like some of the community banks or commercial lenders or conventional lenders who only want stabilized fixed up properties in their asset portfolio. These hard money lenders they'll give you a six month window to get it rehabbed and refinanced. These hard money lenders they'll give you a six-month window to get it rehabbed and refinanced and then you're going to refinance it into one of the lower cost option lenders.
Corey Reyment:That's the game, basically. You're using private money, hard money, lines of credit, some other type of loan, bridge loan from some national lenders. There's a few community banks that will do construction type loans off of the future value of the property. You're going to find those people, okay, and you're going to work with those folks. You're going to go buy the property. You're going to fix it up, either using your property management company or using yourself, if you have to GC it. Hopefully, not. Hopefully you can find some lenders to do this for you. Then you're going to rent it to today's market standards.
Corey Reyment:Again, this is about adding value. So you added value by fixing it up. Then you're going to add value by putting in renters now who are paying market rent. One of the mistakes I see as well is when we have a property and we put it out and it's month to month leases Okay, and they're low. I mean that's why these people are selling right, as they've made probably friends with the, with the tenants. They haven't raised their rent in 20 years. You know those types of things. And so now market rents double, triple, whatever they're charging. Okay, you're adding value by fixing it up and then getting it to today's market rent, all right. And then you're going to go to a more conventional lender or another community bank who likes it, stabilized, willing to give you a good interest rate, good terms, and you're going to refinance your hard money lender, or you're going to refinance your friends or family, or you're going to refinance yourself, like for me I use lines of credit a lot of times and then I'll refinance and I'll pay myself for my line of credit back. Whatever you're going to do? You're going to refinance.
Corey Reyment:Now, in our scenario, if you did this and the math worked out perfectly, you have a property now worth $100,000 and you only owe the bank on your refinance $80,000. Okay, you essentially created $20,000 out of thin air. When we hear make money, go out and make money, a lot of times you're like no, you got to go earn money. You are like kind of printing money, it's air money, right, you can't realize that 20,000 until you would liquidate it, but you've created $20,000 of spread. Now, not many properties you're going to be able to do around here in Wisconsin anymore where your ARV is only a hundred thousand, typically, you're going to have to be. Those properties are going to be a little more expensive. You know, 200,000 now is kind of a minimum almost of where you're going to be on a lot of ARVs on this stuff. But that's the game right, that you're playing, and this is by far the quickest way to get there.
Corey Reyment:Now, worst case scenario, let's say I remember when I bought my first duplex I went to Tony, had good faith funding and he was kind of teaching me this process and I was freaking out because I only had eight grand right and I owed my mom all this money and all this stuff. And I said, tony, what if? What if that appraisal comes in low on my refinance? Right, what happens if? Like, I think at that time let's just use that, we'll just use our example of a hundred thousand. What if my appraisal only comes in at 90,000? And he's like, okay, so then what's 20% of 90,000. Right, I was like, well, okay, uh, what is that? One? 70 or 72,000. He's like, okay, so instead of having to put 20% down on the $60,000 and then put your $20,000 down for rehab, now you only have 20% of 90 that you have to have right, which would be 72, and you have 80,000 into it. So now you only put $88,000 down on a property that's worth $90,000. Still pretty good, still a pretty good deal. And this is single-handedly the best way to build wealth the quickest.
Corey Reyment:Anybody who has big goals, anybody who is looking at getting more than one property a year, if you're not utilizing the birth strategy, I will tell you you are missing out on a golden opportunity. I was having another conversation with a guy yesterday one property a year. If you're not utilizing the birth strategy, I will tell you you are missing out on a golden opportunity. I was having another conversation with a guy yesterday and he's looking to get back into investing. He invested maybe a decade ago in real estate sold out for whatever reason, tossing around getting back into it. But he's seeing the prices are high and, comparatively speaking to 10 years ago 100%, they are definitely probably double or triple what they were 10 years ago. And he said, ah, is this a good time to get in? Is real estate going to keep going?
