December 1, 2025 • 38 mins
Recorded with special guest John Blatchford, this episode of John breaks down one of the most popular and misunderstood investment strategies in real estate: the BRRRR Method (Buy, Rehab, Rent, Refinance, Repeat).
John is the founder of Cohorts and is known for historic renovations, adaptive reuse projects, and creative financing. So he’s the perfect guide to help rookies and seasoned investors understand how BRRRR really works.
In this conversation, Zach, Patrick, and John cover:
- What the BRRRR method is and why investors love it
- How to find the right property, estimate rehab costs, and avoid rookie mistakes
- John’s real-life advice on contractors, budgeting, and rent-ready renovations
- How to nail the refinance step so you actually pull your cash back out
- When BRRRR works… and when it absolutely doesn’t
- How to repeat the process and scale your portfolio with confidence
Whether you’re dreaming about your first deal or scaling into multifamily, this episode gives you a clear, simple roadmap for making BRRRR work even in today’s high-interest-rate market.
Perfect for: beginner investors, house hackers, DIY renovators, or anyone curious about building long-term wealth with real estate.
Learn More https://innago.com/podcast/
https://joincohorts.com/
Sponsors:
Innago is a free, online property management software designed for landlords, particularly those managing small to medium-sized portfolios. It offers a range of features to simplify tasks like rent collection, lease management, maintenance requests, and tenant screening.
Ledgre is an All-in-One Accounting Software Built for Rentals. Organize property transactions, track expenses, and automate rental accounting with simple software focused on your industry.
Cohorts where serious real estate leaders level up. Join a curated peer group of founders, principals, and GPs who meet monthly in small, high-value circles. No fluff—just real insights, real accountability, and direct access to people who’ve done it before.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:35):
What's going on, everybody?
Welcome to season two of theRent Ish Podcast.
I'm Zach and I'm here with myco-host Patrick.
SPEAKER_02 (00:41):
We're two rookies chasing the dream of real estate
investing.
In this podcast, we'll talkabout property management, wild
stories, and everything inbetween.
We don't know it all yet.
But that's the point.
SPEAKER_00 (00:52):
We're learning as we go, just like you.
We'll bring in the experts toeducate and inform us, and we'll
figure it out together.
So let's laugh, learn, and diveinto real estate side by side.
Thanks for listening to anotherepisode of the Rentige Podcast.
Remember, follow the podcast onthe internet at uh The Rentige
Pod.
I think that's our Instagramhandle, right?
The Rentige Pod?
I'm getting a thumbs up from theproducers.
(01:14):
I think so.
The Rentige Pod.
Yeah, the Rentige Pod.
And then email questions at theRentige Pod.com if you want to
send us topic suggestions orideas or a commentary.
Or if you're a guest that knowsabout real estate and you want
to be on the show, feel free tosend us a message and uh let's
connect as the hip kids say onLinkedIn.
Uh the hip kids on LinkedIn.
Yeah.
(01:34):
Are the hip kids on LinkedIn?
SPEAKER_01 (01:36):
They love it because Gen Z is good on LinkedIn.
SPEAKER_00 (01:41):
And then uh yeah, give us a rating, give us a
review.
If you're using Apple Podcastsor Spotify, whatever podcast
service you use, give us arating, give us a review, leave
us a comment, and tell yourfriends about the show.
If you've got a friend, familymember, you're sitting around
the Thanksgiving table talkingabout Turkey and you have don't
you just want to talk about realestate for some reason, post it
on LinkedIn.
Yeah, post it on LinkedIn, letyour family know.
(02:02):
The real ones will be.
Tag your grandma, she's onLinkedIn too.
Yeah, enough silly business.
Uh enough laughing, producer.
Yeah, I think that was enoughlaughing.
That was good.
Now it's time to get deadlyserious.
Uh, we're joined today by aspecial guest that's been on the
show before.
Uh, we're diving into a favoritemethod among hands-on investors:
(02:23):
the Burr method that's buy,rehab, rent, refinance, repeat.
It's a smart, repeatable way tobuild wealth by recycling your
capital and growing yourportfolio with less money out of
pocket over time.
To help us unpack it, we'rethrilled to welcome back John
Blatchford, real estate investorand founder of cohorts.
John specializes in historicrenovations, adaptive reuse, and
(02:44):
creative financing.
So he's the perfect person tohelp us break down Burr and
understand how to do it right.
We've loved having Amond to talkreal estate, and he's gonna
educate Patrick and I becausejust a couple weeks ago, if you
listened to our interview withAlex Bakiza, we didn't know what
the Burr method was.
We thought it was, yeah, we werelike, can you explain to us?
(03:05):
Three BRs in there, yeah.
Exactly.
Three more.
We don't know.
We're gonna get to the bottom ofit today.
We're gonna answer the question,we're gonna figure it all out,
and we've got John here to helpus out.
And I think it's gonna beinformative.
Patrick, are you ready to takesome notes, turn your brain on?
SPEAKER_02 (03:18):
I'm ready.
We don't know it all, but Johnknows it all.
So I'm looking at it.
John knows it all.
SPEAKER_00 (03:23):
All right, so so then let's just get it out of
the way right at the top.
In your words, explain to uswhat Burr is.
What the heck is Burr?
SPEAKER_01 (03:32):
Okay, so I think maybe one of the key parts of
the Burr is the refinance,right?
So probably every piece ofcommercial property, every every
building, the building we're innow, your apartment building, if
you live in an apartment, itprobably has debt.
It has a loan on it, right?
So the owner of that buildingprobably only put in 20% of the
overall purchase price, and therest was you know a loan from a
(03:54):
bank.
SPEAKER_03 (03:54):
Right.
SPEAKER_01 (03:54):
Um, so it's kind of one of the superpowers of real
estate, is that it has kind ofintrinsic value, so you can get
a loan and also has you knowcash flow.
It has rents coming in everymonth.
So, you know, a bank is okay togive you a loan against it
because if they really neededto, they could take the building
and pay off their loan, whichhappens all the time.
So the Burr method is reallyabout buying a property, getting
(04:15):
a loan against it.
So, for sake of numbers, you'regonna buy a$200,000 property.
A bank would typically give you80% of that as a loan, so that's
$160,000 they'll loan you, whichmeans you only need$40,000 only,
you know, quote.
Uh only need$40,000 of actualyour cash to buy a$200,000
property.
Okay.
So that's one cool thing aboutreal estate.
Where the Burr part comes in isif you can make that building
(04:37):
instead of worth$200,000, worth$300,000, the bank will still
give you$80.
You know, we'll still give you$80 of that as a loan.
So then that's a$240,000 loan.
So before you only had a$160,000loan, now you have a$240,000
loan.
SPEAKER_02 (04:52):
Right.
So you because you originallybought it for$200,000.
Yeah.
That's what it was worth.
And now you make it worth$300,000, so they give you more
money.
SPEAKER_01 (05:02):
Yeah.
They'll, you know, in this case,like they'll give you 80% of the
loan because again, if if theygive you a$240,000 loan and for
whatever reason you can't pay itback, they know they have a
$300,000 building that they'rejust gonna take from you and pay
off their loan.
SPEAKER_02 (05:15):
Oh, okay.
Yeah.
How do you make it like how doyou do that?
SPEAKER_01 (05:19):
Yeah, so that uh so yeah, that's it.
That's the game.
And okay.
And this exists forsingle-family homes, it exists
for a hundred million dollarproperties.
You know, you can read aboutkind of any like big project in
New York City.
They're gonna get a loan tobuild it, ground up, they're
gonna get a loan to buy it,they're gonna try to create some
value, and then they're gonnaget a bigger loan, which is
gonna how they're gonna get alot of their money out.
(05:41):
Okay.
So, yeah, there's there'sprobably a few ways, there's
really two ways.
One is you're gonna increasekind of the rents or the revenue
that's in the building, and thesecond is you're gonna try to
decrease the costs, and maybeyou can do both of those things.
But basically, if it's moreprofitable, it's worth more
money.
So that could be easy things,and this is this is what people
will commonly do.
Like you buy a$200,000 building,you're gonna uh repaint the
(06:03):
parking lot, you're gonna plantsome trees, you're gonna paint
the outside, maybe replace thewindows, you know, and and
that's all of what real estateis is like what investments are
worth making, what are not worthmaking.
But you know, if it's a crappyapartment that would rent for
$500 and you put in all newappliances and you put in a new
countertop and you put in newfloors, and now someone will pay
instead of$500, we'll pay$750.
(06:24):
You know, that apartment's nowworth a lot more money.
SPEAKER_00 (06:26):
Yeah, and that's uh the second R in the burr is the
rehab.
Yeah.
And I think that's why realestate professionals around the
world, and you can correct me onthis one.
I think they call it the secondR is the star.
Or the R is the star.
The first R is the star.
That's what they say.
Yeah, no, no, no, no, no.
That's a professional No.
That's uh that's that's what theprofessional is.
(06:48):
That you know, obviously.
SPEAKER_01 (06:49):
It does sort of come boil down to that, which is
like, okay, yes, you want to addvalue to the building, but how
do you do that?
Like, you know, there's youcould invest a ton of money, you
can invest a little bit ofmoney, like what will people
actually pay for?
So that's really the wholeentire, I would say, game of
real estate is you know, how doyou add value to the stuff?
SPEAKER_02 (07:04):
So I guess my question would be like, I guess
maybe the refinancing part.
I think I'm having a bit of aharder time understanding that
one.
So like the the rehab orwhatever, like the as you put
it, adding new countertops ornew floors, and that increases
the value.
Right.
