How to Build Wealth in Real Estate FAST
There are many ways to build wealth, and most of what is preached when it comes to building your wealth by investing in real estate is slow and steady wins the race, invest for long-term, and be patient.
But we want to make money now, be rich now, whom doesn’t right.
Well, over the past 5 years I’ve been building my wealth by investing in real estate, however, it wasn’t until about 3 years ago that I started using a real estate investing strategy that really builds your wealth fast!
Sure, you can build your wealth fast using the most known real state investing strategy such as fix and flipping.
However, this method is very risky, requires a ton of capital out of your own pocket, and unless you are rich and can flip expensive homes to make big profits, you’re going to have start like I did, buying cheap homes that you can afford, fix them up and then sell them, making much smaller profits, and then repeating the process a ton to build enough wealth to then buy the expensive homes to flip.
But again, this method requires a lot of work, a lot of capital, and is very high risk.
So, what is the method I’ve used to build equity fast and it’s not the fix and flip strategy?
Watch until the end of this video below to find out!
Building Wealth FAST!
Let’s jump right in to the strategy I now use, which I call….
BHIIR (pronounced beehire)!
Also known as the Buy, Hold, Improve, Increase Rents Strategy.
Yes, I know, isn’t as catchy as fix and flip, or B Triple R, but it’s the best I could come up with.
If you can do better, by all means, leave a comment on my YouTube channel, I won’t be offended, and if it’s good, I’ll probably use it!
Now, this strategy is nothing new, you just don’t hear many people talk about it because it’s not as sexy and popular as fix and flipping.
And it does require you to tie up your capital in the property, so many people don’t use it, instead using the other popular strategy, the Buy, Renovate, Rent, and Refinance real estate investing strategy, also known as BRRR.
However, both of these methods require a lot of capital.
First, you need the down payment funds, and then you need the renovation funds.
That’s a lot of capital, and most of us just don’t have this kind of money lying around.
Plus, with the BRRR strategy, since you are still going to hold onto the property after you renovated and refinanced the property; which if done right, allows you to pull out your capital, to then reinvest in the next property... financing becomes an issue.
This happened to me, because when you refinance; your new, higher mortgage, due to the increase in the value of the property, results in your debt levels increasing.
And unless your income can justify the increase; to maintain a good debt ratio, so you can borrow, the banks are going to eventually say NO.
On top of that, there is the risk of not getting a high enough appraisal you need, to then refinance the property to pull out your capital when you use the BRRR real estate investing strategy.
This happened to me at this property here.
I did a ton of upgrades to the bones of the property; new roof, new furnaces, new AC’s, updated the electrical, but the appraiser couldn’t see these updates, and thus appraised the property for not much more then I purchased it for, even though I had invested $60K into the property doing these upgrades, which were needed.
This left me sitting on this property, with a ton of capital tied up into it, because I couldn’t refinance it to pull it out.
Now, with my Buy, Hold, Improve, Increase Rent Strategy, also known as BHIIR, you can avoid the risks that come with the fix and flip strategy and the BRRR strategy.
So how does this strategy work, so you can build wealth FAST?
Well, to begin, it really is just a hybrid of the fix and flipping and BRRRing strategy, only with the BHIIR strategy, you hold the property for the long-term, but you don’t dump a ton of capital into doing renovations, because you’re buying properties that, yes are ugly and could be updated a ton, but really don’t need it, just some TLC, because they are already being rented, they are already liveable, but they are just…. UGLY.
First things first though before we go deeper, this strategy, the BHIIR strategy, really only works when you invest in multi-unit properties, usually 3 units and up, but it could still work for the smaller 2 unit property, aka, the duplex.
But why Multi units?
It’s because when it comes to multi-unit properties, they are valued mainly on the bottom line the property generates, the income!
Compared to a single-family home which is valued based on comparable properties that have sold in the area.
This is why fix and flipping works so well with single family homes, because you’re buying them below market value; below the value comparable properties have sold for in the area, because they need work being restored to what a nice, updated comparable property in the area is worth.
This point also goes back to using my strategy, the BHIIR strategy, with duplexes.
Investors looking to buy duplexes will look at the income the property generates, but comparable properties do come into play as well, which makes investing in these units not a sure bet if you’re going to apply my BHIIR strategy.
However, in my experience, even with duplexes, in my market, the income matters, and investors just want a certain cash on cash return to justify the price.
But, and this is a big but, if a similar property next door sold for $50K less then yours, even if yours does produce a good income resulting in a good cash on cash return that the investor wants, they’re still going to compare it to the similar duplex next door which will have an effect on the value of yours, even if the return your duplex is good.
Now, when you invest in 3 units and up, comparable properties don’t matter near as much, it’s all based on the income the property generates, because investors are only looking for a good return on their investment (ROI).
This means, your goal is to increase the bottom line, the income of your property, which in turn will increase the value of the property.
So, what is BHIIR and how does it work, now that you know it works best when you invest in multi-unit properties and commercial properties?
Well, it works by buying properties that are tenanted, meaning they are liveable units, and buying a property that still cash flows, usually just enough to cover your expenses, just in case it takes a while for the tenants to move out until you can increase the rents to market value.
