Part 10 of 15: The Beginner's Guide to the BRRRR Method

Advanced BRRRR Strategies: Scaling to Multifamily, Creative Structures, and Portfolio Growth

Congratulations! If you've made it to Part 9, you understand the fundamentals of the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). You know how to find deals, finance them, renovate properties, place tenants, navigate seasoning periods, and refinance to recover your capital.

Now it's time to level up.

This chapter covers advanced strategies that separate investors who own 3-5 properties from those who build portfolios of 20, 50, or even 100+ units. We'll explore:

• Transitioning from single-family to small multifamily

• BRRRR strategies for different property types

• Out-of-state BRRRR investing

• Creative financing and deal structures

• Building systems for scaling beyond 10 properties

• Commercial multifamily BRRRR strategies

• Entity structuring and tax optimization

• Raising capital from other investors

• When and how to transition from active to passive management

Who This Chapter Is For:

• Completed 1-3 successful BRRRR deals

• Ready to scale more aggressively

• Want to explore larger or more complex opportunities

• Seeking higher efficiency and returns

• Building toward financial freedom through real estate

1. Transitioning from Single-Family to Small Multifamily (2-4 Units)

Why Small Multifamily Makes Sense for BRRRR

The Efficiency Argument:

10 Single-Family Homes:

• 10 separate properties

• 10 roofs to maintain

• 10 HVAC systems

• 10 water heaters

• 10 different locations

• 10 property tax bills

• 10 insurance policies

• Management complexity: Very high

3 Fourplexes (12 units total):

• 3 properties to manage

• 3 roofs

• 4 HVAC systems per building

• All units in same location

• 3 property tax bills

• 3 insurance policies

• Management complexity: Much lower

• More units with less overhead

The Financial Argument:

Single-Family BRRRR:

• Purchase: $100,000

• Rehab: $35,000

• ARV: $180,000

• Refinance (75%): $135,000

• Monthly rent: $1,400

• Monthly mortgage: $1,050

• Cash flow per door: $150/month (after all expenses)

Fourplex BRRRR:

• Purchase: $280,000

• Rehab: $60,000 ($15k per unit)

• ARV: $450,000

• Refinance (75%): $337,500

• Monthly rent: $1,200 × 4 = $4,800

• Monthly mortgage: $2,700

• Cash flow total: $1,200/month

• Cash flow per door: $300/month

Why It's Better:

• Economies of scale (one roof covers 4 units)

• Better cash flow per unit

• More efficient use of time

• Often in better locations than cheap SFH

• Can hire on-site management at scale

How to BRRRR Small Multifamily

Key Differences from Single-Family:

Finding Deals:

• Less competition (fewer investors target 2-4 units)

• Often on MLS or through commercial brokers

• Look for: deferred maintenance, poor management, vacant units

• Distressed owners (inherited properties, tired landlords)

Financing Considerations:

2-4 Unit Residential Financing:

• Can still use conventional loans (Fannie/Freddie)

• 25% down payment typically required

• Interest rates 0.5-1% higher than SFH

• Must qualify based on personal income + rental income

• Hard money available but more expensive

DSCR Loans Work Great:

• Qualify based on property income only

• No personal income verification

• 75-80% LTV available

• Rates: 7.5-9% typically

• Perfect for BRRRR investors

Rehab Strategies:

Unit-by-Unit Approach:

• Leave 2-3 units occupied (rental income continuing)

• Renovate 1-2 units at a time

• Rent renovated units at higher rent

• Repeat for remaining units

• Advantage: Cash flow during renovation

Full Building Approach:

• Vacant all units

• Renovate entire building simultaneously

• All units come online at once at market rent

• Advantage: Faster timeline, cohesive renovation

Which to Choose:

• If cash flow tight: Unit-by-unit (keep income)

• If capital available: Full building (faster completion)

The Numbers on a Duplex BRRRR:

Purchase and Rehab:

• Purchase price: $180,000

• Both units vacant and dated

• Rehab budget: $40,000 ($20k per unit)

• Holding costs (6 months): $12,000

• Total invested: $232,000

After Renovation:

• Unit A: 2BR/1BA, rents for $1,100/month

• Unit B: 2BR/1BA, rents for $1,100/month

• Total monthly rent: $2,200

• ARV: $320,000

Refinance:

• 75% LTV on $320k = $240,000

• Closing costs: -$5,000

• Cash out: $235,000

• Total invested: $232,000

• Capital recovered: $235,000 (pulled out MORE than invested!)

Final Position:

• New mortgage (PITI): $1,900/month

• Gross rent: $2,200/month

• Operating expenses (30%): -$660/month

• Net cash flow: -$360/month

Wait, negative cash flow?

Yes, but:

• You have $0 of your own money in the deal (actually made $3k)

• Mortgage paydown: $600/month ($7,200/year)

• Appreciation (3% on $320k): $9,600/year

• Tax benefits (depreciation): $8,000/year

• Total economic benefit: ~$25,000/year on $0 invested = Infinite return

This is the power of multifamily BRRRR.

