Sam Primm with his family. Sam Prim
- Sam Prime uses bank and personal loans to buy and modernize the home.
- Then he switches to a traditional mortgage to pay off the original lenders.
- With this method, one should not underestimate the renewal of rental properties and reduce the final value, according to Prime.
Sam Prim bought his first property at the age of 26 with his best friend. Prim is now 33 years old and has been in the real estate business for seven years. As he tells Business Insider, the desire for financial independence and pensions inspired him to work in real estate. According to Prim, things have become more difficult in other areas.
At the time, Prime learned of a widespread rumor that 90 percent of millionaires achieved their financial status through real estate. It’s one of the safest investments ever. So Prime decided to get into the real estate business with his best friend who was also looking to buy his first property.
Seven years later, the two best friends are co-owners of a total of 167 rental properties. The portfolio includes 85 single-family homes and 82 condominiums. He also runs the education platform Faster Freedom and real estate buying firm Faster House in St. Louis.
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In an interview with Business Insider, Prime said that when he started work, he had little savings to invest in a project. But that’s why real estate seemed like a good option. Instead of investing in stocks or cryptocurrencies, he was able to use other people’s money through personal loans and mortgages to start and continue investing. So he bought and renovated the first family home.
During the renovation, Prime became acquainted with the so-called BRRRR method, which is very popular in the United States. Buy, renovate, rent and repeat the letters “BRRRR”. His original plan was to renovate the house and then sell it. That way, he can get a quick cash payment and use that money to buy a long-term investment property for rent. But then he realized that there was a better and faster way to make money from real estate.
Once a property has been rented and money brought in, Sam Prime can approach a bank and get payout refinancing. This allowed him to repay the original lender. The rental income from the property then covers the mortgage and all other monthly fees. The entrepreneur explained to the insider what he thinks are the pros and cons of the method.
Advantages of the BRRRR method
The biggest benefit, Prim says, is that you’re using other people’s loans to buy an asset that will later make money and increase in value. This method allows for rapid expansion without investing your own money.
Another advantage is that you end up with a newly renovated property in good condition. This increases the value of your property and allows you to generate more rental income.
In addition, you do not have to constantly look around for new objects. If you refurbish them and then sell them, you must constantly strive for new items to generate consistent income. You can use this method to make money even after you’ve done a major renovation of undervalued properties. Learning how to recycle and refurbish items can also be of great benefit.
Risks of using the BRRR method
Using external tools can be challenging as the margin for error is very small. Especially when it comes to refurbishing an item, it can get you in trouble. Mistakes such as underestimating the money or labor required to renovate, as well as overestimating the cost of renovating, are easy to make. However, as Prime has pointed out, they can also be avoided.
He says aesthetic improvements like floors and countertops and painting are fine. On the other hand, structural issues can get you in trouble as the work can be very costly. Even experienced buyers can find themselves in this situation.
One way to prevent this could be to hire professional workers such as structural engineers. You can visit the property and estimate the work and costs required. Prime advises buyers to watch for signs that something is changing. These include sloping walls or large horizontal cracks. Doors should also be examined carefully to see whether they can be closed properly or whether the frame has gaps and is possibly deformed.
Once you have an idea of the cost of your renovation, Prime recommends adding about 10 to 20 percent of the total to your estimate. This gives you a little buffer for miscalculations and unexpected challenges. Also, make sure you get three quotes for any work to be done or that you have a reliable contractor that you work with on a regular basis.
You should also be able to estimate the property’s value once it’s repaired, says Prim, so you’ll know how much rent you’re allowed to charge in the future and whether it’ll cover your monthly expenses.
Last but not least, a major problem for buyers is finding suitable tenants for the properties. You don’t want to get into a situation where one party fails to pay the rent or damages the property. “There are many more good tenants than good landlords,” says Prim. “So anyone who is a good landlord and offers a good property has the opportunity to choose from the very best tenants.” The only important thing is that you stick to your hold needs. Make sure you have strict selection criteria and follow them. “If you’re overly generous or don’t follow your guidelines, people can get you in trouble,” Prime said. “Sets certain guidelines, certain criteria for creditworthiness and income and conducts background checks on applicants.” Then nothing should go wrong.
also read
How this young investor built a real estate portfolio in less than a year – step by step
This article was translated from English and edited by Julia Knopf. You can read the original here.
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