Using The BRRRR Method To Scale Your Portfolio

 

Episode 51: Using The BRRRR Method To Scale Your Portfolio

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Transcript

[Intro] Welcome to the Multifamily Millionaire Podcast, the show that interviews multimillionaire real estate investors and top producers in the real estate industry. If you’re looking to create passive income and achieve financial freedom so that you can do what you want whenever you want, you’re in the right place. Our goal is to simplify and make real estate investing easy for you. For more information, you can find us at www.jlm.realestate.

[00:30]

Jason Lee: Welcome back to the podcast everyone. Thank you for being on today. Today, I am here joined with my friend Sam Primm. Sam, how are you doing today?

[00:39]

Sam Primm: I’m doing well man. I appreciate you having me on.

[00:41]

Jason Lee:       Of course, the pleasure is all mine. I’m stoked to talk to you for the next 20 to 30 minutes here and learn more about your story. To kick off the show can you tell the listener more about who you are and what you do.

[00:52]

Sam Primm:    Yeah, for sure. I’m about as normal as it gets. I grew up in the Midwest, middle class. My dad was an engineer. My mom was a teacher, go to work every day till you’re 65, retire mindset I was brought up in. That’s the path I was on. I was doing that. I went to school, high school, into college, got my degree, got a job out of college and was headed down that path. As I was doing that, I wanted more. I grew up playing sports competitively and I just wasn’t scratching that itch, that entrepreneurial thing that I always wanted to do in that job.

I was successful. Ever since I was 23 years old I was making $200,000 a year and in St. Louis that’s a lot. It goes a long way but it wasn’t it wasn’t enough for me so I started to invest in real estate on the side in 2015. I went full time in 2018 and here today I got quite a few businesses and assets and social media things we can get into. But to round that out and let you dive in, basically I just went from that full-time job for somebody else to side hustle to that side hustle becoming a business to that business creating financial freedom. So it worked for me and I’m telling people all about it now because I’m about as normal as it gets and nothing special. If I can do it everybody listening to this right now can as well. So that’s my calling statement.

[02:15]

Jason Lee:       That’s amazing. A lot to unpack there but to start, how did you first get into real estate?

[02:22]

Sam Primm:    About the most boring answer you can give, Rich Dad, Poor Dad. On my honeymoon in 2011 my best friend Lucas, who’s my business partner and all the things we’ll talk about today, gave me that book and I read it. We had owned a painting business in college. In the summers we painted. Drank probably too much in the evenings, woke up with a little bit of headache, and went out and painted houses all summer. We did that so we had done a few business things together and he gave me that book and in the next few years we talked through things and set up a plan. And then, as soon as we moved back to St. Louis we started our little side hustle of investing in real estate. I didn’t know a ton about it. I just knew it was a proven path. You know, I didn’t have to create an app or be super technologically advance. Technology can’t replace it. It’s a need that people have and it’s proven to create millionaires. Our initial goals was 1 house a year for 10 years and just to be able to retire a few years earlier. And then, we saw the power of it and then we went all in. Like I said, a few years after that and it’s been snowballing from there.

[03:26]

Jason Lee:       That’s amazing. I know a lot of people who listen to the show asked about how to get their feet wet, how to get started, how to break into the industry. Any tips on how to get going when you’re first getting started as a beginner?

[03:43]

Sam Primm:    Yeah, for sure. I mean, I think everybody’s story is a little bit different. But the common theme is everybody just needs to educate themselves and get around other successful people that are where you want to be. One of those things where… Before I was hopping on here I just saw somebody post on Instagram, “If you want to become a millionaire, don’t listen to people that aren’t millionaires”, right? You got to go where they are. So no matter where you are, what space you’re in, real estate is obviously what we’re talking about now, but you need to educate yourself and it’s never been easier. There’s this podcast that’s great. There’s other great social media that I’m sure you do. I got a ton on social media. There’s a ton of other resources. You literally have more information than you can ever watch in your lifetime for free at your fingertips so take advantage of technology and social media and other people that are successful. But then get around them, join your local community, go to your meetups, meet in person with active investors, and one of those things that their mindset, their skill set, their connections will bleed over to you through osmosis or through them giving them to you which will happen a lot. So educate yourself and get involved in the community. And depending on how much of a hard worker you are and how much time you have, you can create a lot of wealth quickly or slowly. Either way it will happen if you stick with it.