Finding Small Multifamily Deals

Where to Look:

On-Market Sources:

• MLS (2-4 unit search filter)

• LoopNet (commercial real estate site)

• Crexi (commercial listings)

• Commercial real estate brokers

Off-Market Sources:

• Direct mail to owners of dated multifamily

• Driving for dollars in multifamily areas

• Wholesalers who focus on multifamily

• Probate and estate sales

• Tax delinquent lists

What to Look For:

• 🎯 Deferred maintenance (dated units, poor condition)

• 🎯 Below-market rents ($200-300 below market per unit)

• 🎯 High vacancy (poor management, can fix)

• 🎯 Distressed owners (inherited, tired landlord, divorce)

• 🎯 Poor property management (you can improve)

Red Flags:

• 🚩 Structural issues (foundation, major settling)

• 🚩 Environmental problems (mold, asbestos, lead)

• 🚩 Location in severe decline

• 🚩 Rent-controlled units (limits upside)

• 🚩 Difficult tenant base (Section 8 with many violations)

2. BRRRR Strategies for Different Property Types

The BRRRR method isn't limited to single-family homes. Here's how to adapt it for various property types.

Strategy #1: Condos and Townhouses

Unique Advantages:

• Lower purchase prices (good for starting)

• Less maintenance (HOA handles exterior)

• Often in better locations (urban areas)

• Strong rental demand (professionals, young families)

Unique Challenges:

• HOA fees (reduces cash flow)

• HOA restrictions (rental caps, renovation approvals)

• Financing can be tricky (some lenders avoid condos)

• Special assessments (unexpected costs)

• Less control (can't change exterior)

BRRRR Adaptation:

Before Buying:

• Review HOA documents thoroughly

• Confirm no rental restrictions or caps

• Check reserve fund (is building financially healthy?)

• Verify no pending special assessments

• Ensure your renovations will be approved

Renovation Focus:

• Interior only (can't touch exterior)

• Kitchen and bathrooms (highest ROI)

• Flooring, paint, fixtures

• In-unit laundry (if allowed, huge value add)

• Storage solutions (condos usually space-limited)

Financing:

• Some lenders won't touch condos (fewer than 50% owner-occupied)

• DSCR lenders generally more flexible

• Hard money available but may charge higher rates

• Verify lender accepts condos before making offer

Best Markets for Condo BRRRR:

• Urban areas with strong rental demand

• Near universities (student housing)

• Lifestyle neighborhoods (nightlife, restaurants)

• Transit-oriented developments

Strategy #2: Small Multifamily (5-16 Units)

Once you cross from 4 to 5+ units, financing changes completely.

The 5+ Unit Shift:

1-4 Units (Residential):

• Conventional financing available

• Based partly on your personal income

• Lower down payments (20-25%)

• Residential appraisals

5+ Units (Commercial):

• Commercial financing only

• Based entirely on property performance

• Higher down payments (25-35%)

• Commercial appraisals (income approach)

• Different lenders (commercial banks)

Why This Is Actually Better for BRRRR:

• Lenders don't care about your personal income

• All about property's DSCR (income vs. debt)

• Can scale infinitely (no Fannie/Freddie limits)

• Property value based on income (force appreciation by increasing NOI)

The Commercial BRRRR Formula:

Step 1: Find Value-Add Property

• 8-unit building

• $50,000/month gross rent

• Currently 60% occupied (poor management)

• Units dated, renting $200 below market

Step 2: Purchase

• Price: $600,000

• Down payment (30%): $180,000

• Commercial loan: $420,000

• Acquisition costs: $20,000

• Total capital: $200,000

Step 3: Renovate + Improve Management

• Renovate 2 units per quarter: $40,000

• Improve property management

• Increase occupancy to 95%

• Increase rents to market ($200 more per unit)

Step 4: Force Value Through Income

Before:

• 8 units × $800/month × 60% occupied = $3,840/month

• Annual NOI: $46,080 (after expenses)

• Cap rate: 7.5%

• Value: $614,000 ($46,080 / 0.075)

After:

• 8 units × $1,000/month × 95% occupied = $7,600/month

• Annual NOI: $91,200 (after expenses)

• Cap rate: 7.5% (same market)

• Value: $1,216,000 ($91,200 / 0.075)

Step 5: Refinance

• New value: $1,216,000

• 75% LTV: $912,000

• Pay off original loan: -$420,000

• Closing costs: -$12,000

• Cash out: $480,000

• Original investment: $200,000

• Profit: $280,000 plus you own the property!

This is commercial BRRRR—you're forcing appreciation through income, not just cosmetics.

Strategy #3: Mobile Home Parks

Why Mobile Home Parks Work for BRRRR:

• High cash flow (often 10-20% returns)

• Less competition (most investors avoid them)

• Sticky tenants (expensive to move mobile homes)

• Value-add opportunities (improve infrastructure, add homes)

• Scalable (30-100+ pads in one location)

The MHP BRRRR Process:

Find: Distressed park (poor management, deferred maintenance, vacant pads)

Buy: Typically 30-40% down, seller financing often available

Rehab:

• Fix infrastructure (roads, water, sewer, electric)

• Improve common areas

• Add homes to vacant pads (buy used homes for $5-15k)

• Better management and screening

Rent: Fill vacant pads, increase lot rent to market

Refinance: Based on increased NOI (more occupied pads × higher lot rent)

Repeat: Cashflow is so strong you can save for next park quickly

Challenges:

• Stigma (many investors won't touch MHPs)

• More complex (infrastructure, utilities, regulations)

• Tenant management can be challenging

• Requires specialized knowledge

• Financing harder to find

Best for: Experienced investors (3-5 BRRRRs completed) looking for high cash flow

Click Here To Learn More About The BRRRR Method

3. Out-of-State BRRRR Investing

Once you master BRRRR in your local market, you can expand to better markets elsewhere.

Why Invest Out-of-State?