That makes total sense.
Right, like like turning uh tojust use the current example, a
$200,000 building into a$300,000building from these renovations
(07:26):
and whatnot.
How do you get the refinance,like how do you get the banks to
be on board and increase yourloan?
Like, how does that work?
SPEAKER_01 (07:34):
Yeah, so basically you're gonna, you know, you have
your current loan, you're gonnayou go to the bank and you say,
Hey, these are the rents, andbasically the profit, you know,
in in real estate it's calledlike the net operating income,
like NOI, but basically likeit's like the profit.
Like, what's how much profitdoes that building make every
month?
All of your rents, all the moneythat comes in, pet fees, all
that stuff, and then all thethings you have to pay for,
(07:55):
insurance and utilities and yourloan and all that.
Um, you know, how profitable isthat building?
Um, so yeah, a bank basically abank's main job is they they
want to loan out money and theydon't want to take too much
risk.
Again, they'll loan, let's say,80% of the building's value.
So if it's worth$200,000,they'll give you$160,000 if it's
worth$300,000, they'll give you$240,000.
(08:17):
So yeah, as that building gainsvalue, they'll give you more
debt, they'll give you a biggerloan.
And that could happen over time,like just over time the building
gets more valuable, or becauseyou have you know done something
that's made it more valuable bygetting higher rents.
SPEAKER_02 (08:30):
So, like, let's say you have like a 30-year
mortgage, right?
That's a pretty common one.
Yeah, you know, so you have likekind of a set cost every every
month.
Right.
Let's just say it's$200,000.
Let's just, I don't know, let'ssay$2,000 is the mortgage
payment every every month.
When you go to refinance and thebank now agrees that your
building is now worth$300,000,how does that like how does that
(08:50):
actually how do you see thatchange with like your monthly
mortgage payments or like yeah,like how would that be?
SPEAKER_01 (08:55):
Yeah, so your mortgage payment will go up.
It basically is it's gonnareplace your previous loan.
So you used to have a$160,000loan, you now have say a$240,000
loan.
Yeah.
And yeah, in this case, yourmonthly payment will go instead
of two thousand two thousand,it's you know twenty four
hundred a month.
Um, so that you know, the thehidden risk, I would say, in all
of real estate is like you nowhave to pay more every month,
which means you know, it you byadding more debt to your
(09:17):
building, it's not free money,you know, you had now have a
bigger loan.
It's right because that's truefor anything.
If you have a car loan, a houseloan, you know, like more debt,
you get that cash, which isgood.
Maybe then you can invest it inanother property, but you also
have a higher monthly paymentand you're also just adding a
little more risk because if youcan't make that payment, the
bank takes your building.
SPEAKER_02 (09:36):
Oh, wait, so you get so the loan I see now.
So, like the the loan that theygive you the increased amount,
you can use that for otherproperties.
SPEAKER_01 (09:45):
Yeah, you get that cash.
So again, we we can stick withour example from a$160,000 loan
to a$240,000 loan.
You now have$80,000, right?
Because you'll pay off the oldloan, so that all goes away.
But you now have$80,000 thatjust comes as cash that you can
use for Oh, so you now okay, Isee.
SPEAKER_02 (10:02):
So when you refinance, you get that.
SPEAKER_01 (10:04):
Yeah, it's a loan, you're paying it back, but
you're paying it back from theproperty.
SPEAKER_02 (10:07):
Yeah, got it.
So you can now use that andinvest into a new property.
That's the report.
SPEAKER_01 (10:12):
Yeah.
SPEAKER_03 (10:12):
Yeah.
SPEAKER_01 (10:13):
I see.
Okay, I don't think that partwas really.
Yeah, and it wasn't apparent tome.
It took me a bit to you, like,okay, you just get cash, but
why, you know, it's like it's alittle odd.
But yeah, you have a morevaluable asset, the bank will
give you a bigger loan, and youcan they'll give you cash for
that, and you can use that cashfor, you know, whatever you
want.
SPEAKER_00 (10:32):
Pretty much.
Well, you meant you mentionedthe risk aspect.
I mean, when you go to do somesort of refund, like when you go
to attempt the burr, yeah, asthey say.
Yeah.
Would are there cases where thebank would look at a proposal
and be like, nah, we don't thinkso?
Like, I mean, does it have toqualify for a specific amount of
like because you mentioned likebanks want want to mitigate
their risk, but also, you know,have a steady flow of funds and
(10:55):
loan payments and stuff likethat.
But is there a case where theywould just straight up be like,
nah, I don't think so.
SPEAKER_01 (10:59):
Yeah, and it all goes to underwriting and and it
it is fairly subjective.
You know, first you're gonnaprovide, say, six months or
three months or twelve months ofrent of of like previous, you
know, basically your accountingfrom the past 12 months.
Right.
But you know, there's kind of anopinion, it's it's somewhat
subjective of like what thatproperty is actually worth.
And there's plenty of caseswhere they're saying like, oh,
it's not worth as much as youthink, or it's you know, only
(11:22):
worth as much as your currentloan.
So yeah, that happens all thetime.
And it's all like a bitsubjective, but you're trying to
make your case, you know, thatit's worth more.
Um, so you know, you can get asmuch money out as possible.
But but again, like the bank isunderwriting it, they bring in a
third-party appraiser to seewhat the value is, and you know,
ultimately they're trying not togive out a risky loan if if they
(11:42):
which also happens, especiallyif people are fraudulent, you
know, if they give you a loan asthough the building is worth
five hundred thousand dollarsand it's only worth three
hundred thousand, you know,that's bad.
That's bad, that's bad.
Yeah, yeah.
SPEAKER_00 (11:54):
Professional terminology, bad, bad.
So what makes it that I I mean,obviously it's appealing, it
sounds appealing.
What makes it very appealing toyou?
I mean, do you have any greatsuccess stories of using it in
your own personal life?
SPEAKER_01 (12:08):
Yeah, we had we had a building like this um on
McMickan here in Cincinnati, youknow, finished the building,
went through the wholerenovation, you know, did a good
job with the renovation, had anice, I don't know, eight months
of rents or something.
And then yeah, we refinanced itand I think it was, yeah, maybe
like$80,000.
So, you know, that's a challengein real estate, is that it takes
(12:28):
a lot of capital.
And once you put it into abuilding, it's kind of sitting
in that building.
And so you can sell thatbuilding.
That's one way to get it out.
Or, you know, what we're talkingabout here is like you can you
can refinance it or get a loanagainst it and get that capital
out and do another project,which is what we did.
We were able to invest thatmoney directly into another
project.
So yeah, it's a way to you knowown more properties, do more
(12:49):
projects without having themoney yourself necessarily or
raising more money.
Um, and if you can do it right,you can get to like a pretty
(13:18):
large portfolio of properties,um, you know, without having to
raise a ton and without havingto be personally wealthy.
SPEAKER_00 (13:26):
I mean, it sounds like it works best for
properties that are distressedor like make off-market deals,
kind of stuff like that.
So it's like in that way, itmight be correct me if you feel
differently, Patrick, but itmight be a little bit more
intimidating to like the casuallike invest, like someone that
wants to just get like a fix andflip property, like this is kind
of like a step beyond that alittle bit.
Like it requires a little bitmore brain power and planning
(13:49):
and stuff like that.
SPEAKER_01 (14:13):
Yeah, and there's a lot in sort of the finances of
it.
You know, you have to um, youknow, have a model for okay,
this is what it's worth, andthis is what you can invest, and
this is what it could be worth.
Um, you know, it's a lot ofdealing with banks and
underwriting.
So yeah, I would say it's a it'sa bit more complicated how a lot
of these projects work.
And you know, again, I think Ithink Burr, that specific term,
(14:33):
is often used for like small,you know, doing single family or
smaller projects, but the$100million project in New York
City, like this is exactly thesame thing they're doing.
They're they're gonna buy, evenin a ground-up construction,
they're gonna, you know, buy theland, develop the building, and
hopefully from then they'regonna get a later loan, you
know, to get some of that moneyout.
Another way it works too is thatin that case, if you're building
(14:54):
a ground up building in New YorkCity, you know, that
construction financing could bevery expensive because it's very
risky, like maybe you neverfinish the project, it goes way
over budget, tariffs, you know,so many things can happen during
construction, and so that thatloan you get can be very
expensive, like a very highinterest rate.
But once it's done, you now have200 people living there, they
all have a year-long lease,they're all paying rents, it's a
(15:16):
beautiful finished building.
You know, that is a much lessrisky project.
It's already done, it has rents,it has people living there, um,
and so you can get better terms.
And so uh similarly, you can uhyou know do a refinance at that
point at a lower interest rateat much better terms and get a
lot of your money out as well.
Um but yeah, it requires aproject that like you're gonna
(15:38):
buy for a certain value and youhave an ability to make it worth
more because that's really whereyou're gonna get that like uh
refinance.
SPEAKER_02 (15:45):
If if somebody is looking, like let's say somebody
doesn't have like a ton ofcapital up front to like invest
into multiple buildings, theyjust they have one building and
they want to grow theirportfolio.
Would you in almost all casesrecommend Burr?
Or is there situations where itmight not be the best option for
some for somebody who's tryingto grow but doesn't have
(16:06):
capital?
SPEAKER_01 (16:07):
Yeah, I think it's the best, it's really the only
way to do it, except for raisingmore money or or you know having
the money yourself.
Um because you know, a propertyitself does not give you that
much money.
You know, a$200,000 property,like you'll be lucky if that
gives you five grand a year ofprofit, you know.