[04:56]

Jason Lee:       Yeah, I mean, that’s a fantastic answer. I mean, people always told me, one of my mentor told me, “You’re the average of the five people you hang around with.” So who you hang out is who you are so it’s very important. Do you think that there’s a specific niche of real estate that’s easy to break into right now or do you think they’re all pretty similar depending on who you are?

[05:27]

Sam Primm:    Yeah, it’s a great question. Never really been asked that way. I think it depends. People ask me, “What should I get into first?” I always say, “It depends on your short term cash position and your long-term goals.” Your short-term capital position comes first so if you don’t have cash in the bank and you need that to live or have reserves then probably wholesaling is the easiest. You don’t need money or credit to do it. You can do with no risk if you have a contingency. You can literally wholesale from jail if you can figure out how to sneak a phone in there. I’m not going to talk about how you sneak the phone in there or where that phone goes. But you can you can wholesale from anywhere, any position. So that’s probably the easiest.

But then if your long-term goals are rentals and you have cash you can get into that space. I think single-family housing wholesale is probably the easiest. I think it’s going to get easier as the market shifts a little bit and some of the competitions exit. But I’d say that’s the easiest path to get into but again that still requires work, connections, and putting yourself out there. None of it is easy but that’s probably the easiest.

The beautiful thing about real estate is if you want to go buy a 32 unit apartment as your first deal, you can. If you want a wholesale, you can so it really just depends on what you want to do. But there’s just so many options real estate. It’s crazy powerful.

[06:43]

Jason Lee:       Yeah. And following up from that, what areas of real estate are you mostly involved in right now?

[06:48]

Sam Primm:    Right now I have a $40 million rental portfolio that I bought and I always like to say without using any of my own money. I use other people’s money to do it. I’m not over leveraged. It’s worth $40 million and I owe $25 million so I have a lot of equity in there and I still didn’t use any of my own money. So $40 million worth of rentals that’s made up of around 135 single-family rentals, 6 apartment complexes, and 3 self-storage facilities. That’s my rental space. And then, I also own a flipping company here in St. Louis. We’re going to flip about 300 houses this year. When I say flip, I mean buy and sell. We’re probably going to wholesale about 250 of those and rehab 50 of those ourselves. I’m in the wholesaling, the fix and flip, the singles, the multis. I don’t do syndication or $100 million deals or anything. But as far as what most people can grasp and would want to do I think quickly, I’m pretty much in that space and that’s the stuff I love talking about on this podcast like this and on social media.

[07:55]

Jason Lee:       Got it. Let’s talk about how you use other people’s money to build a $40 million rental portfolio. How did you exactly do that?

[08:04]

Sam Primm:    Yeah, the BRRRR Method is what I used. I can break that down briefly if you want or we can just roll past it. In general, it’s using other people’s money either a private lender, a hard money lender, equity you have in your personal house or in your business or properties, whatever. You’re using money that’s not in your bank account to buy and fix up a distressed asset then you get it rented, and then you use the equity that was created because you owe somebody or yourself money. But as far as the bank is concerned you own it in cash so the bank will give you up to an 80% loan on what the property is worth. If you’re in your numbers right that check that the banks give you should pay back your initial lenders or yourself plus interest and then you have a mortgage on the property that the rent pays for. That’s in a nutshell of how to do it. But you’re just leveraging debt to buy cash producing assets or you take the cash and the equity of those assets produce and you pay off that debt. You got to do it the right way. Debt scares a lot of people but if you do it the right way it’s extremely powerful and adds up quickly.

[09:07]

Jason Lee:       Yeah. I mean, that’s how my partner and I… I mean, we bought properties at super high leverage but bought them for a really good deal so we built a lot of equity in them and ended up selling our 1031 exchanging. But sounds like you took a similar path. When you were buying those properties, how did you find those deals and how did you execute on them?

[09:30]

Sam Primm:    At first we mainly found our deals… I guess it’s driven home even further to this day but from local wholesalers and real estate agents. You just spend a lot of money on marketing and we do now. But of those 300 houses we’re going to buy this year probably close to 200 are going to be from zero dollars in marketing spend because we used to and still do, we have full-time buyers now, but I did what the buyers do when I was doing it at first. It still answers your question what I did at the beginning was talk to other wholesalers.