Your Local Market May Not Support BRRRR:

• Too expensive (California, New York, Seattle)

• Not enough distressed inventory

• Too competitive

• Rent-to-price ratios don't work

Better Markets Exist:

• Midwest: Cleveland, Indianapolis, Kansas City, St. Louis

• South: Atlanta, Charlotte, Memphis, Birmingham

• Secondary markets: Significant appreciation + cash flow

Benefits:

• Access to better deals (less competition)

• Diversification (don't have all eggs in one market)

• Stronger cash flow (lower prices, decent rents)

• Scalability (can do multiple deals in target market)

The Out-of-State BRRRR System

Phase 1: Market Selection (Month 1-2)

Criteria for Target Markets:

• Population 100,000+ (not too small)

• Job growth (diverse economy)

• Landlord-friendly laws

• Good rent-to-price ratios (1% rule possible)

• Established investor community

• Properties in your budget

Research Process:

1. Identify 5-10 potential markets

2. Research economic fundamentals (jobs, population growth)

3. Research landlord-tenant laws

4. Analyze rent-to-price ratios

5. Check availability of properties

6. Narrow to top 2-3

7. Visit top markets in person

Phase 2: Build Your Out-of-State Team (Month 2-4)

The team you need (before buying):

1. Real Estate Agent:

• Works with out-of-state investors regularly

• Understands BRRRR strategy

• Can tour properties via video for you

• Provides quick market feedback

How to Find:

• BiggerPockets agent finder

• Ask in local investor Facebook groups

• Call multiple agents, interview them

• Ask: "How many out-of-state investor clients do you have?"

2. Property Manager:

• MOST CRITICAL team member

• They're your eyes, ears, and boots on the ground

• Should have their own contractors, vendors

• Technology-enabled (online portal)

How to Find:

• Interview 5-7 property management companies

• Ask for client references (call them!)

• Check Google reviews

• Visit their office if possible

• Ask about their systems and tech

3. Contractor:

• Property manager's preferred contractors usually

• Or build your own relationships

• Start with smaller projects to test

4. Lender:

• Local banks in target market (portfolio lenders)

• Or national DSCR lenders (work everywhere)

• Hard money lenders who lend in that state

5. Attorney (Optional but Recommended):

• For closings, entity formation, tenant issues

• Familiar with state laws

Phase 3: Your First Out-of-State Deal (Month 4+)

The Process:

Finding:

• Agent sends you deals matching criteria

• You analyze remotely (photos, videos, data)

• Video tour with agent via FaceTime

• Narrow to serious candidates

Due Diligence:

• Property inspector (local)

• Property manager walks property (gives rent estimate and rehab input)

• Contractor provides rehab bid (video walkthrough or in person)

• You DON'T need to visit at this stage (can, but not required)

Closing:

• Can close remotely (mobile notary or digital closing)

• Title company handles everything

• Wire funds

• Property manager receives keys

Renovation:

• Property manager oversees (daily photos/updates)

• You monitor remotely via photos and video calls

• Weekly check-ins with PM and contractor

• Trust but verify

Rent:

• Property manager handles marketing and screening

• You approve final tenant choice

• PM handles lease signing and move-in

Management:

• PM handles all day-to-day

• You receive monthly reports

• Review financials remotely

• Visit property 1-2× per year for inspection

Refinance:

• Same process as local (all done remotely)

• Appraisal scheduled by lender

• Closing done remotely

Keys to Out-of-State Success

1. Choose Your Market Carefully

• Don't pick a market because it's "hot"

• Focus on fundamentals (jobs, population, landlord laws)

• Must have established investor community (proven model)

2. Build Team Before Buying

• Never buy then find team

• Property manager is your #1 priority

• Test relationships with small deals if possible

3. Trust Your Team, But Verify

• Regular video updates during renovation

• Monthly property inspections

• Annual in-person visits

• Review all financials closely

4. Accept Higher Management Costs

• Out-of-state typically 10-12% property management (vs. 8% local)

• Worth it for access to better deals

• Factor into your numbers upfront

5. Start with One Market, Master It

• Don't buy one property in five different states

• Pick one target market

• Do 3-5 deals there

• Build deep relationships and knowledge

• Then consider expanding to second market

6. Visit Before You Buy

• First deal in new market: Visit in person

• Tour 10-15 properties

• Meet your team face-to-face

• Drive neighborhoods

• Get feel for the market

• After deal #1, can operate remotely

Out-of-State BRRRR Example

Market: Indianapolis, IN (you live in Los Angeles, CA)

Why Indianapolis:

• Strong job market (healthcare, tech, logistics)

• Population 900,000+ metro

• Landlord-friendly laws

• Rent-to-price ratios support BRRRR

• Properties $80k-$150k range

Your Team:

• Agent: Sarah (works with 15 out-of-state investors)

• Property manager: Midwest Property Management (200 doors under management)

• Lender: Local credit union + national DSCR lender

• Contractor: PM's preferred GC (has done 50+ rehabs)

The Deal:

• Purchase: $85,000 (your agent found it)

• Rehab: $28,000 (contractor's bid via video walkthrough)

• Holding: $6,000

• Total: $119,000

Process:

• Closed remotely (never visited property)

• PM oversaw entire 10-week renovation (daily photo updates)

• You video-called weekly

• Tenant placed in 2 weeks

• Property rents for $1,300/month

Refinance:

• ARV: $165,000

• 75% LTV: $123,750

• Pulled out: $119,000 (all capital recovered!)

Result:

• $0 left in deal

• $1,300/month rent

• $1,050/month mortgage

• Cash flow: ~$100/month after all expenses

• Infinite return on $0 invested

You're now doing BRRRR in Indianapolis from Los Angeles with a proven team.

4. Creative Financing and Deal Structures

Advanced BRRRR investors use creative structures to scale faster and reduce capital requirements.