Corey Reyment:I did another solo episode on should I buy real estate and wait, or should I wait to buy real estate? What I will tell you guys is this, this strategy. While your numbers may be different, what I look for when I'm doing a burst strategy is can I get most of my money back out of it when I refinance? I'm not expecting it to be a hundred percent burrow strategy in this market. I understand I'm going to have to be competitive, a little bit more so than I did 10 years ago. Um, I wasn't in the game 10 years ago, but if I was seven years ago when I was in the game and I'm going to, I'm going to have to be more competitive. But all I care about is is it going to like make a dollar at the end of the year, net, net, net in my pocket? Will I be able to at least be in the green on it and can I get most of my money back out of it? And the reason I say that? And so this is where understanding your situation and your goals may dictate where you can buy these properties at and how much money you can stick into them, and those sorts of things.
Corey Reyment:My goal is not cashflow right now. Okay, if my goal is cashflow, I needed a certain return on my capital that I'm putting into it. I would be putting more money down on these properties and probably buying more stabilized properties, not these value add properties. Right, I'd be buying something that's already fixed up. It's already at market rent. I'm just going to put my 20% down and move on to the next one. Right, I'll tell you, though, that is a slow, slow burn and you're missing out on an opportunity to potentially leverage that cash much better. And again, if you're risk averse and you don't have big aspirations, maybe that suits you well and your cash flowing and it's working out great and you're living a great lifestyle Fantastic, keep doing what you're doing. This is for those people who want to really speed things up. You want to compress things a little bit as far as asset accumulation goes and wealth building goes. So my goal is wealth building.
Corey Reyment:When I when it comes to long-term rentals or even Airbnbs pretty much all my Airbnbs have been value add opportunities None of them for the most part, uh have been ready to rock and roll day one or that I wasn't buying at some kind of discount and putting it into our portfolio, okay. So why this is so important? Okay, I've talked to some financial advisors and I cannot get a financial advisor to show me an investment where I can have little to no money into it and I'm going to have X amount of dollars of equity, okay. Or where I could liquidate it and pull 20 grand out Right, it's just impossible. You can't do it. So what I mean by that is, once you do this refinance, let's go back to this property. You are at $80,000 of your cost into it, okay, it's worth a hundred thousand dollars. Okay, Now it's not actually your 80,000. That's into it, right, because if you're doing this properly, you've refinanced.
Corey Reyment:And now a banker, some, some other lenders, some people just use private lenders nonstop, right? I know some folks in in the um, some Midwestern States. They basically they work with a handful of private investors. They pay them an 8% return, I believe, and those people just want their money making money. They just want to get 8% consistently over time and they don't care about when it's going to get refinanced or anything, they just want their cashflow from their investment with these operators. But either way it's not their money and when you do this it's not your money. There's OPM.
Corey Reyment:This is something you're going to hear in real estate other people's money and if you're doing it responsibly and you're doing it right, their investment's safe. The bank's investment's safe, right. If you're using a bank and they're able to win because they're making money every month on the interest that they're charging, you and you as the investor have no money into these deals sometimes. So your return on investment is infinite. You plug it into a calculator. It breaks the calculator Like oh how much. If I'm making a dollar a year and I have no money into the investment, what's my return on investment? It's infinite. There's no. You have no cash on it. You look at a cash on cash return it's infinite because you have none of your own money into these deals.
Corey Reyment:It's the most powerful way to build wealth, even if you have cash. One of the things I recommend to folks keep your cash for the rainy day fund. Keep your cash for if something goes wrong, something catastrophic you didn't budget for especially if you're newer takes a dip. You have the cash to bail out your private money lender or to cover the big expense that came up that you didn't see coming right and you learn your lesson. Okay, consider it tuition in the real estate world, but use other people's money. It's the number one way to build wealth quickly. You can do a lot more the more money you make. So again, this strategy.
Corey Reyment:To me, it's the best vehicle out there for real estate investment. You've got to be able to find deals, and that can be through wholesalers. It's a shameless plug for us there, but there's other wholesalers all over Wisconsin. Get on their buyers list, be looking at properties, evaluate properties. It's your highest income producing activity you can do is evaluating deals and then finding money. Okay.