And that is the KEY with this strategy.
The property must have below market rents.
Now, the only negative with this strategy, in terms of not building wealth as fast as you do when using the fix and flip strategy, is you are holding onto the property until the tenants move out of the units, which you just don’t know when that will happen.
But once they do leave, if you bought the right property, then all you need to do is some TLC; some paint, maybe some new flooring.
Usually repairs to the unit from the previous tenant.
Not a ton of renovations because you don’t have to, because you bought the property already knowing that all you really have to do is re rent the unit for market value, because the rents were just low to begin with.
And since you are increasing the rents, thus, increasing the income, the market value of the property skyrockets, resulting in you building wealth fast!
Let me actually show you what I mean and how it works using a duplex I purchased in late 2016 where I applied my BHIIR strategy.
That’s right, I’m living proof this does work for duplexes, as I myself bought the property based on the income and the return I needed to get from the property, which needed to be at least a 5% cash on cash return.
And this is because as I said earlier, it needs to cash flow enough just in case you have to wait a while until the tenants move out.
Quick aside, some people are going to argue that the income doesn’t matter for small multi-unit properties such as duplexes.
That it's all about comparable properties.
However, in my experience, income does matter.
That property I talked about earlier that I invested $60K into renovations and couldn’t refinance it.
Well yes, you were probably wondering why I didn’t just sell it to get my capital out.
Well It’s because the rents were too low, and my income property specialist Realtor couldn’t get anyone to buy it for the price I wanted to sell it at, which was the same price that the duplex sold for next door.
This is because the investors all wanted a 10% cash on cash return, and mine at a price of $300K, which was what the identical duplex next door sold for only a couple months earlier, only had a 2% cash on cash return at that price.
Anyways, back to my example, here are the numbers for the side by side duplex I purchased, which I paid only $140K for.
Now, it was worth this because as an investor; and as I said earlier, I wanted the property to produce at least a 5% cash on cash return to carry itself and not result in me having to pull money out of my pocket.
Now yes, this seems very low, and in my market, most investors would not have paid $140K to buy this duplex to get only a 5% cash on cash return.
That's because most investors in my market wanted at least a 7% cash on cash return, and since the property was in a B area; an OK area that is, and it wasn’t the prettiest, with many thinking they’d have to update everything right away, they all thought it was worth way less then the list price of $149,000, and thus, they were all passing on it.
But, that’s the secret with my BHIIR strategy, and why most people shy away from buying a property like this, because it doesn’t produce the return they want NOW.
Most think they have to have a pretty property so they factor huge renovation costs into their analysis to update everything to make it pretty, when really, as long as the property is liveable, and you can update items here and there over the long-term, not right away, and just give it some TLC as that’s all you really have to do...
And that’s what I did.
I didn’t care about the NOW rents, I saw what the potential rents could be, which for a 3-bedroom unit in my market in 2016 was $1,000 per month plus utilities, even in the current condition of the property.
With the current rents way below the market rents for a 3 bedroom, which at the time were only $750 plus utilities, when I ran the numbers, I valued the property at $140K, because as an investor using this method, I wanted at least a 5% cash on cash return, which meant I could buy the property WAYYY below market value, in my mind that is.
Why do I say 'in my mind'?
Well because every other investor thought it needed a ton of work right away, so they were factoring the all the renovation costs into what they would offer, AND they wanted a higher cash on cash return NOW.
As a result, most thought the property was 30-40K overpriced.
But me, I was buying it for the future market value of the property, for the future rents.
I didn’t care that it was ugly, in fact, most of my properties are ugly, but when it comes to investing in multi-unit properties, the property doesn’t have to be pretty, it just needs to be nice on the inside, which if you saw most of my units, you’d never think they’d be nice on the inside.
And that’s the great thing about this strategy.
People will look at the property and base it on the current income, and the current condition; the prettiness of it, and pass on it, because most are looking for the nicer property with a higher return, to make money NOW.
But as long as the current condition is still liveable, and even though it's not the nicest property on the block..
If you can hold onto the property for a while until you can raise the rents; which is key, which will then increase the income; it becomes THE best strategy for building wealth fast.
So, just like when you're buying properties below market value because they need work; they need renovations, to then sell for the price of comparable properties in the area, or when buying properties, renovating them, and the refinancing them...
With the BHIIR method, you're buying properties below market value because the rents are low, and because they are not the prettiest on the outside..
And you're holding onto the property until the tenants move out and you can increase the rents to market rents..
While doing only some TLC...
And not selling or refinancing the property, but building equity, building wealth, and increasing the money you put in your pocket, because you're making more income from the higher rents, because you didn’t refinance and then have to pay a higher mortgage payment.
Like I said, this strategy is a hybrid of these 2 strategies (fix and flipping and BRRRing), but with my strategy, you're getting the best of both of them:
Quick wealth, the main result for when using the fix and flip strategy.
Less capital out of pocket, the main result when using the BRRR strategy.
And when you do this, which I did at my property, the value of the property goes up, because an investor whom is looking to purchase it, they just want to make a high cash on cash return (in my market as of 2019, most want a 7% cash on cash return), or a specific cap rate.