Wholesalers are hunters. They’re sales guys. They’re sales gals. They go find the deal. They spend the time, the energy, the money negotiating. They do all the hard work and they bring it to you. And if they’re a good wholesaler, they’ll still bring it to you. I’m sure you’ve seen me Jason to where there’s still enough meat on the bone to where you cannot be over leveraged to make it work. A good one will so let them do all the hard work whether they make a $1,000 on you on the spread or $50,000. I don’t care as long as I’m buying. I’d prefer them to make more money so they can do more deals as long as I’m buying it at my conservative numbers.

Like you said, you’ve done the same thing. You’re not over leveraging yourself. You’re financing 100% of cost not 100% of value. And if there’s 25% equity then your 100% of cost is only 75% of value, and that’s a pretty safe position to be. That’s what people’s position are in. They put 25% down. You just didn’t have to put the money down.

[10:50]

Jason Lee:       Yeah, that was a really good explanation. So if you were… Let’s go back to your first deal, your first ever real estate deal that you bought. What were some of the mistakes you made in that journey?

[11:09]

Sam Primm:    Well, the funny thing is I still own the house today so this is a great example. I’ll try not to rainbow but I love. This is just a great metaphor for real estate. So my very first house I bought with a private lender. I knew that you could use other people’s money because I watched Flip or Flop on HGTV with Tarek and Christina El Moussa. I think they’re separated. I think some weird stuff happened with them. But anyways. I just remember them going to their rich buddy’s house and he would finance the purchase and rehab and they would split the profits with them. I knew you could borrow money to buy houses but I didn’t know you couldn’t put 20% down. I thought you had to put 20% down cash. So my very first house I bought with the private lender for 77, but for simple math, I bought it for $75,000 with his money, and we put about $20,000 into it. I had $95,000 of somebody else’s money in it. I said, “I’m going to sell it for $130,000 and pay them back plus interest and take that $20,000 that’s left and put that down on a rental. I thought every rental house I had to buy I had to buy two houses – one to flip and get cash and one put down payment on it.

Through that process I learned about that refinance I mentioned earlier so I ended up taking to a local bank. It refinanced for $125,000 so the bank gave me a loan for $100,000 and I took the hundred thousand and paid back my lender. I was like, “Holy cow! I did half the work I thought he was going to do.” I have a cash flowing rental and I gave my lender’s money back and he wants to do another loan so that just blew up and that property… And then I’ll get to the mistakes. But that property like I said, appraised for $125,000 in 2015. It just appraised for $200,000. I owed $100,000 and now I owe I don’t even know exactly. In the 70s there’s $130,000 of equity over 7 years in that one property that is not super sexy. It has a couple hundred bucks a month cash flow but you get the cash flow and then you get the growth and the equity pay down. It’s the passive wealth effect as I call it. Real estate goes up in value over time, the tenants pay the mortgage down, and you get cash flow, and one property can add up. $130,000 is a lot of money. But imagine that times 10 or 100 properties so that’s the power of it. And that first deal was a perfect example.

We just learned a ton. We didn’t really screw up on that deal too much. I learned a lot about rehabbing. I did a lot of the work myself on evening and weekend. Me and Lucas did staying away from our wives and that that wasn’t ideal. We learned how to do it and then we started to hire it out. It wasn’t a ton of mistakes on that one. We made a ton since then but that one ended up working out pretty well and it’s just a good example of the right knowledge and leverage and the power of it over time.

[13:40]

Jason Lee:       Very cool. Wow, I mean, that’s pretty amazing. You didn’t make that many mistakes in your first deal. I made every mistake in the book.

[13:48]

Sam Primm:    I got a good business partner that kept me out of the mistakes.

[13:51]

Jason Lee:       That’s good. That’s good. Can you tell a story where you did have something go wrong or made a mistake and learn from it?

[13:59]

Sam Primm:    Yeah. A couple of quick ones. I mean, one of them I think we’re doing this on the side and as I mentioned earlier I was making pretty good money and my wife was very curious to why I was doing all this when we both had the mindset of work for somebody else. And she’s like, “You got a good job. You’re taking time away from the family and from the job sometimes to do this.”