Corey Reyment:So if you can find money for the deals using banks, private money, helocs you know some people I know for the rehabs, they will take out a credit card that has 0% interest on cash advances for 18 months, let's say, or nine months or whatever their promotional offer is. They will use those funds for their rehab money, right. And then when you go refinance it, you're just paying back that credit card. That was a 0% interest credit card. Now, I've never personally done that to me. I just don't want to get caught in a pickle or for some reason I wasn't able to pay that credit card back and then now I'm getting charged 26% interest or whatever it is on that money. But it is a good strategy and I know several people have done it and it's worked out well. So they'll pair that credit card no interest, with a primary lender, let's say somebody who is willing to finance the purchase price plus some rehab or something like that. They'll pair that together. They'll use a credit card for the rest of that rehab money. All right. So that's another good strategy.
Corey Reyment:So, buying at a discount, we're looking for something that needs value add in the commercial world. So what I mean by that is five units or above, typically what we're looking for. There could be actual renovations that need to be done in the property. It could also just be as simple as raising rents to market standards In the commercial space, five units or above. In the multifamily world, the appraisers are looking at it from an income approach versus a sales approach when they're appraising the value of that property approach versus a sales approach. When they're appraising the value of that property, so if you can raise the rents, they are going to put more weight on the income increase that you've created versus. In the single family, quad, duplex, triplex world, most of those appraisals are going to be done based on a comparative sale approach. So they're going to look for other duplexes, let's say, similar to yours, that have sold in the last a comparative sale approach. So they're going to look for other duplexes, let's say, similar to yours, that have sold in the last 12 to 24 months and they're going to say, okay, what did those sell for? How comparable is that? They'll make some adjustments based on condition and those kinds of things and that's how they come up with the value they're going to put on your property. But in the five unit or above world it's mostly based off of what's the net operating income of this property and then let's compare that to other properties that have sold in their net operating income that were in a similar location or condition as this property. So it's a little bit of difference there.
Corey Reyment:So sometimes when you get into the little bit bigger properties, you don't necessarily need something that needs a lot of work. It might've just been mismanaged and now you're able to take it over and just make it operate more efficiently, get it up to market standards and you can create again. You're creating money just by operating it better. You're creating money out of thin air. This starts to get powerful. So think about these numbers now. Let's just 20X these numbers. So you've got, let's say, 2 million now of real estate that you own, all right, and you only owe 1.6 million on the on the properties, and again you have none of your own money into it. You've created $400,000 of wealth in these properties, all right.
Corey Reyment:So that's some of the strategy why this is important. Versus going and putting, let's say, 20% down on $2 million worth of properties. Now you got to come up with that $400,000 of cash somewhere to do it All right and then to get it back out. There's no opportunity to add value to those properties. You find if they're turnkey, it's going to be a long time before you can access that $400,000. So we like to put it in, fix them up, pull the cash as quickly as possible, put it in another property, pull the cash, go, do it again, repeat, repeat, repeat, repeat and build that wealth as big as you want to take that.
Corey Reyment:The next phase I want to transition into here of benefits of this strategy is we haven't talked about the debt pay down and the appreciation, okay. So on the solo episode I did a few weeks ago when we were talking about should we buy real estate or wait, wait, right. Basically, the sooner you can get these assets into your portfolio and start the clock, okay, the bigger the benefit you have for yourself long-term. All right. The best time to plant trees today or was 20 years ago Second best time is today. That old adage right? The reason this is important, guys, if you're looking at it for wealth building goals, all right is because the minute you take out that refinance loan, okay, those are typically going to have some kind of principal payback in them. They're not usually going to be an interest-only loan, so that means every single month that you pay the bank, you owe them less money.
Corey Reyment:Now, if you're doing it right again, if this thing for me is cash flowing enough to break even, basically make me a dollar net net net in my pocket every single year. What I'm not factoring into that net net net is how much did that property appreciate this year and how much debt did my tenants pay off for me? Basically, that to me is where the real power of just real estate investing in general comes in. But then when you look at it from the standpoint of if you have little to none of your own money into these deals, it's even more wild. Okay, so let's say the same property you bought for let's call it a hundred thousand dollars or 80, you're all into it for $80,000. Okay, you refinance, you've got your longer term financing in place and the property starts to appreciate 4% a year. That's pretty conservative average here for Wisconsin 4% a year. Right, I don't have the numbers in front of me. I could pull chat GPT up.