So like it's gonna be very hardto build a portfolio or buy more
(16:27):
properties just from that.
So really the refinance, youknow, is the potential to get
money out.
And with all this, like the thekey caveat is like adding more
debt in your life, you know, isnot necessarily like there's
obvious risks with that, right?
Like more and more debt.
A lot of these are personallyguaranteed, and you know, the
bank is gonna come after thebuilding or come after you
personally if you can't pay offa loan, like you're taking out a
(16:48):
loan.
So like refinancing soundsreally good, and you pull your
cash out, people say you know,cash out refi, and all this, you
know, it all sounds so sexy, butlike if you if you change that
terminology, like oh, I'm takingmore debt, you're like, it
doesn't sound quite as good,right?
Yeah, um, so it works.
It's again, it's how all ofcommercial real estate works,
and even you know, to get a 10unit or to get like 10
(17:08):
properties, you're gonna berefinancing, taking cash out.
So it's how it all works, butlike it's important to realize
it's just more debt.
Like, yeah, yeah, yeah.
It's more and more debt.
Yeah, I gotcha.
SPEAKER_00 (17:18):
Yeah.
SPEAKER_01 (17:19):
Okay.
SPEAKER_00 (17:19):
Would you say taking on that debt is the most common
like pitfall that a new investorwould make getting into the like
buying fixer fixer uppers andlike kind of starting to get
into it, or are there otherpitfalls than like snags that
you can see that people would berunning into?
SPEAKER_01 (17:33):
Yeah, well, the you know, the main thing is like,
okay, can you increase thevalue?
And um, so you buy a$200,000property, you're like, okay, how
are you gonna make that worth$300,000?
And so you might have someideas, but that's where you get
into trouble where you couldspend a ton of money on the
property and it might not beworth it.
If you're doing this in a supersuburban part of Kansas, like
(17:56):
maybe just no one is can paymore than$900 a month, right?
Like you could put a ton ofmoney into it, but like the max
rent in the entire zip code isyou know$950.
It's like, okay, no one's gonnapay$2,000 a month to live there.
So you know, that's a lot ofthat goes into the utter ending
of just like what's it gonnacost to renovate?
What do other people pay fornice units?
What would that mean for whatit's worth?
(18:17):
What could a what would a bankgive you?
You know, so this is you know,you can do this in pretty simple
like Excel spreadsheet, but youdo have to do that exercise
because like you can't just kindof blindly invest and trust that
someone will pay more and that abank will give you a loan, and
you know all that stuff.
SPEAKER_02 (18:31):
I kinda I want to come back to this, like the
specifically, like the the howto decide the smartest ways to
increase the the value of theproperty.
I do have a question though,kind of unrelated.
So with the naturally mountingcosts of properties, that's been
happening, especially over thepast like five years, let's say.
Let's say a property naturallyis goes from 200,000 and you
could sell it for$300,000 fiveyears later, and you haven't
(18:53):
made any renovations to it.
Yeah, could that constitutegetting it refinanced with the
bank?
SPEAKER_01 (18:57):
Or yeah, it does?
Yeah, that's it's the samething, yeah.
It's exactly the same thing, andthat happens all the time too.
That's really common of like youfinish a building or you own a
building, and just you know, sixyears later the area has
improved a lot, the property'sworth a lot more, rents have
gone up, it's just worth more,then you can get a larger loan.
Okay, and you didn't even haveto do anything, you didn't have
to put any money or time intoit.
(19:18):
Yeah, that's that's reallycommon.
That happens all the time.
Okay, cool.
Yeah, especially in areas whererents are increasing, property
values are increasing.
Yeah.
And that's you know, you kind ofhear like uh growing up, you
might hear like, oh, they tookout a mortgage or second
mortgage on their house.
Like, that's often what that is.
Um, like maybe you heard thatfor your parents or something
where they bought their house inthe 80s and it was worth you
(19:39):
know 50 grand, and now in 2000it's worth 200,000 or whatever.
You know, it's like it's worth alot more, and so they can get a
bigger loan, and that's liketaking out a second mortgage or
a new mortgage or whatever.
Okay.
I feel like I'm learning.
SPEAKER_02 (19:50):
I don't know about you, Zach.
I feel like I'm learning a lot.
Brain sponge right now.
SPEAKER_00 (19:54):
Yeah, just taking it all in, just letting the letting
it hit me.
It's great.
SPEAKER_02 (19:58):
Okay.
I I got a couple, I got a couplemore questions.
Sorry, do you have I'll bepolite.
Do you have any questions?
SPEAKER_00 (20:04):
No, no, no, just call me the Segway Master
because I was about to startsegueing into other steps, but
you keep questioning.
Yeah, yeah.
Sorry to steal your own.
Question everything.
SPEAKER_02 (20:12):
Um okay, what are like what are some of your
favorite ways to invest into aproperty and make it worth more?
Like, do you have like somestrategies that you regularly
use for your properties?
SPEAKER_01 (20:28):
Yeah, so I mean, you know, there's all kinds of
different versions.
Like our properties arebasically like the example is
you know, we're gonna buy it forlet's go like per unit.
We're gonna buy it for 50 granda unit, we're gonna invest
150,000 per unit, so the totalof 200,000, and then hopefully
it's worth 250,000 units.
SPEAKER_02 (20:49):
Oh, because you you really get the fixer of the
stuff.
SPEAKER_01 (20:51):
Yeah, so ours are like ours is like the most
extreme version of this, whereit's like a year-long process,
total gut renovation, but it'sthe same thing where effectively
like we hope that the day thebuilding is done, it's not just
worth what we put into it, it'sworth a bit more than that.
Yeah, got it.
Um and at that point, you know,which which we have done in the
past, like at that point, youknow, you can refinance or you
refinance a year later or twoyears later.
(21:13):
Um, so there's that.
But the the common, the mostcommon is like you hear if you
heard the term or we may havetalked about like value add,
right?
You're gonna buy a building thatwas built in 1986, it kind of
has old crappy interiors, and itrents for a thousand bucks a
month.
And so you're gonna come in andyou're gonna you know put in new
floors, countertops, kitchens,you know, invest a bit of money
(21:35):
into it, and then you know,increase that rent a lot.
So it goes from a thousand amonth to fifteen hundred a
month, and then that you knowit's worth a lot more.
So you know, typically it'spretty cosmetic in a lot of
these sort of value addprojects.
Just like what does somebodywalking into that apartment, you
know, like and want to like paymore for?
So yeah, it's that's that's themost common.
It's like kitchens, countertops,floors, okay, paint.
(21:57):
Paint is like the easiest onebecause it doesn't cost much.
Um but can like paint, even justa fresh coat of paint can add
yeah, and you'd be surprised.
Like you look at some of thesebuildings and people buy, and
it's literally paint theoutside, you know, put new sh uh
lines down in the parking lotand plant some trees, and you're
like, oh yeah, that does look alot nicer.
Yeah.
And that you know, it's likekind of hard to capture that,
but it like, yeah, peopleprobably would pay now$100 more
(22:20):
a month to live there, you know,which is worth a lot, like for
the value of the building.
So it's yeah, it's kind of stufflike that.
SPEAKER_00 (22:26):
Okay.
This reminds me of how I used tomanage my uh roller coaster
tycoon.
Yeah.
Are you familiar with this?
Are you not familiar with it?
SPEAKER_02 (22:33):
Is that like a Sim City Creator kind of thing?
Yeah.
Okay.
SPEAKER_00 (22:36):
I don't know roller coasters.
Is that unk of me to say that?
No, it's roller coaster tycoon,it was like you build roller
coasters, it was like the Simsor whatever, and you build it.
Right.
But like I would make thesehorrifying, terrible roller
coasters that no one would everget on, but then you just put
some trees and some fountainsand come to pathine park.
SPEAKER_01 (22:55):
But you know, there kind of is something to that.
Like it is sort of real estatewhere uh, you know, as far as I
remember, roller coaster tycoon,it's like, well, there's people
throwing up on the sidewalk,there's not enough trash cans,
but like, yeah, okay, I have toinvest 20 bucks into more trash
cans, but then you get fivedollars more in uh you know
concession sales.
Concession sales, right?
And like that makes the parkmore valuable, right?
(23:17):
Like it it's it's a it's a bitsilly, but it actually kind of
is how it works.
Like you make these smallinvestments which make people
want to pay more rent, and thatmakes the building a lot more
valuable.
Yeah, and so I I don't know ifthis makes sense.
So basically, like becauseyou're getting a loan against
the building, like everyincremental amount of rent you
can get is worth a lot for thebuilding because they're they're
basically loaning against kindof like the cash flow of the
(23:39):
building.
And so it's not just like$100 amonth is makes the property
worth$1,000 more.
It actually makes it like$20,000more valuable.
Like that's that's the actualmath.
Like$100 more per month in rentmeans the building is worth
$20,000 per month.
Where does that come from?
Does it come from$100 times$20,000?
Yeah, so like a thousand dollarsa year of increased rent, right?
(23:59):
$100 a month, a thousand bucks ayear.
Well, there's this idea of likea cat like cap rate, which
basically is kind of like your Idon't know, the yield on a
property.
Like what what for the money youinvest into it, like what is
gonna be your increase in profita year?
I don't know if that makessense.
But that's like how a lenderlooks at the building.
And so a thousand dollars more ayear, say of like profit of net
(24:20):
income, you know, will be liketwenty times more valuable.
Okay.
Yeah and tw that's that's prettystandard across the board, is
twenty times more.
It depends.
It's it's um it's more in aplace like you know, New York
City.
You know, this there's this termcap rate.
