- Sam Primm uses private and hard cash loans to purchase and upgrade properties.
- It then switches to conventional mortgages to pay off the initial lenders.
- Underestimating the rehabilitation and overestimating the final value of the property are risks to watch out for.
Sam Primm told Insider that he and his best friend bought their first property when they were 26.
He has now been in real estate for about seven years. It’s a business he started after deciding he wanted to build wealth and become financially free.
Primm had a hard time imagining how he would get there with a W-2 or any kind of 9-to-5 job.
“It’s a way to retire at 65. It’s not a way to build wealth,” Primm said.
A popular saying that was circulating caught his attention: 90% of millionaires got their status through real estate. His best friend was also considering buying his first property at the time. Together, they saw the potential to buy a cash-generating single-family home.
They are now co-owners of 167 rental units at the age of 33. The portfolio is made up of 85 homes and 82 apartments, according to real estate records viewed by Insider. They also own Faster Freedom, an educational platform, and Faster House, a company that buys properties in St. Louis.
Primm told Insider that when he started he didn’t have a lot of savings to work with. That’s why real estate was a great option. Instead of investing in stocks or cryptocurrencies, he was able to use other people’s money through loans and mortgages to start and keep investing.
He discovered the BRRRR method – buy, rehabilitate, lease, refinance and repeat – while renovating his first investment property. His original goal was to immediately flip and sell the property. That way, he could get a quick cash payment and then use that money to buy long-term investment property for rent. But then he realized there was a faster way.
By renting the property and generating cash, he could go to a bank and get a cash refinance, which would allow him to pay off the original lender and the renovation costs. The rental income from the property would then cover the mortgage and all other monthly fees.
Primm shared with Insider the pros and cons of this approach and what investors could do to mitigate their risk.
The advantages of the BRRRR method
The biggest advantage is that you are using someone else’s money to buy an asset that produces money and appreciates, Primm said. It also allows you to scale faster than if you had to save and use your own money.
The second advantage is that you will end up with a new fixed property. This means that the value will have increased and you will get more rent at the same time.
The third benefit is that you are constantly exploring properties and learning to rehabilitate yourself, so you will have a list of undervalued and distressed homes. Not all of them will be perfect as long-term investments, but there are other opportunities you can use them for, he said.
“You own the Golden Ticket. You own this discounted, distressed property,” Primm said. “So you can make a lot of money just by selling the property or repairing it. Because you learn how to repair with the BRRRR method. It just opens the way for you to more multiple income streams.”
Risks associated with the use of the BRRRR method
Since you are working with borrowed funds, there is less room for mistakes in the process.
The rehabilitation stage is one area that can cause problems for a buyer. Things like underestimating the amount of money or work that needs to be spent on a renovation and overpaying for renovations are mistakes that can easily be made, but they are also preventable.
Primm said cosmetic upgrades such as flooring, countertops and paint were acceptable. On the flip side, structural issues can get you in deep trouble, as fixes can be costly. Even experienced buyers can find themselves in this situation.
Having a property examined by a structural engineer is one way to avoid this, Primm said. But he usually only calls for backup when he sees red flags. He advises buyers to look for any indication that suggests something may have changed. This means sloped walls, large horizontal cracks, or cracks where the ceiling meets the wall. He added that you would also want to watch out for doors that won’t close or have gaps in the framing.
Once you have an idea of your renovation costs, he recommends adding about 10-20% to your conservative estimate to account for any mistakes or miscalculations. Plus, make sure you get three quotes for anything that requires work or have a trusted contractor you work with on a regular basis.
Then you need to be able to accurately predict how much the property will be worth once it’s rehabilitated, Primm said. This includes knowing how much rent you can get and whether it covers your monthly expenses.
Finally, a major concern for buyers is when to find a tenant. You don’t want to find yourself in a situation where they don’t pay rent or damage the property.
“There are a lot more good tenants than good landlords,” said Primm. “So if you are a good landlord and you have a good house, you will have some very, very good tenants to choose from. “
It’s just a matter of sticking to your demands, he said. Make sure you have strict selection criteria and stick to them.
“People get in trouble when they are forgiving or don’t follow their guidelines,” Primm said. “Have established guidelines, certain credit score criteria, income criteria and a background check by calling the current owner.”