I remember us getting a three pack of houses. We had probably three, four rentals and somebody brought us three houses. One of them was a home run and the other two were okay. We tried to do that BRRRR Method to them and one of them worked out and the other two that we knew were bad deals didn’t work out. We had to bring $20,000 to the closing table to make the refinance work out and we didn’t have it. I mean, it had our personal accounts but we didn’t want to use it and dry that up especially the shame I would have gotten rightfully so from my wife for doing that. Yeah, we just ended up taking equity out of other properties and selling one and biting the bullet on it. I just learned that you got to look at… You can’t get caught up on one good property and buy two bad ones. You got to look at the whole picture. You can’t just look at one deal and I think that makes a lot of sense for people that are trying to scale and grow quickly. They get super excited and let emotion tie into it. You got to stick to the numbers. You can’t say that this is going to work out perfect because it’s not. I promise. And you can’t say that if this property appraises for crazy high amounts and my rehab comes a little under budget I’m going to buy it. That won’t work. It’s going to appraise for less than you think and you’re going to go over budget every time. I promise. So just knowing your numbers and not letting emotion get involved I remember that I texted Lucas that day we got that back and I was like, “Alright, we’re done with real estate man. Three rentals great. Let’s just go back to our day jobs.” And he’s like, “No, let’s stick with this”, and I’m glad we did.

And then, in general where we’ve gotten in trouble before is over rehabbing and thinking that we’re some cool Tarek and Christina El Moussa making $800,000 rehabs in California when we’re in St. Louis. And that’s not the case. It’s just over rehabbing and not budgeting for things, and letting emotion play too big of a part, and thinking that everything’s going to work out perfect. Which if it does, the deal might work. But you know and I know that it’s not going to work out perfect. So just some general lessons in just whatever you’re getting into just making to be a little more conservative and try to keep it as emotionless as possible.

[16:16]

Jason Lee:       Wow! Switching gears a little bit here, Sam. You have a very successful wholesaling, flipping business. Can you tell us more about how you created that business to where it is today?

[16:30]

Sam Primm:    Yeah, so in 2018 when I quit my full-time job and so did my business partner Lucas, we partnered with a gentleman named Brian who owned a local fix and flip company. That was the reason I left the job. I believed in real estate but I wasn’t just to jump in head first if there’s water in the pool or not. I wanted to have a plan and part of that plan was having a company that was already established that I could get into and I did. I made less money for two years after that. I took a pretty good haircut on the active income but my passive income was growing and we eventually got the company where it needed to be. I think that first that we took over, I think that company wholesaled or fix and flipped wholesale a little over 100 houses and then netted a couple hundred grand. So not a very successful company. It was more of a side thing. But now getting the right people on board, having the right incentives, hiring with the right culture, firing with the right culture, having a core value and mission statement that everybody beats the drum to, and you got hard-working people, and just getting traction over time now we’re set to make 6x or 7x that and buy 3x that. I took over something that was at least a little bit of a safety net and really expanded on it and improved it. Basically, honestly, just by hiring the right people and having the right accountability for those people. If you’ve got to micromanage them, they’re not the right people. Part of our hiring process goes three interviews, lunch, dinner with a spouse. It takes us forever to hire somebody but if it’s the right person it’s so much less work. They’re going to stay. They’re going to make you money and you don’t have to manage them as opposed to one interview, hire them, micromanage them, they leave after two years, rehire them. It’s one of those short-term sacrifices for the long-term gain of everything. I’d say with tenants we take forever to approve tenants but they stay forever and they don’t cause us issues. Same with employees. So having the right employees and the right mission statement which is to improve and inspire the community is our mission statement and having that to fall back on. It’s crazy what it does when you have the right people in the right seats I guess is what I’m trying to say when it boils down to it.

[18:39]

Jason Lee:       Yeah, no. I totally get what you’re saying and it’s extremely important to know for anyone who’s listening. And those employees, are they beating the streets, are they cold calling, are they sending mailers? How are they finding these deals for you?