Strategy #1: The Hybrid Partnership Structure

Traditional Partnership:

• Partner provides 100% capital

• You provide all work

• Split 50/50

Problem: You give up 50% equity forever

Hybrid Structure:

Phase 1: Acquisition and BRRRR

• Partner provides: 100% of capital ($100k)

• You provide: All expertise and work

• Split during this phase: 70/30 (partner gets 70% for providing capital)

Phase 2: After Refinance

• Refinance pulls out: $95k

• Partner gets their $100k back: Pay them $95k + $5k from your reserves

• Partner is now fully paid back

Phase 3: Ongoing Ownership

• Split shifts to: 50/50 (now that partner's capital is recovered)

• Or: Buy out partner completely for $20k (50% of remaining equity)

• You now own 100% with minimal capital invested

Why Partners Accept This:

• They get capital back in 12 months (not locked up for decades)

• They earned return on money (interest equivalent)

• Option to keep 50% of cash-flowing asset or take buyout

• Lower risk (capital not tied up long-term)

Strategy #2: The Master Lease Option

How It Works:

Step 1: Lease the Property

• Find distressed property owner (can't sell, can't afford)

• Negotiate long-term lease (3-5 years)

• Monthly lease payment: $900/month

• Option to purchase: $150,000 (locked in)

Step 2: Renovate (With Owner Permission)

• You invest in renovations: $25,000

• Improve property significantly

• Agreement: Renovation costs credited toward purchase

Step 3: Rent at Market Rate

• After renovation, rent for $1,400/month

• You collect: $1,400

• You pay owner: $900

• Your profit: $500/month

Step 4: Exercise Option

• After 12-24 months

• Property now worth $200,000 (you forced appreciation)

• You buy for agreed $150,000

• Finance at 75% LTV: $150,000 loan

• Use loan to pay owner

• Your capital invested: $25,000 rehab

• Forced equity: $50,000

Advantages:

• Minimal capital needed upfront

• Control property without owning

• Force appreciation through renovations

• Lock in purchase price before improving

Risks:

• Owner could default (lose renovation investment)

• Need strong legal agreement (attorney-drafted)

• Owner's lender could foreclose

• Mitigation: Record memorandum of option with county

Strategy #3: The Equity Slice Structure

For Larger Deals (Small Multifamily+):

Traditional: One partner funds entire deal

Equity Slice: Multiple investors fund portions

Example: 8-Unit Building

Capital Needed: $250,000

Structure:

• Investor A: $75,000 (30% equity)

• Investor B: $75,000 (30% equity)

• Investor C: $50,000 (20% equity)

• You: $50,000 (20% equity) + you manage deal

Cash Flow Distribution:

• All investors receive pro-rata share

• Example: $2,000/month cash flow

  • Investor A: $600

  • Investor B: $600

  • Investor C: $400

  • You: $400

Plus You Earn:

• Acquisition fee: 2-3% of purchase ($15,000-$20,000)

• Asset management fee: 10% of cash flow ($200/month ongoing)

• Refinance fee: $10,000-$15,000

• Your total comp: $30,000+ plus 20% equity

After Refinance:

• Building refinances, pulls out $280,000

• Each investor receives pro-rata return

  • Investor A: $84,000 (got back $75k + $9k profit)

  • Investor B: $84,000

  • Investor C: $56,000

  • You: $56,000 (got back $50k + $6k profit)

• All investors have capital back

• All maintain equity in cash-flowing building

This is how you scale to commercial without having all the capital yourself.

Strategy #4: The "Wholetail" BRRRR

Combines wholesaling with BRRRR for speed.

Traditional BRRRR:

• Buy deeply distressed

• Full renovation (60-90 days)

• Refinance

Wholetail:

• Buy moderately distressed

• Light renovation (15-30 days)

• Rent quickly

• Refinance

Example:

Property: Needs mostly cosmetic work (not major systems)

Renovation: $15,000

• Paint entire interior/exterior

• New flooring

• Clean/paint kitchen cabinets (don't replace)

• Clean/update bathroom fixtures (don't gut)

• Landscaping and curb appeal

Timeline: 3 weeks instead of 10 weeks

Trade-offs:

• Less forced appreciation (smaller margin)

• But much faster timeline

• Less holding costs

• Lower risk

• Can cycle capital faster

When It Works:

• Property is structurally sound

• Just needs cosmetics

• Market rents support the numbers without full gut

• You value speed over maximum profit per deal

Profit per deal:

• Traditional BRRRR: $40,000 forced equity, 10 months

• Wholetail BRRRR: $20,000 forced equity, 5 months

• You can do 2 wholetails in time of 1 traditional = $40,000 total, same timeframe

5. Building Systems for Scaling Beyond 10 Properties

Once you have 5-10 properties, systems become critical.