Yeah, so like a cap rate in NewYork City might be like three
percent, which means it's like30 times more valuable.
Oh, okay.
In Cincinnati, maybe it's fiveor six percent, making it like
(24:42):
twenty times more valuable.
In like a really crappy market,that cap rate might be like ten
percent, so it's you know, tentimes more valuable.
If that makes sense.
SPEAKER_02 (24:49):
Okay.
SPEAKER_01 (24:50):
I think I'm following.
Yeah, that that that that partgets a little you know niche,
but but you know, it'seffectively that the bank is is
valuing the cash flow of theproperty.
So every every incrementalamount of rent you can get,
assuming your costs are thesame, uh, makes the building a
lot more valuable.
So that's that's the whole game.
Is like, can you get$100 more amonth in rent?
Like, yeah, if you can, thebuilding's worth$20,000 more.
(25:11):
So you're like, okay, so likeso.
If this makes sense, like youwould gladly invest$10,000 into
the property to add$20,000 worthof value to it, right?
So if$10,000 into the propertymakes someone pay$100 more a
month, then it's worth$20,000more, you know.
So that's like the whole game.
That makes sense.
SPEAKER_00 (25:29):
Yeah.
SPEAKER_03 (25:29):
Okay.
SPEAKER_00 (25:30):
So so I do want to talk about the specific steps of
refinancing.
So when you do get to that partof the Rs, like you're taking us
through the Rs.
Yeah, through the Rs.
Okay, nice.
How does it work?
Like how where do you go?
Do you have a loan officer thatyou go to?
Do you typically go through thebank?
Like, what are your steps andlike when do you know that it's
the right time to actually getto the refinancing step?
SPEAKER_01 (25:51):
Yeah, so so you've invested into the property, so
you want to see that that hasworked.
You've been able to increase therents, right?
You had a previous tenant at$900a month, you have a new tenant
that's at$1,200 a month, you'relike, okay, it's working.
Um, you know, a bank typicallywants some longer-term proof of
that.
So at least probably threemonths of rents and maybe more
(26:12):
like six months or 12 months.
Often in our case, you know, youneed kind of like 12 because we
just finished the property, hadno income before.
So we need at least like a yearof rents that show the bank that
that's you know real.
It's like been proven over 12months.
Uh-huh.
So you kind of need that.
You need a historical record.
Uh, you know, I definitelyrecommend like good bookkeeping
because that just makes itreally easy for the bank.
But yeah, then you can go to alot of local lenders, you know,
(26:34):
are happy to lend against abuilding that has rents and cash
flow and has a value.
Um, so yeah, you just go to themthat you want to you know
refinance the property.
You know, sometimes if you havea previous loan, you know, and
this is all in your loandocuments, there might be like a
penalty to pay off that previousloan early.
Interesting.
Um, you know, there's kind ofdifferent different things
there.
That's the biggest one, like aprepayment penalty.
(26:56):
But yeah, you go to the bank andyou know, they'll typically
underwrite it for free, or maybeyou know, you pay a small amount
and you can just see like what'sit worth?
Like, is it worth what I think?
300,000?
Is it worth 350?
You know, and then you can kindof make a decision like, does it
make sense to refinance?
And what the terms of therefinance will be too.
SPEAKER_00 (27:11):
Okay.
Um, do you find that a lot ofthe time that you get that
initial like is it is it a likenot a cat and mouse game, but
like do you find that most ofthe time when in the situation
you would go in to do therefinance, you get a number that
you're not super satisfied with,and then you would like be like,
okay, I'm good, and then comeback later, or do you think have
there been any that you'veexecuted on the first offer?
SPEAKER_01 (27:29):
Yeah, it you know, and it's an interesting mix
because you you theoreticallywant that value to be as high as
possible because you can get thebiggest refinance possible,
right?
Again, with the caveat that ismore risk.
So you kind of want the biggestnumber possible.
The bank also kind of wants toloan as much money as possible.
Like there's a lot of incentivesfor this refinance to happen,
(27:50):
but you know, they everyoneneeds to be realistic because
again, if the property is onlyworth$300,000, like you don't
want a$500,000 loan because youknow so anyway, so yeah, so so
we've had it before, and youkind of go to different lenders
and they're gonna work withdifferent appraisers and they're
gonna evaluate it a differentway, and ultimately just kind of
choose the best one.
And we've we've definitely hadit before where you know you go
for the refinance, it justdoesn't make sense.
(28:11):
So you know, maybe wait sixmonths, try to push rents a
little bit more, see if interestrates will come down or
whatever.
Okay, yeah.
SPEAKER_00 (28:17):
Patrick, how's your mind sponge going over there?
SPEAKER_02 (28:20):
So absorbed of information.
SPEAKER_00 (28:24):
Any questions you have for John?
SPEAKER_02 (28:26):
No, this is this has actually been really like I feel
like I've learned a lot,actually.
Not that I typically don'tsometimes, but you know, yeah.
Like this has been a veryhelpful.
SPEAKER_00 (28:35):
It's nice to know when it con uh like to know it
in context now because we've hada few guests on the show and
like we've done topics wherewe've mentioned the Burr method,
but it's like not having anycontext for the specific steps
and stuff, it makes it makes ita lot more uh you've made it
easy to understand.
This is like the Sesame Streetof uh real estate podcasting
right now.
SPEAKER_02 (28:54):
If let's say somebody owns a house and they
live in that house, they don'thave any investment in
properties, it's just theirhouse that they bought that they
own.
And let's say there's like thevalue of that house has gone
over up over the past 10 years,for example.
Yeah, is it common slashrecommended to maybe do a
refinancing situation with theirown house, get that refinanced,
and use that to then invest intheir first rental property?
SPEAKER_01 (29:16):
Yeah, I think that's definitely a way to do it.
I mean, people do it all thetime.
I think I can recall you see itin movies, or even if you're at
Shark Tank or something, like wetook out a second mortgage on
our house.
Like that that term is like iswhat we're talking about.
Like you refinanced your houseto take money out and then use
it for something else.
Got it.
So I think you know, I think ifthat has happened to your to
your home and you have a lot ofequity in it and you want to
(29:38):
pull that money out, and if itmakes sense to you to invest
that in real estate, like Ithink that could work.
You know, I I think if you seeabout this online, people will
talk as though it's free money.
You're like, oh, you just youknow, you go for the cash out
refi, and now you have a hundredgrand of profit and it's just in
your bank and you can dowhatever you want.
And you're like, again, that'strue, but you have more debt,
like you know, yeah.
(29:58):
You have a higher monthlypayment, you have a bigger loan,
you know, like you're just youare adding risk.
And what's crazy is like thebiggest developers, you know,
multi-billionaires, you like youcan see it all over the place
now.
They kept refinancing, they keptgetting a bigger and bigger
loan.
I mean, all these officeproperties, like that's what
happened.
Yeah, they they were getting 100grand a month in rent, all of a
sudden they're getting 20 granda month in rent, and you know,
(30:19):
that math works in the otherdirection.
That building was worth 100million, and now it's only worth
you know 50 million.
Like it all drops down.
You can't pay your monthlypayment, you know, the bank
comes for the loan or bank comesfor your building, the building
isn't worth as much, and thenthey're gonna come after you
personally.
So, like yeah, so you know,they're there that's the risk,
and and again, it's like Burr, Ithink, is talked about in a much
(30:40):
smaller context, but like allthe biggest buildings are doing
a similar thing, but the reasonthat makes it so good, you know,
can also be the reason where itall like collapses.
So yeah.
SPEAKER_02 (30:49):
Okay, that no I feel like it's important to like
highlight the the risk or atleast make the risk
understandable, or you know whatI mean?
SPEAKER_01 (30:57):
Yeah, like if you and and what the the question
you the example you gave of likebasically taking out a bigger
loan on your house, like thatyou know, you can use that money
for help with college payments,you can you know invest in
property, but like you'reputting your home at a greater
risk of like being taken fromyou, you know.
SPEAKER_02 (31:13):
If you're basically if you're not able to make those
higher monthly.
SPEAKER_01 (31:17):
Yeah, if you can't that and that's the main thing.
If you can't make the monthlypayment, then the bank's you
know coming after you, comingafter your house.
So like uh I think that side ofit like isn't talked about
enough.
You know, you just kind of seeit like, oh, cash out refi, we
paid everyone back.
You're like, yeah, even thateven the term like cash out
refi, it sounds so sexy.
Or just like just exchange thatfor like we got a bigger loan.
We took on more debt.
SPEAKER_03 (31:36):
Yeah, right.
SPEAKER_01 (31:37):
If you just if you could just do that in your mind,
like we took on more debt, andif it still makes sense, like
okay, then it makes sense.
SPEAKER_00 (31:42):
Yeah, when you said free money, I don't know why,
but I that whole thing, Ipictured Saul Goodman saying
that like directly at a camerawith like a like a like a crappy
TV suit behind it's like it'sfree money.
We're getting it right now.
Yeah, cash out refin.
Exactly.
Put that money right in yourpocket.
SPEAKER_01 (31:56):
You can imagine some infomercial, you know, like cash
out refined.
Yeah, and again, so uh uh it'sthe way all of real estate
works.
I think it's the you know one ofthe only ways or best ways to
kind of build up a portfolio asyou're you know as an individual
person or as a real estateinvestor, but um, yeah, there's
risks.
SPEAKER_02 (32:11):
With a sort of caveat of like make sure, you
know, regardless of how thingscan change that you will be able
to make the monthly payments andnot lose the property among
other things.
Yeah.
That's kind of like the main,that's the main risk to be aware
of.