[18:55]

Sam Primm:    Between all our companies we have a little over 40 employees and 5 of them are buyers or acquisitions reps. We give them leads as we spend money on marketing, direct mail, and TV, and internet. We do quite a bit of advertising these days. But like I said earlier, the majority of the leads are from them beating the streets. They’re going to local meetups. They’re talking to real estate agents. They’re talking to wholesalers, they’re taking them out to lunch, and they’re trying to get the first ones to get their deals. They’re going to senior care facilities and talking to the marketing person to say, “Hey, if you got somebody in here here’s our company. We’re reputable, better business, and all these kind of things. If they have a house they need to sell so that they can get in your assisted care facility send them our way. And then, just elder law attorneys. We buy a few houses a year from a bowling alley owner. He was a small bowling alley owner. He drinks with all the members that are in the bowling league a few times a year. Something happens, somebody passes away, somebody gets divorced, and somebody moves. Something happens and somebody needs to sell their house quickly or their house is distressed. He calls us and we go buy it and we pay him $5,000. Just things like that getting creative. Insurance agents are great.

Just being around people that are around a lot of people and then when life happens they call you is extremely powerful. It’s like the gravy train. You spend the next six months developing relationship with two wholesalers, two agents, a roofer, and an insurance guy. They’re the right people, if they’re the right people, that’s 5 or 10 deals a year for the next 10 years. It just takes time and effort and you’re going to have to go through 30 wholesalers to find the right too. You’re going to have to go through 30 real estate agents to find the right too. So you’re going to have to put up with a lot of crap but eventually it’s the gravy train and it just keeps coming and all you got to do is maintain that relationship. Again, short-term loss long-term gain thing or you can just spend a lot of money in marketing but we prefer that route. We prefer the relationship route.

[20:49]

Jason Lee:       It’s fantastic. Yeah, I mean, what you said is very powerful. If you mix that with marketing as well you have a two-prong approach and seems like that’s what you’re doing and absolutely crushing it. Do you only wholesale or buy in the St. Louis market or do you also buy in other cities or states?

[21:05]

Sam Primm:    Just in St. Louis. We’ve talked about expanding. We may in the future in other cities in Missouri but we’re just in the St. Louis metro. It’s not a huge metro. It’s a couple million on the St. Louis side but there’s just so much more room to grow there. I think we’re the number one home buyer on the investing side in St. Louis. There’s a couple other really awesome companies that are either maybe a little bit ahead of us or a little bit behind us. But there’s so much more that we can get just in this market and we love having a team. We have, like I said, a handful of real estate investing companies. We’re spread out now. We bought a 25,000 square foot office building that I’m in right now that we rehab. We’re all under the same roof and we love that with all the stuff that’s been going on the last couple years with the pandemic. This is a safe place people to come, to work, to hang out, to build themselves as people and as employees and part of the team and we love that. I think we would lose that if we started to do it other places. I know you can virtually invest but every house we buy we’re in before we buy it. I know a lot of people do the virtual wholesaling thing and it works great. It’s not of our comfort zone and we got plenty of room to grow in our current verticals. We haven’t expanded but we might as a long answer given to you.

[22:17]

Jason Lee:       That was a great answer. I know we discussed it in the beginning. Can you elaborate more on what BRRRR means if someone’s never heard that term before?

[22:29]

Sam Primm:    For sure, yeah. On general, BRRRR is, like I said, a way to buy real estate without using any of your own money specifically rental properties. The BRRRR Method stands for Buy, Rehab, Rent, Refinance and Repeat which I changed to scale. I’ll get that here in a minute. I’ll quickly go over that with an example. What you do is you borrow money from a hard money lender who you can find online, a private money lender who you can find through a relationship, or you can use your own money or credit or a home line of credit. You just need to use money that’s not in your pocket for most people. You can because you would get it back.

So in this example, it’s a real life example, we bought a house for a $100,000. It was distressed and it needed $50,000 worth of work. So I needed $150,000 to buy and fix up this house. I went to our private lender, you can use those sources I said earlier, and he gave us a check for $150,000. I bought it, fixed it up, and then we got it rented because you need to get a rented and producing income to take it to the next step.