The Transition Points

Properties 1-3: Hands-On Phase

• You personally manage most aspects

• Learning and building relationships

• Time: 15-20 hours/week

Properties 4-7: Systematization Phase

• Document processes

• Build templates and checklists

• Start delegating tasks

• Time: 20-25 hours/week

Properties 8-15: Delegation Phase

• Hire Virtual Assistant (VA)

• Property manager handles all rentals

• You focus on acquisitions and financing

• Time: 15-20 hours/week

Properties 16-30: Team Building Phase

• Hire full-time acquisitions manager

• May hire project manager for renovations

• You focus on strategy and relationships

• Time: 10-15 hours/week

Properties 30+: CEO Phase

• Full team in place

• You set strategy and direction

• Others execute

• Time: 5-10 hours/week

Systems to Build

System #1: Deal Analysis

Template: Standardized spreadsheet

• Purchase price

• Rehab budget (by category)

• Holding costs

• ARV calculation

• Refinance projection

• Cash flow analysis

• Returns (ROI, cash-on-cash, total return)

Decision Criteria: Yes/No based on:

• Minimum forced equity: $30,000

• Minimum ARV spread: 25%

• Maximum capital left in deal: $15,000

• Minimum cash flow: $150/property

• DSCR: 1.1 or higher

Process:

• Agent sends deal

• Run through template (10 minutes)

• If meets criteria: Tour property

• If doesn't meet: Pass immediately

Result: Can analyze 20+ deals per week quickly

System #2: Renovation Management

Template: Scope of Work (SOW) document

• Standard renovations for your market

• Line-by-line checklist

• Standard materials and finishes

• Photos of what "done" looks like

Process:

1. Contractor uses your SOW template

2. Checks off completed items

3. Takes photos of each room

4. You review remotely

5. Sign off on completion

Result: Consistent quality across all properties

System #3: Tenant Placement

Template: Tenant screening checklist

• Minimum credit score: 600

• Minimum income: 3× rent

• No evictions in 3 years

• Background check requirements

• Reference check questions

Process:

• Property manager follows your criteria

• Sends you top 2-3 qualified applicants

• You make final approval

• PM handles lease and move-in

Result: Consistent tenant quality, minimal time

System #4: Financial Tracking

Software: Stessa, Quickbooks, or Buildium

What to Track:

• Property-level P&L (each property separately)

• Portfolio dashboard (all properties at once)

• Capital tracking (money in/out of each deal)

• Reserve accounts (per property and total)

Reports:

• Monthly: Review each property P&L

• Quarterly: Full portfolio review

• Annually: Tax prep and planning

Result: Always know exactly where you stand financially

When to Hire Help

Hire Virtual Assistant at:

• 5-7 properties

• Tasks: Data entry, organizing documents, scheduling, coordinating with team

• Cost: $15-20/hour, 10-20 hours/week

• ROI: Frees up 10-20 hours of your time worth $50-100/hour

Hire Full-Time Acquisitions Manager at:

• 15-20 properties (actively growing)

• Tasks: Analyze deals, tour properties, coordinate due diligence

• Cost: $40,000-$60,000/year + bonuses

• ROI: You focus on financing and strategy, they handle deal flow

Hire Project Manager at:

• 20-30 properties (doing 5-10 renovations/year)

• Tasks: Manage all renovation projects, coordinate contractors

• Cost: $50,000-$70,000/year

• ROI: Ensures quality, timeline, and budget

6. Tax Optimization and Entity Structuring

As you scale, tax strategy becomes critical.

Entity Structures for BRRRR Portfolio

1-3 Properties: Personal Name or Single LLC

• Simple

• Easy tax filing

• One LLC protects personal assets from business

• Cost: $500-$2,000 setup

4-10 Properties: Multiple LLCs

• Create 2-3 LLCs

• 3-4 properties per LLC

• Isolates liability (lawsuit on one property doesn't affect others)

• Cost: $500-$2,000 per LLC + annual fees

10-20 Properties: LLC + S-Corp Structure

• Properties held in LLCs (asset protection)

• Management done through S-Corp (tax efficiency)

• S-Corp provides services to LLCs

• Reduces self-employment tax

• Cost: $2,000-$5,000 setup + CPA fees

20+ Properties: Sophisticated Structure

• Holding company (LLC or LP)

• Multiple subsidiary LLCs

• Property management company (S-Corp)

• Possibly: Real estate professional designation

• Cost: $5,000-$10,000 setup + ongoing CPA/attorney fees

Work with: Real estate attorney and CPA to design structure for your situation

Tax Strategies for BRRRR Investors

Strategy #1: Depreciation

The Benefit:

• Residential rental: Depreciate over 27.5 years

• $220,000 building value / 27.5 = $8,000/year deduction

• 10 properties = $80,000/year in depreciation

• Can offset other income if you're real estate professional

Strategy #2: Cost Segregation

What It Is:

• Accelerate depreciation on certain property components

• Instead of 27.5 years, depreciate some items in 5-7 years

• Appliances, carpeting, fixtures, landscaping

The Benefit:

• Massive paper losses in first few years

• Can offset W-2 income (if qualified)

• Defer taxes for years

Example:

• $200,000 property

• Normal depreciation: $7,273/year

• Cost segregation study: $40,000 first-year deduction

• Tax savings: $10,000-$15,000 in year one (at 25-37% tax rate)

Cost: $2,000-$5,000 per property for study Worth it when: Property value $150,000+, or you're doing portfolio-wide

Strategy #3: Real Estate Professional Status

What It Is:

• Spend 750+ hours per year in real estate activities

• Real estate is your primary occupation

• Benefit: Can deduct unlimited rental losses against W-2 or other active income

Example Without RE Professional Status:

• W-2 income: $120,000

• Rental "losses" (from depreciation): $80,000

• Can only deduct: $25,000 of losses (IRS limit)

• Remaining $55,000: Carries forward

Example With RE Professional Status:

• W-2 income: $120,000

• Rental "losses": $80,000

• Can deduct: All $80,000

• Taxable income: $40,000

• Tax savings: ~$20,000/year

How to Qualify:

• Document 750+ hours in real estate (keep logs)

• Real estate > 50% of working hours

• Material participation in properties

Strategy #4: 1031 Exchange for Portfolio Consolidation

The Scenario:

• You have 10 single-family homes

• Want to consolidate to 2-3 multifamily buildings

• Would normally pay capital gains tax

The Solution:

• Sell all 10 SFH properties

• 1031 exchange into 2 apartment buildings

• No capital gains tax paid

• Tax is deferred indefinitely

Requirements:

• Identify replacement property within 45 days

• Close on replacement within 180 days

• Use qualified intermediary

• Must be like-kind (real estate for real estate)

Cost: $2,000-$4,000 in intermediary fees Savings: Potentially $50,000-$200,000+ in deferred taxes

7. Raising Capital from Other Investors

To scale beyond your own capital, you need to raise money from others.

