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mbrowne
12 January 2025
2 Real Estate Investing Strategies That are a Bit Too Good to be True (and why)
- mbrowne
There are a million investing strategies in real estate to make money. But there are 2 strategies that are extremely common.
These investment strategies are touted by all of the big RE investing coaches. The reason is simple:
They can be extremely profitable.
They leverage loopholes in financing or contract law.
They supercharge tried and true “Buy and Hold” strategy.
Investment Strategy #1: The BRRRR Strategy
The first one is the BRRRR strategy. It involves buying a property, renovating it and pulling the newly created equity out by refinancing it, then renting it out.
The biggest benefit is that you can recycle your invested capital.
The challenge with this strategy that no one talks about: Financing
You see, buying the property is relatively straightforward.
Refinancing it after it’s reno’d can be tough and take longer than expected.
Most lenders want to see that you’ve owned the property for over a year before they will refinance the full value. And even then, the appraisal may come in shorter than you expect!
You can read about the bRRRR strategy in my ultimate guide here:
Investment Strategy #2: Rent-to-Own
The other strategy is the RTO or Rent-to-Own.
This is where you buy an investment property, then you find a tenant who would like to purchase the property in the future.
You effectively write an options contract to them. One where they rent the property from you, and they get the right to buy it at a future date at a preconceived price.
The difficulty with this investment strategy is similar to the BRRRR strategy: financing the exit.
When the tenant-buyer wants to buy the property, they need to get financing. The two most common problems that I’ve seen with RTO contracts are:
The investor writes that they keep 100% of the deposits made through the tenancy. Insurers and lenders do not like these clauses. They basically won’t touch them due to liability.
There wasn’t enough documentation at the outset. Most lenders will need to see market rents from the beginning of the tenancy, deposits made, and other things. If the investor isn’t prudent, then the tenant may not be able to get proper financing.
So what can be done? Where do you go from here?
I’ve helped many clients with both types of investment strategies. They are nuanced. But they are possible!
Not all mortgage brokers are made the same. I specialize in structuring financing for real estate investors. My goal is for you to get financing regardless of how difficult your investment strategy.
Let's set up a call to plan out financing your investment:
P.S. I’ll be writing more posts like this, specifically about structured finance and debt, for various investment strategies. If you know anyone who’d benefit from these, please like and share the post 🙂
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