Yeah.
SPEAKER_01 (32:25):
If you can't make your monthly payments, yeah.
You know, as like I would say aworking couple, if you're gonna
do that in your house, like youknow, if someone doesn't have a
job for three months, are yougonna not be able to make that
monthly payment?
You know, like you lose yourhouse, right?
Like you know, so so that's justyou know, that's like the way to
look at it.
But but yeah, as long as youkind of know those risks, then
it it can be really awesome.
SPEAKER_00 (32:44):
Right.
And that's the last R, which isrepeat.
Repeat.
So it's like that also comeswith it, you know, the the fair
warning signs of everything.
Make sure you're doing your duediligence and educating yourself
and make sure you're in a rightspot to be able to pull
something like this off,especially if it's something
that you think that you're gonnabe able to do over and over
again.
Like you need to make sure thatit's something that you're
(33:05):
prepared for.
SPEAKER_01 (33:06):
So yeah, yeah, and you know, if you're good at it,
you can just kind of keep doingthat.
You take the money out of one,you put it into another one, do
the same thing, take the moneyout of that, you know, do it
again.
And so, you know, you can dothat kind of indefinitely, but
you know, again, with with therisks involved.
SPEAKER_00 (33:20):
Yep.
Okay.
SPEAKER_02 (33:21):
You know that episode of SpongeBob where he
puts like corks in his likepores and he becomes really big?
Yeah.
That's my brain right now.
Information.
SPEAKER_00 (33:31):
I'm glad I got you on this train of the mind spot.
Yeah, the mind spots.
That's good.
It's gonna be a recurring theme,I'm sure.
So, uh, Patrick, are you readyfor a new segment?
SPEAKER_02 (33:42):
Oh, wait, that wasn't the whole episode?
SPEAKER_00 (33:44):
Well, I've got stick with me.
Okay.
You just want to questioneverything every day.
That's fine.
You just want to questioneverything I do.
It's totally fine.
You ready for a new segmenthere?
Yeah, I'm ready.
All right, it's called We'reTrying to Appeal to Gen Z.
So I'm gonna explain everythingthat John just explained in Gen
Z terms.
Are you ready?
Tell me if this sounds right.
(34:05):
Found a chopped property, don'tbe unk.
Use burr and ris it up to makemoney, no cap.
SPEAKER_02 (34:12):
That hurt, dude.
Why?
Sounds right.
SPEAKER_00 (34:15):
Put that on social media.
We're going straight to the top.
Sounds right, man.
Draco.
Okay, cool.
Well, so I think unless you hadany other questions, Patrick, I
did want to use like maybe wegot like five minutes left or
whatever to ask John anythingthat we want.
Do you have anything else aboutBurr or are you good on that?
Dude, I'm so you're good onthat?
I did want to ask because, andyou know, they they didn't prep
(34:37):
you for this, but we just did anepisode where we talked about
the 50-year mortgage stuff.
And I'm just curious becauseright now that is topical.
I'm just curious to hear youropinion on all of that right
now.
While we have a real estateprofessional that can sit with
us in the room and actually kindof break down their opinion on
what's going on with that.
SPEAKER_01 (34:53):
Yeah, it's interesting.
You know, it's all kind of a youknow, we're we're all just
making up the rules, right?
Like, I don't know, is it 30years or is it 50 years?
But I think in Canada, I thinkit's I think a lot of the rest
of the world thinks it's odd weeven have a 30-year-old.
As opposed to what?
Much shorter.
I think in Canada the max is 15years.
And I think in the US therewasn't a 30-year and like I
think historically it was likeit was more responsible.
(35:14):
Like you had a seven-yearmortgage.
Like, yeah, you just you paidoff your house in seven years.
You weren't just like makingthese little monthly payments
for 30 years.
So yeah, I don't know.
I what's the motivation?
I guess you have you have alower payment, it's probably
better for people, they havemore money to spend on things,
you know, which I guess thatmakes sense, but I don't know.
I think this idea of like likewhat's your like surface area of
(35:37):
risk, you know, and the longeryou own the property and the
longer you're sort of paying itoff, you're kind of like
increasing this like surfacearea of risk, you know.
Okay.
So I think it's I don't know, itseems like riskier, but probably
better for homeowners.
Sure, if you could pay it offover 50 years instead of 30,
like you know, why not?
Okay.
SPEAKER_02 (35:52):
So you don't think you don't immediately think it's
like a predatory sort of bank,like the banks are like, yes,
this is pay us all this interestfor 50 years.
Yeah.
SPEAKER_01 (36:04):
Yeah, I don't think so.
No, I mean they want a shorterloan in general.
I think you know they want theirloan to be paid back plus
interest if they can.
Okay.
And they'll just underwrite itappropriately.
If it's a longer loan and maybeit's whatever it is, a higher
interest rate or something.
SPEAKER_02 (36:18):
Okay, interesting.
Okay.
I didn't I didn't know that likeCanada is like a fifty fifteen
year loan.
SPEAKER_01 (36:25):
Yeah, I think fifteen is a it's very odd.
And it used to be seven.
Yeah, in the US, I think it wasvery short until like recently.
SPEAKER_02 (36:31):
How is that doable?
Just because property priceswere so low compared to income?
SPEAKER_01 (36:35):
Yeah, I think um we'd make much larger down
payments on the house.
So you you know you'd you'd pay20% or more, so it was just a
smaller loan you were takingout.
Yeah.
You know, all this is like thehigher, the higher the loan, the
longer term payment.
It's like it's kind of just morerisk, I think, but it's better
for homeowners as long as youcan make the payments.
SPEAKER_02 (36:57):
Yeah.
Okay.
SPEAKER_00 (36:58):
Okay, cool.
Well, John, thank you again forjoining us for another episode
of the show and uh talking withus about the Burr method, giving
your insights on some stuff is apleasure to have you.
Hope you had fun.
Great times.
Okay, great times.
A plus review.
Speaking of reviews, leave us areview.
If you're using Spotify or ApplePodcasts, go ahead and leave us
a review, give us a five-starrating, thumbs up, whatever the
(37:20):
service is.
That like button.
Exactly.
There you go.
And uh yeah, follow the podcaston social media at the rentish
pod.
Email us questions at therentishpod.com if you want to ask any
questions, maybe a question forJohn for the next time he's on
the show, topic suggestions,anything you got, we'd love to
hear it.
And tell a friend about theshow.
If you have a friend that youknow that is into real estate or
(37:40):
investing or propertymanagement, whatever it is, let
them know that they can checkout the Rentish Pod weekly on
podcast services around theworld.
Until the next time, I've beenJohn.
It's time to go to bed.
Until the next time, I've beenZach.
That's been John, that's beenPatrick, and we'll see you guys
next time.
The Rentish Podcast is recordedin Cincinnati, Ohio, hosted by
(38:02):
Patrick Giro and me, ZachRotello.
Produced by Mousse Gabermescelland Charlene Mulcendani.
Edited by Elliot Mongenes.
Theme song by me, Zach Rotello.
What's going on, everybody?
Welcome to season two of theRent Ish Podcast.
I'm Zach and I'm here with myco-host Patrick.
SPEAKER_02 (00:41):
We're two rookies chasing the dream of real estate
investing.
In this podcast, we'll talkabout property management, wild
stories, and everything inbetween.
We don't know it all yet.
But that's the point.
SPEAKER_00 (00:52):
We're learning as we go, just like you.
We'll bring in the experts toeducate and inform us, and we'll
figure it out together.
So let's laugh, learn, and diveinto real estate side by side.
Thanks for listening to anotherepisode of the Rentige Podcast.
Remember, follow the podcast onthe internet at uh The Rentige
Pod.
I think that's our Instagramhandle, right?
The Rentige Pod?
I'm getting a thumbs up from theproducers.
(01:14):
I think so.
The Rentige Pod.
Yeah, the Rentige Pod.
And then email questions at theRentige Pod.com if you want to
send us topic suggestions orideas or a commentary.
Or if you're a guest that knowsabout real estate and you want
to be on the show, feel free tosend us a message and uh let's
connect as the hip kids say onLinkedIn.
Uh the hip kids on LinkedIn.
Yeah.
(01:34):
Are the hip kids on LinkedIn?
SPEAKER_01 (01:36):
They love it because Gen Z is good on LinkedIn.
SPEAKER_00 (01:41):
And then uh yeah, give us a rating, give us a
review.
If you're using Apple Podcastsor Spotify, whatever podcast
service you use, give us arating, give us a review, leave
us a comment, and tell yourfriends about the show.
If you've got a friend, familymember, you're sitting around
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you just want to talk about realestate for some reason, post it
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Yeah, post it on LinkedIn, letyour family know.
(02:02):
The real ones will be.
Tag your grandma, she's onLinkedIn too.
Yeah, enough silly business.
Uh enough laughing, producer.
Yeah, I think that was enoughlaughing.
That was good.
Now it's time to get deadlyserious.
Uh, we're joined today by aspecial guest that's been on the
show before.
Uh, we're diving into a favoritemethod among hands-on investors:
(02:23):
the Burr method that's buy,rehab, rent, refinance, repeat.
It's a smart, repeatable way tobuild wealth by recycling your
capital and growing yourportfolio with less money out of
pocket over time.
To help us unpack it, we'rethrilled to welcome back John
Blatchford, real estate investorand founder of cohorts.
John specializes in historicrenovations, adaptive reuse, and
(02:44):
creative financing.
So he's the perfect person tohelp us break down Burr and
understand how to do it right.