Building Your Investment Track Record

Before You Can Raise Capital, You Need:

1. Successful Deals (3-5 minimum)

• Completed BRRRRs with strong returns

• Properties performing as projected

• No disasters or failures

• Can show before/after photos

• Can demonstrate returns

2. Professional Presentation

• Deal packages (property analysis, photos, financials)

• Track record document (all your completed deals)

• References from partners or lenders

• Professional website or materials

3. Clear Investment Structure

• How much capital needed

• What investor receives (equity %, returns)

• Timeline for capital return

• Exit strategies

• Risk disclosures

The Private Placement Memorandum (PPM)

What It Is:

• Legal document offering investment opportunity

• Required by SEC if raising from multiple investors

• Protects you legally

• Discloses all risks

Must Include:

• Business plan and strategy

• Use of funds

• Projected returns

• Risk factors (comprehensive)

• Team bios

• Legal disclosures

Cost: $5,000-$15,000 to have attorney draft

When Required:

• Raising from 3+ investors

• Publicly advertising opportunity

• Non-accredited investors

When Not Required:

• Friends/family only

• Accredited investors only

• Not publicly advertising

Critical: Always consult securities attorney before raising capital from others

Investment Structures for Raising Capital

Structure #1: Debt Investment

How It Works:

• Investor lends you $100,000

• You pay 8-10% interest

• Secured by property (mortgage)

• Paid back from refinance (12 months)

Pros:

• Simple structure

• Investor knows exact return

• You keep all equity

Cons:

• Must make payments during hold

• If refinance doesn't cover, you still owe

Best For: Experienced investors with proven track record

Structure #2: Equity Partnership

How It Works:

• Investor provides $100,000

• Receives 50% equity

• Splits all cash flow 50/50

• Splits all appreciation 50/50

Pros:

• No required payments during hold

• Share risk with investor

• Investor shares in all upside

Cons:

• Give up half the equity

• Partner has say in decisions

• More complex legal structure

Best For: Investors building track record

Structure #3: Preferred Return Structure

How It Works:

• Investor provides $100,000

• Investor receives: 8% annual preferred return ($8,000/year)

• Paid first before any other distributions

• After preferred return paid: Split remaining 50/50

Example:

• Property generates $15,000/year cash flow

• Investor gets $8,000 first (preferred return)

• Remaining $7,000 split 50/50: $3,500 each

At Refinance:

• Pull out $110,000

• Pay investor $100,000 principal + accrued preferred return

• Or: Investor stays in for ongoing cash flow

Pros:

• Investor has downside protection (gets paid first)

• You keep upside above preferred return

• Attractive to conservative investors

Cons:

• Must generate enough cash flow to cover preferred

• More complex accounting

Best For: Commercial deals, experienced investors

How to Pitch Investment Opportunities

The Investment Package:

Page 1: Executive Summary

• Property address and basics

• Purchase price and strategy

• Total capital needed

• Projected returns

• Timeline

Page 2-3: Property Details

• Photos (before/after if available)

• Location and neighborhood info

• Property condition and plans

• Comparable sales (ARV support)

Page 4-5: Financial Projections

• Purchase and rehab budget

• Rental income projections

• Operating expenses

• Cash flow projections

• Refinance projections

• Return calculations (IRR, cash-on-cash, equity multiple)

Page 6: Team and Track Record

• Your bio and experience

• Your track record (previous deals)

• Team members (contractor, PM, lender)

• References available upon request

Page 7: Investment Terms

• Amount seeking: $________

• Structure: Debt/Equity/Preferred

• Return offered: _______% or ___% equity

• Timeline: _____ months

• Exit strategy

Page 8: Risk Disclosures

• Renovation may exceed budget

• Tenant placement may take longer

• Appraisal may come in low

• Market conditions could change

• All investments involve risk of loss

The Verbal Pitch (5 minutes):

"I'm raising $100,000 for a BRRRR investment in [City]. I've identified a 3-bedroom, 2-bathroom home that I can purchase for $85,000. It needs $30,000 in renovations. After the rehab, the property will be worth $165,000 and rent for $1,400/month.

I'll complete the renovation in 10-12 weeks, place a tenant, and after a 6-month seasoning period, refinance to pull out the invested capital plus returns.

I'm offering [8% annual interest as a debt investment / 50% equity partnership / 8% preferred return + 50% equity split].

I've successfully completed [3] similar projects in the past 18 months, all meeting or exceeding projected returns. I have a proven team in place.

I'm seeking [one investor for the full $100,000 / $25,000 from four investors]. The expected timeline is 12 months from investment to capital return.

I've prepared a detailed investment package with all the numbers, photos, and projections. Would you like me to send that over?"

Where to Find Investors

Your Network:

• Friends and family (start here)

• Colleagues at work

• Professional connections (attorneys, doctors, dentists)

• Business associates

Real Estate Investment Community:

• REIA meetings (people with capital attend)

• BiggerPockets forums

• Local real estate investor Facebook groups

• Meetups and networking events

Professional Networks:

• Country clubs, professional organizations

• Alumni associations

• Chamber of commerce events

• Rotary/Lions/civic groups

Online Platforms (for Accredited Investors):

• RealCrowd

• CrowdStreet

• Fundrise (for smaller investments)

Key Principle: Build relationships first, pitch opportunities second. People invest with people they know and trust.