Corey Reyment:I use that a lot for these scenarios that I play around with in my head. But over time, in five years, you're going to have a pretty big spread between what you've now paid off in debt and what that property is now worth. In that same episode I referenced back to, I did a scenario where it was just $300,000 property and you owed $300,000. So you did not burr this thing. You may be overpaid and now you're underwater maybe on it, I don't know. I just threw a scenario in there just to not skew it with the equity After five years on a 7% interest rate loan, on a 20-year loan payback schedule, so an amortization of 20 years and in five years with 4% annual appreciation, in that scenario you would have $106,000 of equity, which is pretty crazy.
Corey Reyment:So you took a deal that had nothing, zero things, and in five years, just from holding it and letting your tenants pay the debt off and letting the market appreciate an average of 4%, which is again pretty conservative you're looking at $106,000 you created. So imagine if you can just keep rinsing and repeating and doing this birth strategy over and over and over and over and over again and accumulate a pretty significant portfolio in a short period of time, and then you don't have to really do anything for a while. You can just sit back, depending on your goals, and just let the market work in your favor. Let the tenants pay your debt off, let the property appreciate every year Any cash flow you get. Just keep it on the side so that you can fix the properties up as things break, because things are going to break and things are going to go wrong, but in a short period of time you can create some significant wealth.
Corey Reyment:I think after 10 years that same property, you had a spread of like $240,000, because now the property was worth I don't know, let's call it $400,000. I don't remember exactly what the numbers were and you only owe whatever it is 150 on it, 200, whatever the numbers are. I don't know exactly without looking at it, but you have a pretty significant spread after only 10 years, right? 10 years seems like a long time. When you're doing it Like man, 10 years can be forever, but in the blink of an eye. We always talk about, like my kids growing up, and how fast that happens, right? You think about that. You just start buying some properties and 10 years are going to wake up and go, holy cow, I'm wealthy. That was pretty cool, right? So this strategy is powerful in that aspect.
Corey Reyment:The other piece of this too and I'm not going to get into too much of this because I'm not an accountant but you also get interest deduction, mortgage interest deductions on your taxes and you can also depreciate the taxes. All right, one of my favorite strategies in real estate. Let's say you're a high income earner All right. So you're making six figures, multiple six figures a year, okay. And you have a spouse and that spouse maybe isn't making nearly as much and they don't love their job, right? They're just doing it just to help out and keep up, right? One of the things you could do is have a spouse take over your management of the manager of the property. And again, there's more specifics to it. So, if you're interested in the strategy, talk to your accountant about this.
Corey Reyment:But there's something called bonus depreciation. Now, at the time of this recording, it's not as attractive as it has been. Okay, trump got back into office. They're working on extending a bunch of his tax cuts law from 2017. And if they go back to that this year, we could see a pretty significant benefit from this bonus depreciation law. All right. And so what that basically says is you can take anything that normally you would have to depreciate over five years, 15 years and 29 and a half years, and you can shrink that down in a lot of those categories to take it all as a one year loss on your all of your income, okay.
Corey Reyment:So, doctor, I'm going to give you an example of a doctor. Doctor makes 500 grand a year. Wife is a quote-unquote real estate professional, managing their portfolio and that sort of thing and again, I'm a big advocate of third-party management. So there's some ways that you have to work with your accountant to make sure you're logging your hours correctly and you're doing the right activities to be able to qualify for this designation. But the wife, let's say, or husband you could flip-flop it. Not trying to be sexist here, maybe the wife is the doctor and husband's being the real estate professional, whatever you want to do there.
Corey Reyment:But in this scenario, doctors make it $500,000. Spouse is the real estate professional. What you can do is, let's say, you've bought a million dollars worth of real estate. Okay, what you do is you take out the land value from that and then you look at what's left over. So let's say there was $800,000 left over. Once you remove the land, typically about 30% of that amount is going to qualify for this bonus depreciation designation and this year we're currently at 40% of that. Third, you could take as a loss against all of your income. All right Now. A few years ago it was 100%, so 30%. What is that? 240,000 of loss if it was at 100% he could take, so about half of his income or her income. If they were making 500,000 a year, they could just wipe right off of their off their taxes, and now they're only paying taxes on that 260 that's left. That's a huge, huge benefit.