We've loved having Amond to talkreal estate, and he's gonna
educate Patrick and I becausejust a couple weeks ago, if you
listened to our interview withAlex Bakiza, we didn't know what
the Burr method was.
We thought it was, yeah, we werelike, can you explain to us?
(03:05):
Three BRs in there, yeah.
Exactly.
Three more.
We don't know.
We're gonna get to the bottom ofit today.
We're gonna answer the question,we're gonna figure it all out,
and we've got John here to helpus out.
And I think it's gonna beinformative.
Patrick, are you ready to takesome notes, turn your brain on?
SPEAKER_02 (03:18):
I'm ready.
We don't know it all, but Johnknows it all.
So I'm looking at it.
John knows it all.
SPEAKER_00 (03:23):
All right, so so then let's just get it out of
the way right at the top.
In your words, explain to uswhat Burr is.
What the heck is Burr?
SPEAKER_01 (03:32):
Okay, so I think maybe one of the key parts of
the Burr is the refinance,right?
So probably every piece ofcommercial property, every every
building, the building we're innow, your apartment building, if
you live in an apartment, itprobably has debt.
It has a loan on it, right?
So the owner of that buildingprobably only put in 20% of the
overall purchase price, and therest was you know a loan from a
(03:54):
bank.
SPEAKER_03 (03:54):
Right.
SPEAKER_01 (03:54):
Um, so it's kind of one of the superpowers of real
estate, is that it has kind ofintrinsic value, so you can get
a loan and also has you knowcash flow.
It has rents coming in everymonth.
So, you know, a bank is okay togive you a loan against it
because if they really neededto, they could take the building
and pay off their loan, whichhappens all the time.
So the Burr method is reallyabout buying a property, getting
(04:15):
a loan against it.
So, for sake of numbers, you'regonna buy a$200,000 property.
A bank would typically give you80% of that as a loan, so that's
$160,000 they'll loan you, whichmeans you only need$40,000 only,
you know, quote.
Uh only need$40,000 of actualyour cash to buy a$200,000
property.
Okay.
So that's one cool thing aboutreal estate.
Where the Burr part comes in isif you can make that building
(04:37):
instead of worth$200,000, worth$300,000, the bank will still
give you$80.
You know, we'll still give you$80 of that as a loan.
So then that's a$240,000 loan.
So before you only had a$160,000loan, now you have a$240,000
loan.
SPEAKER_02 (04:52):
Right.
So you because you originallybought it for$200,000.
Yeah.
That's what it was worth.
And now you make it worth$300,000, so they give you more
money.
SPEAKER_01 (05:02):
Yeah.
They'll, you know, in this case,like they'll give you 80% of the
loan because again, if if theygive you a$240,000 loan and for
whatever reason you can't pay itback, they know they have a
$300,000 building that they'rejust gonna take from you and pay
off their loan.
SPEAKER_02 (05:15):
Oh, okay.
Yeah.
How do you make it like how doyou do that?
SPEAKER_01 (05:19):
Yeah, so that uh so yeah, that's it.
That's the game.
And okay.
And this exists forsingle-family homes, it exists
for a hundred million dollarproperties.
You know, you can read aboutkind of any like big project in
New York City.
They're gonna get a loan tobuild it, ground up, they're
gonna get a loan to buy it,they're gonna try to create some
value, and then they're gonnaget a bigger loan, which is
gonna how they're gonna get alot of their money out.
(05:41):
Okay.
So, yeah, there's there'sprobably a few ways, there's
really two ways.
One is you're gonna increasekind of the rents or the revenue
that's in the building, and thesecond is you're gonna try to
decrease the costs, and maybeyou can do both of those things.
But basically, if it's moreprofitable, it's worth more
money.
So that could be easy things,and this is this is what people
will commonly do.
Like you buy a$200,000 building,you're gonna uh repaint the
(06:03):
parking lot, you're gonna plantsome trees, you're gonna paint
the outside, maybe replace thewindows, you know, and and
that's all of what real estateis is like what investments are
worth making, what are not worthmaking.
But you know, if it's a crappyapartment that would rent for
$500 and you put in all newappliances and you put in a new
countertop and you put in newfloors, and now someone will pay
instead of$500, we'll pay$750.
(06:24):
You know, that apartment's nowworth a lot more money.
SPEAKER_00 (06:26):
Yeah, and that's uh the second R in the burr is the
rehab.
Yeah.
And I think that's why realestate professionals around the
world, and you can correct me onthis one.
I think they call it the secondR is the star.
Or the R is the star.
The first R is the star.
That's what they say.
Yeah, no, no, no, no, no.
That's a professional No.
That's uh that's that's what theprofessional is.
(06:48):
That you know, obviously.
SPEAKER_01 (06:49):
It does sort of come boil down to that, which is
like, okay, yes, you want to addvalue to the building, but how
do you do that?
Like, you know, there's youcould invest a ton of money, you
can invest a little bit ofmoney, like what will people
actually pay for?
So that's really the wholeentire, I would say, game of
real estate is you know, how doyou add value to the stuff?
SPEAKER_02 (07:04):
So I guess my question would be like, I guess
maybe the refinancing part.
I think I'm having a bit of aharder time understanding that
one.
So like the the rehab orwhatever, like the as you put
it, adding new countertops ornew floors, and that increases
the value.
Right.
That makes total sense.
Right, like like turning uh tojust use the current example, a
$200,000 building into a$300,000building from these renovations
(07:26):
and whatnot.
How do you get the refinance,like how do you get the banks to
be on board and increase yourloan?
Like, how does that work?
SPEAKER_01 (07:34):
Yeah, so basically you're gonna, you know, you have
your current loan, you're gonnayou go to the bank and you say,
Hey, these are the rents, andbasically the profit, you know,
in in real estate it's calledlike the net operating income,
like NOI, but basically likeit's like the profit.
Like, what's how much profitdoes that building make every
month?
All of your rents, all the moneythat comes in, pet fees, all
that stuff, and then all thethings you have to pay for,
(07:55):
insurance and utilities and yourloan and all that.
Um, you know, how profitable isthat building?
Um, so yeah, a bank basically abank's main job is they they
want to loan out money and theydon't want to take too much
risk.
Again, they'll loan, let's say,80% of the building's value.
So if it's worth$200,000,they'll give you$160,000 if it's
worth$300,000, they'll give you$240,000.
(08:17):
So yeah, as that building gainsvalue, they'll give you more
debt, they'll give you a biggerloan.
And that could happen over time,like just over time the building
gets more valuable, or becauseyou have you know done something
that's made it more valuable bygetting higher rents.
SPEAKER_02 (08:30):
So, like, let's say you have like a 30-year
mortgage, right?
That's a pretty common one.
Yeah, you know, so you have likekind of a set cost every every
month.
Right.
Let's just say it's$200,000.
Let's just, I don't know, let'ssay$2,000 is the mortgage
payment every every month.
When you go to refinance and thebank now agrees that your
building is now worth$300,000,how does that like how does that
(08:50):
actually how do you see thatchange with like your monthly
mortgage payments or like yeah,like how would that be?
SPEAKER_01 (08:55):
Yeah, so your mortgage payment will go up.
It basically is it's gonnareplace your previous loan.
So you used to have a$160,000loan, you now have say a$240,000
loan.
Yeah.
And yeah, in this case, yourmonthly payment will go instead
of two thousand two thousand,it's you know twenty four
hundred a month.
Um, so that you know, the thehidden risk, I would say, in all
of real estate is like you nowhave to pay more every month,
which means you know, it you byadding more debt to your
(09:17):
building, it's not free money,you know, you had now have a
bigger loan.
It's right because that's truefor anything.
If you have a car loan, a houseloan, you know, like more debt,
you get that cash, which isgood.
Maybe then you can invest it inanother property, but you also
have a higher monthly paymentand you're also just adding a
little more risk because if youcan't make that payment, the
bank takes your building.
SPEAKER_02 (09:36):
Oh, wait, so you get so the loan I see now.
So, like the the loan that theygive you the increased amount,
you can use that for otherproperties.
SPEAKER_01 (09:45):
Yeah, you get that cash.
So again, we we can stick withour example from a$160,000 loan
to a$240,000 loan.
You now have$80,000, right?
Because you'll pay off the oldloan, so that all goes away.
But you now have$80,000 thatjust comes as cash that you can
use for Oh, so you now okay, Isee.
SPEAKER_02 (10:02):
So when you refinance, you get that.
SPEAKER_01 (10:04):
Yeah, it's a loan, you're paying it back, but
you're paying it back from theproperty.
SPEAKER_02 (10:07):
Yeah, got it.
So you can now use that andinvest into a new property.
That's the report.
SPEAKER_01 (10:12):
Yeah.
SPEAKER_03 (10:12):
Yeah.
SPEAKER_01 (10:13):
I see.
Okay, I don't think that partwas really.
Yeah, and it wasn't apparent tome.
It took me a bit to you, like,okay, you just get cash, but
why, you know, it's like it's alittle odd.
But yeah, you have a morevaluable asset, the bank will
give you a bigger loan, and youcan they'll give you cash for
that, and you can use that cashfor, you know, whatever you
want.
SPEAKER_00 (10:32):
Pretty much.
Well, you meant you mentionedthe risk aspect.
I mean, when you go to do somesort of refund, like when you go
to attempt the burr, yeah, asthey say.
Yeah.
Would are there cases where thebank would look at a proposal
and be like, nah, we don't thinkso?
Like, I mean, does it have toqualify for a specific amount of
like because you mentioned likebanks want want to mitigate
their risk, but also, you know,have a steady flow of funds and
(10:55):
loan payments and stuff likethat.