8. Transitioning to Commercial Multifamily (20+ Units)

The ultimate scaling path for many BRRRR investors.

Why Transition to Larger Multifamily?

Efficiency at Scale:

30 Single-Family Homes:

• 30 separate properties

• 30 roofs, 30 HVAC systems

• 30 different locations

• Property manager visits 30 locations

• Massive overhead

30-Unit Apartment Building:

• 1 property

• 1 roof, 1-2 HVAC systems

• 1 location

• On-site management possible

• Much lower overhead

Better Financing:

• Commercial loans (5-10 year terms)

• Based purely on property performance

• No personal income requirements

• Can finance 75-80% LTV

• Assumable loans available

Professional Operation:

• On-site management (building pays for it)

• Economies of scale on maintenance

• More stable (vacancy less impactful)

• Better exit options (institutional buyers)

Forced Appreciation at Scale:

• Increase NOI by $10,000 = $125,000 value increase (at 8% cap rate)

• Small operational improvements = massive value

• You control value through management

The Commercial Multifamily BRRRR Process

Different from Residential:

1. Finding Deals:

• LoopNet, Crexi, CoStar

• Commercial brokers

• Direct mail to owners

• Usually on-market but mis-managed

2. Analysis:

• Based on Net Operating Income (NOI)

• Value = NOI / Cap Rate

• Look for: below-market rents, high expenses, poor management, deferred maintenance

3. Financing Purchase:

• Commercial loans (not residential)

• 25-35% down payment

• 20-30 year amortization

• 5-10 year term (refinance or balloon)

• Rate: Prime + 2-4% typically

4. Value-Add Strategy:

• Increase rents to market (renovate units)

• Decrease expenses (better management, vendors)

• Improve occupancy (better marketing, screening)

• Add amenities (laundry, storage, parking)

• Reduce turnover (better tenant relations)

5. Refinance/Sale:

• After 12-24 months of improved operations

• Refinance based on new higher NOI

• Or sell to investor at new higher value

• Or keep long-term for cash flow

Example: 24-Unit Apartment Building BRRRR

The Opportunity:

Property: 24-unit apartment building

• Purchase price: $1,200,000

• Current occupancy: 70% (17 of 24 rented)

• Current rents: $600/unit (below market)

• Market rents: $850/unit

• Deferred maintenance, poor management

• Current NOI: $95,000/year

• Cap rate: 7.9% ($95,000 / $1,200,000)

The Plan:

Purchase Financing:

• Purchase: $1,200,000

• Down payment (30%): $360,000

• Commercial loan (70%): $840,000

• Closing costs: $40,000

• Total capital needed: $400,000

Year 1: Renovate and Stabilize

• Renovate 6 units: $60,000 ($10k per unit)

• Improve common areas: $20,000

• New property management: $0 (better company, same cost)

• Marketing and leasing: $10,000

• Contingency: $10,000

• Total investment: $500,000

Implementation:

• Quarter 1: Renovate 3 empty units, rent at $850

• Quarter 2: Renovate 3 more units as tenants leave, rent at $850

• Quarter 3-4: Increase rents on remaining units to $750 (gradual increase)

• Improve management: Reduce expenses by 10%

New Financial Picture (After 12 Months):

Income:

• 24 units × 95% occupancy = 22.8 rented

• 6 renovated units: $850/month × 6 = $5,100

• 16 units gradually increased: $750/month × 16 = $12,000

• Gross monthly: $17,100

• Annual gross: $205,200

Expenses:

• Operating expenses: $82,080 (40% of gross, improved from 50%)

• Net Operating Income: $123,120

New Value:

• NOI: $123,120

• Cap rate: 7.5% (slight compression due to improvements)

• New value: $1,641,600 ($123,120 / 0.075)

Forced Appreciation: $441,600 in 12 months

Year 2: Refinance

Refinance Terms:

• New value: $1,641,600

• 75% LTV: $1,231,200

• Pay off original loan: -$840,000

• Closing costs: -$20,000

• Cash out: $371,200

Capital Return:

• Total invested: $500,000

• Cash out: $371,200

• Remaining in deal: $128,800

But you created $441,600 in forced equity, and the property now cash flows:

• New mortgage (PITI): $10,000/month

• NOI: $10,260/month

• Monthly cash flow: $260/month = $3,120/year

Returns:

• Cash-on-cash: $3,120 / $128,800 = 2.4%

• But total return includes:

  • Cash flow: $3,120/year

  • Mortgage paydown: $15,000/year

  • You forced $441,600 equity in 12 months

  • Total return on $500k invested: 92% in year one

This is commercial multifamily BRRRR—it's the same strategy, just bigger numbers and better efficiency.

Getting Started with Commercial

Don't Jump from SFH to 100 Units:

The Progression:

• Start: Single-family BRRRR (1-3 deals)

• Next: Small multifamily 2-4 units (2-3 deals)

• Then: 5-16 units (1-2 deals)

• Then: 20-50 units (your first commercial)

• Then: 50-100+ units

Each level teaches you:

• SFH: Basic BRRRR mechanics

• 2-4 units: Multi-unit management

• 5-16 units: Commercial financing

• 20-50 units: Professional operations

• 50+: Institutional-level investing

Timeline: 5-7 years to go from first SFH to first commercial deal (for most investors)

9. When to Transition from Active to Passive Management

Eventually, you may want to step back from active involvement.