So we’re at the buy, the rehab, and the rent. Bought it, private lender Steve’s money, got it rented but how am I going to get his money back without using mine? That’s the refinance step, the next step you take it to a small local bank, and they’ll appraise it and they’ll give you a loan for up to 80% of the appraised value. That property appraised for $200,000, 80% is $160,000. So private lender gave me check for $160,000, bought it, fix it up, and got it rented. The bank gave me a check for $160,000, paid back my private lender plus interest, he’s paid off he’s happy, he’s ready to do another loan. I do owe the bank $160,000 but that’s in the form of a mortgage. It’s over 25 years at 4% or whatever it was at the time. So that monthly payment is like $700. I’m collecting like $1,600 a month in rent.

Now, there’s other expenses in between but they’re covered so at the end of the day I own a property with equity without using any of my own money. Everybody’s paid off except the bank and it’s an income producing asset that I take the income that it produces and pay off the debt. And it produces cash on top of that then like I said that initial example goes up over time, tenant place the note down. And you can do it however many times you want. There’s zero limit to how much real estate you can own if you do it the right way. And then after that, we can get into it the repeat step go do it again or you can scale and do it bigger, better, faster, stronger kind of thing.

[24:42]

Jason Lee:       I think that was the best explanation I’ve heard for. It’s the simplest terms on how to kind of…

[24:47]

Sam Primm:    First time I’ve ever done it.

[24:48]

Jason Lee:       Really?

[24:49]

Sam Primm:    Just kidding. No, I do that about 5x a week so I’ve gotten better at it. The first time I did it probably would have lasted twice as long. I probably said ‘um’ 4x and no one would understood it. But, yeah, I’m getting better at it.

[25:02]

Jason Lee:       Well, there you go. We’re kind of closing out here. Is there any last piece of advice you would to someone who’s listening who wants to get into real estate?

[25:14]

Sam Primm:    Yeah, a couple of things. I would just say, I said earlier meet people and educate yourself, but just do it. Get over that fear. Fear is okay. Fear is normal. A lot of people are fearful because they don’t know what’s going to happen. That’s what fear is, right, the unknown. But just know that every single successful person you know. So Jason you’re successful. I’ve had my moments. Elon Musk is successful. Bill Gates is successful. Everybody that any of your viewers view as a successful human being, or a good parent, or whatever it is they were scared too. So knowing that the person that you think walks on water was super scared at one point is reassuring to me and hopefully it is for other people. And knowing that it is a step in the process having that fear so don’t let that hold you back.

I told you about the BRRRR Method, right? I’m thinking about changing it to F-BRRRR because the first step of the BRRRR Method should be having the fear and overcoming it. So knowing that it is a step in the process and that everybody else that’s successful has been scared or is scared should hopefully if even one of your viewers just decides I’m going to start now because those things kind of resonated me. I would enjoy that just knowing that. Invest in real estate even with the marketing conditions. It’ll be just fine I promise. If you’re doing it the right way but get over that fear and just go do it. Listen to your podcast. Listen to stuff on social. But get off your butt and go invest. Your future self will thank you and you’ll be saying, “That weird looking dude in glasses.” They can’t see me. Or, “The dude with a voice told me to do it and I did it”, and your life will be changed and you’ll be happy you did it. Trust me. Every successful real estate investor I know is just ones that haven’t quit yet.

[26:58]

Jason Lee:       Amazing answer, Sam. Last but not the least. If the listeners want to learn more about you, how can they do so?

[27:05]

Sam Primm:    Just follow me on social media. It’s @samfasterfreedom. My education brand is Faster Freedom and my name is Sam so not super creative. My handle on social media is @samfasterfreedom. Follow me on any of them. My big ones are TikTok, YouTube, and Instagram. I’m doing Twitter and Facebook now. So whatever your top three social media you’re on, just follow me on. If you’re not on Instagram don’t worry about following me there, go to Twitter. But just follow me. I give away hundreds of hours of free content every single month so just follow me and hopefully you can learn a few things and go potentially change your life.

[27:40]

Jason Lee:       Awesome. Well, Sam, thank you so much for your time. It was a pleasure having you on the show and I hope to stay connected. Thank you.

[27:47]

Sam Primm:    Awesome. I appreciate it, man.

[Outro] Thank you for joining us on the Multifamily Millionaire Podcast, the show that interviews multi-millionaire real estate investors and top producers in the real estate industry. We’re here to help you create passive income and achieve financial freedom so that you can do what you want whenever you want. We’ll catch you next time on the Multifamily Millionaire.

[End of Transcript]