But is there a case where theywould just straight up be like,
nah, I don't think so.
SPEAKER_01 (10:59):
Yeah, and it all goes to underwriting and and it
it is fairly subjective.
You know, first you're gonnaprovide, say, six months or
three months or twelve months ofrent of of like previous, you
know, basically your accountingfrom the past 12 months.
Right.
But you know, there's kind of anopinion, it's it's somewhat
subjective of like what thatproperty is actually worth.
And there's plenty of caseswhere they're saying like, oh,
it's not worth as much as youthink, or it's you know, only
(11:22):
worth as much as your currentloan.
So yeah, that happens all thetime.
And it's all like a bitsubjective, but you're trying to
make your case, you know, thatit's worth more.
Um, so you know, you can get asmuch money out as possible.
But but again, like the bank isunderwriting it, they bring in a
third-party appraiser to seewhat the value is, and you know,
ultimately they're trying not togive out a risky loan if if they
(11:42):
which also happens, especiallyif people are fraudulent, you
know, if they give you a loan asthough the building is worth
five hundred thousand dollarsand it's only worth three
hundred thousand, you know,that's bad.
That's bad, that's bad.
Yeah, yeah.
SPEAKER_00 (11:54):
Professional terminology, bad, bad.
So what makes it that I I mean,obviously it's appealing, it
sounds appealing.
What makes it very appealing toyou?
I mean, do you have any greatsuccess stories of using it in
your own personal life?
SPEAKER_01 (12:08):
Yeah, we had we had a building like this um on
McMickan here in Cincinnati, youknow, finished the building,
went through the wholerenovation, you know, did a good
job with the renovation, had anice, I don't know, eight months
of rents or something.
And then yeah, we refinanced itand I think it was, yeah, maybe
like$80,000.
So, you know, that's a challengein real estate, is that it takes
(12:28):
a lot of capital.
And once you put it into abuilding, it's kind of sitting
in that building.
And so you can sell thatbuilding.
That's one way to get it out.
Or, you know, what we're talkingabout here is like you can you
can refinance it or get a loanagainst it and get that capital
out and do another project,which is what we did.
We were able to invest thatmoney directly into another
project.
So yeah, it's a way to you knowown more properties, do more
(12:49):
projects without having themoney yourself necessarily or
raising more money.
Um, and if you can do it right,you can get to like a pretty
(13:18):
large portfolio of properties,um, you know, without having to
raise a ton and without havingto be personally wealthy.
SPEAKER_00 (13:26):
I mean, it sounds like it works best for
properties that are distressedor like make off-market deals,
kind of stuff like that.
So it's like in that way, itmight be correct me if you feel
differently, Patrick, but itmight be a little bit more
intimidating to like the casuallike invest, like someone that
wants to just get like a fix andflip property, like this is kind
of like a step beyond that alittle bit.
Like it requires a little bitmore brain power and planning
(13:49):
and stuff like that.
SPEAKER_01 (14:13):
Yeah, and there's a lot in sort of the finances of
it.
You know, you have to um, youknow, have a model for okay,
this is what it's worth, andthis is what you can invest, and
this is what it could be worth.
Um, you know, it's a lot ofdealing with banks and
underwriting.
So yeah, I would say it's a it'sa bit more complicated how a lot
of these projects work.
And you know, again, I think Ithink Burr, that specific term,
(14:33):
is often used for like small,you know, doing single family or
smaller projects, but the$100million project in New York
City, like this is exactly thesame thing they're doing.
They're they're gonna buy, evenin a ground-up construction,
they're gonna, you know, buy theland, develop the building, and
hopefully from then they'regonna get a later loan, you
know, to get some of that moneyout.
Another way it works too is thatin that case, if you're building
(14:54):
a ground up building in New YorkCity, you know, that
construction financing could bevery expensive because it's very
risky, like maybe you neverfinish the project, it goes way
over budget, tariffs, you know,so many things can happen during
construction, and so that thatloan you get can be very
expensive, like a very highinterest rate.
But once it's done, you now have200 people living there, they
all have a year-long lease,they're all paying rents, it's a
(15:16):
beautiful finished building.
You know, that is a much lessrisky project.
It's already done, it has rents,it has people living there, um,
and so you can get better terms.
And so uh similarly, you can uhyou know do a refinance at that
point at a lower interest rateat much better terms and get a
lot of your money out as well.
Um but yeah, it requires aproject that like you're gonna
(15:38):
buy for a certain value and youhave an ability to make it worth
more because that's really whereyou're gonna get that like uh
refinance.
SPEAKER_02 (15:45):
If if somebody is looking, like let's say somebody
doesn't have like a ton ofcapital up front to like invest
into multiple buildings, theyjust they have one building and
they want to grow theirportfolio.
Would you in almost all casesrecommend Burr?
Or is there situations where itmight not be the best option for
some for somebody who's tryingto grow but doesn't have
(16:06):
capital?
SPEAKER_01 (16:07):
Yeah, I think it's the best, it's really the only
way to do it, except for raisingmore money or or you know having
the money yourself.
Um because you know, a propertyitself does not give you that
much money.
You know, a$200,000 property,like you'll be lucky if that
gives you five grand a year ofprofit, you know.
So like it's gonna be very hardto build a portfolio or buy more
(16:27):
properties just from that.
So really the refinance, youknow, is the potential to get
money out.
And with all this, like the thekey caveat is like adding more
debt in your life, you know, isnot necessarily like there's
obvious risks with that, right?
Like more and more debt.
A lot of these are personallyguaranteed, and you know, the
bank is gonna come after thebuilding or come after you
personally if you can't pay offa loan, like you're taking out a
(16:48):
loan.
So like refinancing soundsreally good, and you pull your
cash out, people say you know,cash out refi, and all this, you
know, it all sounds so sexy, butlike if you if you change that
terminology, like oh, I'm takingmore debt, you're like, it
doesn't sound quite as good,right?
Yeah, um, so it works.
It's again, it's how all ofcommercial real estate works,
and even you know, to get a 10unit or to get like 10
(17:08):
properties, you're gonna berefinancing, taking cash out.
So it's how it all works, butlike it's important to realize
it's just more debt.
Like, yeah, yeah, yeah.
It's more and more debt.
Yeah, I gotcha.
SPEAKER_00 (17:18):
Yeah.
SPEAKER_01 (17:19):
Okay.
SPEAKER_00 (17:19):
Would you say taking on that debt is the most common
like pitfall that a new investorwould make getting into the like
buying fixer fixer uppers andlike kind of starting to get
into it, or are there otherpitfalls than like snags that
you can see that people would berunning into?
SPEAKER_01 (17:33):
Yeah, well, the you know, the main thing is like,
okay, can you increase thevalue?
And um, so you buy a$200,000property, you're like, okay, how
are you gonna make that worth$300,000?
And so you might have someideas, but that's where you get
into trouble where you couldspend a ton of money on the
property and it might not beworth it.
If you're doing this in a supersuburban part of Kansas, like
(17:56):
maybe just no one is can paymore than$900 a month, right?
Like you could put a ton ofmoney into it, but like the max
rent in the entire zip code isyou know$950.
It's like, okay, no one's gonnapay$2,000 a month to live there.
So you know, that's a lot ofthat goes into the utter ending
of just like what's it gonnacost to renovate?
What do other people pay fornice units?
What would that mean for whatit's worth?
(18:17):
What could a what would a bankgive you?
You know, so this is you know,you can do this in pretty simple
like Excel spreadsheet, but youdo have to do that exercise
because like you can't just kindof blindly invest and trust that
someone will pay more and that abank will give you a loan, and
you know all that stuff.
SPEAKER_02 (18:31):
I kinda I want to come back to this, like the
specifically, like the the howto decide the smartest ways to
increase the the value of theproperty.
I do have a question though,kind of unrelated.
So with the naturally mountingcosts of properties, that's been
happening, especially over thepast like five years, let's say.
Let's say a property naturallyis goes from 200,000 and you
could sell it for$300,000 fiveyears later, and you haven't
(18:53):
made any renovations to it.
Yeah, could that constitutegetting it refinanced with the
bank?
SPEAKER_01 (18:57):
Or yeah, it does?
Yeah, that's it's the samething, yeah.
It's exactly the same thing, andthat happens all the time too.
That's really common of like youfinish a building or you own a
building, and just you know, sixyears later the area has
improved a lot, the property'sworth a lot more, rents have
gone up, it's just worth more,then you can get a larger loan.
Okay, and you didn't even haveto do anything, you didn't have
to put any money or time intoit.
(19:18):
Yeah, that's that's reallycommon.
That happens all the time.
Okay, cool.
Yeah, especially in areas whererents are increasing, property
values are increasing.
Yeah.
And that's you know, you kind ofhear like uh growing up, you
might hear like, oh, they tookout a mortgage or second
mortgage on their house.
Like, that's often what that is.
Um, like maybe you heard thatfor your parents or something
where they bought their house inthe 80s and it was worth you
(19:39):
know 50 grand, and now in 2000it's worth 200,000 or whatever.
You know, it's like it's worth alot more, and so they can get a
bigger loan, and that's liketaking out a second mortgage or
a new mortgage or whatever.
Okay.
I feel like I'm learning.
SPEAKER_02 (19:50):
I don't know about you, Zach.
I feel like I'm learning a lot.
Brain sponge right now.
SPEAKER_00 (19:54):
Yeah, just taking it all in, just letting the letting
it hit me.
It's great.
SPEAKER_02 (19:58):
Okay.
I I got a couple, I got a couplemore questions.
