Cody Caswell – How the BRRR strategy REALLY works! Ep. 223

Synopsis

You’ve probably heard about the BRRR strategy a lot in the real estate investing circle. Many have vouched for this strategy, but do you know how it really works? Well, my guest today is someone who got into real estate quite young and used the BRRR to reach success. Cody Caswell is from Louisiana. He’s 24 years old, and he’s been flipping and doing the BRRR on single and multifamily homes.

Key points

Where It All Started

Cody grew up in a real estate investing family. His father was a DIYer, but he was more into the buy and hold. Growing up helping his father remodel gross, nasty houses, he learned a lot about renovating. But being young and spending his Saturday mornings working made him hate it. So he initially wanted to become a commercial insurance salesman.

But Cody did learn the value of creating your wealth and cash flow from a young age. While in high school, he bought his first mobile home for $3,500. After spending $1,500 doing rehab on it, he rented it out for $600 a month.

When he was 18 years old, he took out his first loan for a small $30,000 house. He did all the renovations by himself and rented it out for $600 a month. This gave him $350 a month in cash flow.

After studying finance in college, it took doing an internship at a large commercial insurance firm to see the difference between working for himself and working for somebody else. He didn’t like it. Since then, he’s dived deep into real estate investing.

Why The BRRR Strategy

Cody wanted to know how he could scale into hundreds of units. He went to BiggerPockets and learned about syndications and other different strategies. He knew that he needed to figure out the path he would take and never look back.

He started flipping properties. He was able to do 14 buy and hold properties, 1 eight-unit apartment complex, and flipped 12 properties.

Cody realized that he preferred to be the general contractor on renovations because he can flip faster, knows how the process works, and how it needs to be done.

You have to fall in love with flipping houses. Cody knew that he needed to become the guy that people think of when flipping houses. So to develop his focus, he joined the local meetup group to bounce ideas every day. There he found people who wanted to help the younger generation succeed.

How He Uses The BRRR

The BRRR stands for buy, rehab, rent, and refinance. Then you just repeat that. The idea is to buy the ugliest house on a nice road, rehab it, then rent the property to a quality tenant. After that, refinance to get your money back then repeat the strategy.

Typically, you should aim for putting out only 70% leverage as banks usually do 70-80% cash out refinance of the loan for the value of the house. By doing that, after you refinance, you’ll own an asset and receive the cash flow with no money invested.

Common Problems & How To Deal With It

Some people make the mistake of underestimating the amount needed for the renovations. But the biggest hurdle is getting all of your cash back.

Cody suggests that you have to believe in going after the things you want. So far he hasn’t had a deal come back where his appraisal ended up bad.

But if you do find yourself in a tight spot, just sell the property and cut your losses. It’s important to have many exit strategies when you’re investing in real estate.

The Ideal BRRR House

Cody gave us an example of an ideal BRRR home. It’s a 1,600 square foot, 3-bedroom, 3 bath house closed at $73,000. Cody bought this property from a line of credit.

The line of credit came from 2 properties they’ve paid off. The total value of both houses was $140,000, and they got a line of credit of $100,000 from a local bank. The HELOC had a 5-year term of 4.8-5%. They can draw the money anytime and pay it back.

After buying the ideal BRRR home, Cody put in $35,000 in renovation. So he spent $110,000 on the deal. He engaged a third-party property management company who then rents it out for $1,500 a month.

Later, he refinanced it through a local bank. The appraised value was $168,000. Cody took a 70% mortgage on it and retained 30% equity. He got a 20-year loan with a 5-year term. Rate is adjustable with 4.5 % interest.

At closing, he got $117,600. After paying the title fees and cashing out, Cody got $7,000 back in his pocket.

Why You Should Always Have An Exit Strategy

Cody believes that you should begin with the end in mind. Before you do the BRRR, figure out your refinance and exit strategy first. Refinancing is not as simple as it is and things could not work in your favor.

The last thing you want to happen is to be forced to sell your property.

What Was His Biggest Challenge

Cody’s major struggle at the beginning was not having a focus, not having an idea what he wanted to do. He only realized it once he had the focus.

Committing is the biggest hurdle to make. But he switched to an abundance mindset and that really changed the way he thinks about real estate investing and finding deals.

When it comes to finding deals, it’s a creativity problem and not a market problem. There are deals out there for everyone.

Cody decided he didn’t want to do direct marketing since he wanted to focus on doing the renovation. So he got into every wholesaler and realtor in town. His value proposition was that everybody wins.

He gave them a specific criteria of what he was looking for, took the time to check out the property, and let them know the reasons for why he wouldn’t take the deal.

He also didn’t believe in negotiating down $2,000-3,000 from a deal. That wouldn’t matter to him in the next 20 years. So he won’t beat wholesales down just to earn a bit more.

Tips For New Investors Getting Started

You can do this at any age. Always hold yourself to a high degree of respect and don’t be afraid.

Be a connector of people. Talk to the lenders, the wholesalers, the realtors. Don’t be afraid to be told ‘no’.

Be somebody that follows through. Be there. Be present. Be available. Every ‘no’ is one step closer to a ‘yes’.

References

More from our guest

• Reach out to Cody through his Instagram.
• If you want to see the renovations he’s done, check out their website: https://www.ivory-company.com/