The Financial Freedom Decision Tree

Scenario A: Keep Scaling (Active Growth)

• You love the deal-making

• You want to maximize wealth building

• You're willing to stay actively involved

• Target: 50-100+ units, high net worth

Scenario B: Stabilize and Simplify (Semi-Passive)

• You've reached "enough" (10-20 properties, $5k-15k/month cash flow)

• Want to reduce time commitment

• Willing to accept slower growth

• Target: Maintain portfolio, enjoy life

Scenario C: Exit and Redeploy (Pivot)

• Sell portfolio via 1031 exchange

• Buy triple-net lease properties or large multifamily

• True passive income

• Target: $10k+/month truly passive income

Building Your Exit Strategy

Option 1: Hire Full Team (Keep Portfolio, Reduce Time)

Team Structure:

• Acquisitions Manager: Finds and analyzes deals ($50k-70k)

• Project Manager: Oversees all renovations ($50k-70k)

• Property Manager: Handles all tenant relations (% of rent)

• Bookkeeper: All financial tracking ($30k-40k)

• Your Role: Strategic decisions only (5-10 hours/week)

When: 20-30 properties, generating $100k+ annual cash flow to support team

Option 2: Sell and 1031 Exchange

The Strategy:

• Sell 15 single-family homes

• 1031 exchange into 2-3 larger apartment buildings with professional management

• Or exchange into triple-net lease commercial property (tenant pays everything)

Example:

• Sell: 15 SFH valued at $3,000,000

• Buy: 60-unit apartment building for $3,000,000

• Management: Professional 3rd party company

• Your time: 2-3 hours per month reviewing reports

Option 3: Syndication (Become the Sponsor)

The Evolution:

• You've proven success with 10-20 properties

• Now raise capital from 10-20 investors

• Buy larger commercial properties (50-200 units)

• You earn: Acquisition fees, asset management fees, equity split

• Investors provide capital, you provide expertise

• Your role: Deal sourcing and asset management

Income Potential:

• Acquisition fee: 2-3% of purchase ($60k-$120k per deal)

• Asset management: 1-2% of revenue ($30k-$60k/year per property)

• Equity split: 20-30% of profits (potentially $100k-$500k+ per deal)

Plus: You're using others' capital, not your own

10. Your Advanced BRRRR Action Plan

Based on where you are, here's your next move:

If You've Completed 1-3 BRRRRs:

Next Steps:

1. Refine Your Systems

   • Document your processes

   • Create templates and checklists

   • Build stronger team relationships

2. Start Deal #4-5

   • Apply lessons learned

   • Should be faster and smoother

   • Consider small multifamily (duplex/triplex)

3. Consider Out-of-State

   • If local market doesn't support scaling

   • Research 3-5 target markets

   • Build team in chosen market

4. Timeline: Next 12-18 months

If You Have 5-10 Properties:

Next Steps:

1. Systematize Everything

   • Hire Virtual Assistant

   • Standardize all processes

   • Set up proper financial tracking

2. Scale to 15-20

   • Use equity from existing properties

   • Consider equity partnerships

   • Move to small multifamily (5-8 units)

3. Optimize Taxes

   • Work with CPA on entity structure

   • Consider cost segregation studies

   • Possibly pursue RE professional status

4. Timeline: Next 18-24 months

If You Have 10-20 Properties:

Next Steps:

1. Build Your Team

   • Hire acquisitions manager (if actively growing)

   • Hire project manager (if doing multiple renovations)

   • Systematize completely

2. Transition to Commercial

   • Target: 20-40 unit buildings

   • Use track record to raise capital

   • Partner on first deal if needed

3. Plan Your Exit

   • Decide: Keep scaling vs. stabilize vs. transition

   • Build toward desired end state

   • Consider 1031 consolidation

4. Timeline: Next 24-36 months

If You Have 20+ Properties:

Next Steps:

1. Decide Your Path

   • Syndication (raise capital, go bigger)

   • Stabilization (reduce involvement)

   • Transition (sell and redeploy)

2. Optimize Operations

   • Full team in place

   • Sophisticated entity structure

   • Maximum tax efficiency

3. Consider Giving Back

   • Mentor newer investors

   • Teach what you've learned

   • Build a coaching business

   • Leave a legacy

Final Thoughts: The Advanced BRRRR Investor Mindset

You've Graduated from Beginner When:

• You can analyze deals in 15 minutes

• You have systems that work without you

• Your team executes without hand-holding

• You think in terms of portfolio, not individual deals

• You understand tax strategy deeply

• You can raise capital from others

• You see opportunities others miss

The Journey from 1 to 100 Units:

• Deal 1: Learning and proving concept

• Deals 2-5: Building systems and confidence

• Deals 5-10: Systematizing and scaling

• Deals 10-20: Team building and transitioning

• Deals 20+: Strategic growth or stabilization

Each Phase Takes 1-3 Years

• Total journey: 5-10 years

• From beginner to sophisticated commercial investor

• From hands-on to strategic leadership

The Ultimate Goal: Not just wealth, but:

• Financial freedom (choices, not obligations)

• Time freedom (systems run without you)

• Impact (mentor others, build something meaningful)

• Legacy (wealth that outlasts you)

Remember: Every successful commercial real estate investor started with one single-family house. You're on the same path. The advanced strategies in this chapter are your roadmap for the journey ahead.

Keep learning. Keep executing. Keep scaling.

Click Here To Learn More About The BRRRR Method

Next >>>> Part 11 Deciphering LTV and DSCR Metrics