Corey Reyment:We did this for some folks a few years ago. We were coaching some people, my wife and I, and we discovered that the spouse would actually make more money, and what we meant by that is keep more money. It's not what you make, it's what you keep, as they say, just by utilizing bonus depreciation on the rentals that they had been purchasing. Because her husband was a high income earner and the amount of taxes they were going to have to pay, based on the capital gains tax from flips and based off of the income that he was making in his job. It didn't actually make sense for her to keep working because she still had to pay income tax on her money. And so we say, well, if you quit your job, did the math. You should actually be bringing in more money or keeping more money in your guys' bank account by doing this bonus depreciation strategy, right? So coupling all of that, going back to this BRRRR strategy, right, they were able to buy enough properties because they didn't have any money left in the deals or very little bit of their own money left into these deals that they were buying for rentals, and they were able to do enough of those in a year to then be able to utilize this tax strategy to offset all of their income from their regular W-2 stuff and some of the flips that they were doing.
Corey Reyment:I mean talk about powerful right. Think of like how much faster you could build wealth by not having any of your own money into a deal, being able to have equity in the deal after it's refinanced, meaning you're creating money basically out of thin air. Your cash flowing usually on these might not be significant now, but what happens is when inflation happens and rents typically go up, right Cost typically go up. So your equity goes up and your mortgage rate once you refinance it should be fixed for some period of time, maybe five years. If you're doing commercial, you can also refinance those into some 30 year products that are locked in, 20 year products that are locked in for 20 years. So you can lock in an interest rate if you want to and keep that property, but as costs go up and as values go up, your payment stays the same on that loan. So some amazing benefits to this strategy, guys.
Corey Reyment:I personally think this is the best strategy in real estate investing. I look at it this way, even if I have to have some money into the deal. We talked about cash on cash return a little bit before. If you're not familiar with that term, again, I love chat GPT Just go into chatPT and Google. What's my cash out and cash return? If I have X amount of money into a deal and at the end of the year I put X amount of money in my bank account, it'll tell you your cash on cash return. That's basically your rate of return on the amount of money you have stuck into the deal. So even if you have to have some of it in there, typically you're not going to have to have the 20% in plus all the rehab money. You're going to be at a much smaller amount of money left in the deal and your cash on cash return. If you're utilizing this strategy properly, it's going to be significantly better than a lot of other investments you can openly go do with confidence.
Corey Reyment:I look at the stock market. It's been just crushing it the last couple of years, but there's a lot of volatility with that. You don't know where it's going to end up. You do your calculations and you get good at the strategy. It's pretty easy to figure out within reason how you're going to end up with a cash on cash return and again, ideally for me, I have none of my own money into the deal. At the end of the day, that's the perfect scenario. It doesn't always work out that way and that's just something maybe you'll get to.
Corey Reyment:If you have some of that capital sitting on the sidelines, you're okay if you have some of your own money into it. Maybe you really need to have all the cash out because you don't have a lot of capital you're sitting on. And that's where partnering up with private lenders and people who are okay having their money working for a while is important. And again, I know this is a lot of information for some of you. If this is brand new to you, you've maybe heard of the BRRRR strategy, but you've never gone in-depth on it. This is where having the course is super helpful. And again, if you're not ready to do a course, you're still kind of in info-gathering mode. Our team at Wisconsin Discount Properties we're happy to talk you through this strategy and hop on a call with you no obligation, just conversation with you. Just go to Wisconsin Discount Properties, go to the contact us part and fill out something and one of us will get in touch with you if you're not ready to start seeing deals or anything like that, and we'll walk you through how this process works in more depth, answer your questions and hopefully get you on a path to building significant wealth for you and for your family and for your legacy.
Corey Reyment:So with that, guys, this has been another episode. We appreciate you guys taking a listen. If you got some value out of this, please share this episode, especially if you know somebody who's interested in the BRRRR strategy. I hope that this has been valuable for you. It's always hard when I'm just sitting here talking at the computer because I don't remember what I said and I don't even know if any of this stuff makes sense. But hopefully this did make sense or at least spark some ideas and excitement for you and if it did, I would love to hear from you. I'm always looking for feedback on these, how we can get better, how we can bring more value, if we can bring any guests on that you guys are really wanting to hear from. Please reach out and let me know. And thanks for tuning in. We'll see you on the next episode.
