People often ask how we are able to buy so many houses. There are a number of ways we can do this. The first is that we are well capitalized with our founder Steve Keighery having been a partner in a tech company that listed on the Australian Stock Exchange. The second is we have a number of strategies we use to take down and exit properties. In this video Steve talks through one of favorite strategies that he had just done on a Marrero property we bought. You can watch the video or read the transcript below.
I would like to answer a question today. I get a lot of people ask how we buy so many houses. I just came from a closing that’s a little bit different, and I thought I might just take time to explain it so, you can get an idea of one of the ways we’re able to buy so many properties.
We use a bunch of different strategies to do this. Obviously, we flip properties, which everyone understands pretty well. Sometimes we partner with people who are flippers who take care of the flip. But the one we closed on today is a bit different. We just came from the title company, and we closed on it. But in actual fact, we had bought it six months ago. So, the closing was actually a refinancing, and I wanted to explain how it works. It’s one of our favorite strategies.
The property that we purchased was in the Westbank of Jefferson Parish in Marrero, and the property itself was in pretty bad condition. The owners, who lived there, wanted to sell the house really fast. They had some need for the funds. And they didn’t have the funds to move so we bought the house within a week, then we let them stay in the house for 30 days post-closing and they sold it to us in As Is condition.
When we took possession of the property 30 days after we closed on it, it was in pretty bad shape. They left their stuff behind; there was lots of rubbish and all that sort of stuff. So, a big cleanup was needed. Also, they had a dog, and the dog had ripped up a lot of the house. So, we had to get in there and make a lot of repairs, clean the house, paint it, fix it up, and then got it ready for a tenant.
So, once we’d fixed it up, we put a tenant in place, and we’ve now got a long-term tenant on a 12-month lease. They’re a good family, and are enjoying the property. With that, we’d been able to stabilize the property. Basically, we had a property that wasn’t finance friendly, it couldn’t be sold to a homeowner who’s going to use financing. So, we bought it with cash and then we added the value. We put our cash, time and, expertise into it to turn that property around and reposition it as a really nice rental. We also got a tenant in place. With that, we created a nice income stream, and then after six months, a seasoning period of stabilizing the property as the banks like to call it, we took it to our financer and we had the property refinanced.
So basically, we changed the value of the house just like you do when you fix it to flip it. But, with a flip, you take it from a value, you put money and time into it, make it worth more, then you sell it to make profit. This strategy is sort of the same. It’s the same action. We get in, we fix it, we take it from this value to that value, but we don’t sell it. We put a tenant in place. We turn it into a rental property. But it’s a lot of money to put into rentals. What we do is, we refinance out the money and get 30 year fixed interest rate. That’s low-interest rate debt. So, we put that 30-year fixed financing in place and then we pull out a bunch of that equity. This way, we get a lot of the cash that we put into it out and we then use that to buy more houses. This is a very repeatable process so as soon as we do this we look to use that cash to buy another house and do it again.
That’s a really good way that we buy lots of houses. We also do a variety of things, like flipping. We do a bunch of things at the same time depending on the property and what’s going on in the market. Also, in our business, there are different priorities we’re working on, but we love this strategy because it allows us to build a portfolio of properties.
Although, it doesn’t make us a lot of money in the short term like a flip, in the long term we like it because we have an asset. And over time, when you start paying the loan down, you have tenants in place who are the ones paying the loan. You only make a little bit of money each month but as the years go on, the rent is paying down the principal so you’re starting to get more value into the property and hopefully, with inflation, the value of the property might go up. We also get depreciation and tax benefits and a whole bunch of other things.
In the long term, it’s really good to have this portfolio of properties. It’s one of the strategies that allows us to buy a lot of properties and keep a lot of properties as well.
I thought I should share this strategy with you. It’s lesser-known. Everyone knows flipping, but a lot of people don’t know this strategy, and it’s something we love to do. And it’s a strategy we recommend you use if you’re an investor. In investment circles, they call it The BRRRR method, i.e., Buy, Rehab, Rent, Refinance, Repeat.
If you’re a homeowner that has a house that’s not in a good shape, you can fix that up. You can flip it yourself by fixing it up and selling it. That’s good if you can do it, and you want to do it. I recommend it all day. You might as well want to fix it up and refinance it. If you don’t want to be a landlord, and you don’t want to try to fix the house then you can reach out to someone like us. We’re cash house buyers. We make the process of selling really easy. We’ll pay all cash. We’re easy to work with, we make the process easy, and we’ll add value to the property.
So, guys, I hope that was interesting for you, and have a great day. Thank you so much.