Sorry, do you have I'll bepolite.
Do you have any questions?
SPEAKER_00 (20:04):
No, no, no, just call me the Segway Master
because I was about to startsegueing into other steps, but
you keep questioning.
Yeah, yeah.
Sorry to steal your own.
Question everything.
SPEAKER_02 (20:12):
Um okay, what are like what are some of your
favorite ways to invest into aproperty and make it worth more?
Like, do you have like somestrategies that you regularly
use for your properties?
SPEAKER_01 (20:28):
Yeah, so I mean, you know, there's all kinds of
different versions.
Like our properties arebasically like the example is
you know, we're gonna buy it forlet's go like per unit.
We're gonna buy it for 50 granda unit, we're gonna invest
150,000 per unit, so the totalof 200,000, and then hopefully
it's worth 250,000 units.
SPEAKER_02 (20:49):
Oh, because you you really get the fixer of the
stuff.
SPEAKER_01 (20:51):
Yeah, so ours are like ours is like the most
extreme version of this, whereit's like a year-long process,
total gut renovation, but it'sthe same thing where effectively
like we hope that the day thebuilding is done, it's not just
worth what we put into it, it'sworth a bit more than that.
Yeah, got it.
Um and at that point, you know,which which we have done in the
past, like at that point, youknow, you can refinance or you
refinance a year later or twoyears later.
(21:13):
Um, so there's that.
But the the common, the mostcommon is like you hear if you
heard the term or we may havetalked about like value add,
right?
You're gonna buy a building thatwas built in 1986, it kind of
has old crappy interiors, and itrents for a thousand bucks a
month.
And so you're gonna come in andyou're gonna you know put in new
floors, countertops, kitchens,you know, invest a bit of money
(21:35):
into it, and then you know,increase that rent a lot.
So it goes from a thousand amonth to fifteen hundred a
month, and then that you knowit's worth a lot more.
So you know, typically it'spretty cosmetic in a lot of
these sort of value addprojects.
Just like what does somebodywalking into that apartment, you
know, like and want to like paymore for?
So yeah, it's that's that's themost common.
It's like kitchens, countertops,floors, okay, paint.
(21:57):
Paint is like the easiest onebecause it doesn't cost much.
Um but can like paint, even justa fresh coat of paint can add
yeah, and you'd be surprised.
Like you look at some of thesebuildings and people buy, and
it's literally paint theoutside, you know, put new sh uh
lines down in the parking lotand plant some trees, and you're
like, oh yeah, that does look alot nicer.
Yeah.
And that you know, it's likekind of hard to capture that,
but it like, yeah, peopleprobably would pay now$100 more
(22:20):
a month to live there, you know,which is worth a lot, like for
the value of the building.
So it's yeah, it's kind of stufflike that.
SPEAKER_00 (22:26):
Okay.
This reminds me of how I used tomanage my uh roller coaster
tycoon.
Yeah.
Are you familiar with this?
Are you not familiar with it?
SPEAKER_02 (22:33):
Is that like a Sim City Creator kind of thing?
Yeah.
Okay.
SPEAKER_00 (22:36):
I don't know roller coasters.
Is that unk of me to say that?
No, it's roller coaster tycoon,it was like you build roller
coasters, it was like the Simsor whatever, and you build it.
Right.
But like I would make thesehorrifying, terrible roller
coasters that no one would everget on, but then you just put
some trees and some fountainsand come to pathine park.
SPEAKER_01 (22:55):
But you know, there kind of is something to that.
Like it is sort of real estatewhere uh, you know, as far as I
remember, roller coaster tycoon,it's like, well, there's people
throwing up on the sidewalk,there's not enough trash cans,
but like, yeah, okay, I have toinvest 20 bucks into more trash
cans, but then you get fivedollars more in uh you know
concession sales.
Concession sales, right?
And like that makes the parkmore valuable, right?
(23:17):
Like it it's it's a it's a bitsilly, but it actually kind of
is how it works.
Like you make these smallinvestments which make people
want to pay more rent, and thatmakes the building a lot more
valuable.
Yeah, and so I I don't know ifthis makes sense.
So basically, like becauseyou're getting a loan against
the building, like everyincremental amount of rent you
can get is worth a lot for thebuilding because they're they're
basically loaning against kindof like the cash flow of the
(23:39):
building.
And so it's not just like$100 amonth is makes the property
worth$1,000 more.
It actually makes it like$20,000more valuable.
Like that's that's the actualmath.
Like$100 more per month in rentmeans the building is worth
$20,000 per month.
Where does that come from?
Does it come from$100 times$20,000?
Yeah, so like a thousand dollarsa year of increased rent, right?
(23:59):
$100 a month, a thousand bucks ayear.
Well, there's this idea of likea cat like cap rate, which
basically is kind of like your Idon't know, the yield on a
property.
Like what what for the money youinvest into it, like what is
gonna be your increase in profita year?
I don't know if that makessense.
But that's like how a lenderlooks at the building.
And so a thousand dollars more ayear, say of like profit of net
(24:20):
income, you know, will be liketwenty times more valuable.
Okay.
Yeah and tw that's that's prettystandard across the board, is
twenty times more.
It depends.
It's it's um it's more in aplace like you know, New York
City.
You know, this there's this termcap rate.
Yeah, so like a cap rate in NewYork City might be like three
percent, which means it's like30 times more valuable.
Oh, okay.
In Cincinnati, maybe it's fiveor six percent, making it like
(24:42):
twenty times more valuable.
In like a really crappy market,that cap rate might be like ten
percent, so it's you know, tentimes more valuable.
If that makes sense.
SPEAKER_02 (24:49):
Okay.
SPEAKER_01 (24:50):
I think I'm following.
Yeah, that that that that partgets a little you know niche,
but but you know, it'seffectively that the bank is is
valuing the cash flow of theproperty.
So every every incrementalamount of rent you can get,
assuming your costs are thesame, uh, makes the building a
lot more valuable.
So that's that's the whole game.
Is like, can you get$100 more amonth in rent?
Like, yeah, if you can, thebuilding's worth$20,000 more.
(25:11):
So you're like, okay, so likeso.
If this makes sense, like youwould gladly invest$10,000 into
the property to add$20,000 worthof value to it, right?
So if$10,000 into the propertymakes someone pay$100 more a
month, then it's worth$20,000more, you know.
So that's like the whole game.
That makes sense.
SPEAKER_00 (25:29):
Yeah.
SPEAKER_03 (25:29):
Okay.
SPEAKER_00 (25:30):
So so I do want to talk about the specific steps of
refinancing.
So when you do get to that partof the Rs, like you're taking us
through the Rs.
Yeah, through the Rs.
Okay, nice.
How does it work?
Like how where do you go?
Do you have a loan officer thatyou go to?
Do you typically go through thebank?
Like, what are your steps andlike when do you know that it's
the right time to actually getto the refinancing step?
SPEAKER_01 (25:51):
Yeah, so so you've invested into the property, so
you want to see that that hasworked.
You've been able to increase therents, right?
You had a previous tenant at$900a month, you have a new tenant
that's at$1,200 a month, you'relike, okay, it's working.
Um, you know, a bank typicallywants some longer-term proof of
that.
So at least probably threemonths of rents and maybe more
(26:12):
like six months or 12 months.
Often in our case, you know, youneed kind of like 12 because we
just finished the property, hadno income before.
So we need at least like a yearof rents that show the bank that
that's you know real.
It's like been proven over 12months.
Uh-huh.
So you kind of need that.
You need a historical record.
Uh, you know, I definitelyrecommend like good bookkeeping
because that just makes itreally easy for the bank.
But yeah, then you can go to alot of local lenders, you know,
(26:34):
are happy to lend against abuilding that has rents and cash
flow and has a value.
Um, so yeah, you just go to themthat you want to you know
refinance the property.
You know, sometimes if you havea previous loan, you know, and
this is all in your loandocuments, there might be like a
penalty to pay off that previousloan early.
Interesting.
Um, you know, there's kind ofdifferent different things
there.
That's the biggest one, like aprepayment penalty.
(26:56):
But yeah, you go to the bank andyou know, they'll typically
underwrite it for free, or maybeyou know, you pay a small amount
and you can just see like what'sit worth?
Like, is it worth what I think?
300,000?
Is it worth 350?
You know, and then you can kindof make a decision like, does it
make sense to refinance?
And what the terms of therefinance will be too.
SPEAKER_00 (27:11):
Okay.
Um, do you find that a lot ofthe time that you get that
initial like is it is it a likenot a cat and mouse game, but
like do you find that most ofthe time when in the situation
you would go in to do therefinance, you get a number that
you're not super satisfied with,and then you would like be like,
okay, I'm good, and then comeback later, or do you think have
there been any that you'veexecuted on the first offer?
SPEAKER_01 (27:29):
Yeah, it you know, and it's an interesting mix
because you you theoreticallywant that value to be as high as
possible because you can get thebiggest refinance possible,
right?
Again, with the caveat that ismore risk.
So you kind of want the biggestnumber possible.
The bank also kind of wants toloan as much money as possible.
Like there's a lot of incentivesfor this refinance to happen,
(27:50):
but you know, they everyoneneeds to be realistic because
again, if the property is onlyworth$300,000, like you don't
want a$500,000 loan because youknow so anyway, so yeah, so so
we've had it before, and youkind of go to different lenders
and they're gonna work withdifferent appraisers and they're
gonna evaluate it a differentway, and ultimately just kind of
choose the best one.
And we've we've definitely hadit before where you know you go
for the refinance, it justdoesn't make sense.
(28:11):
So you know, maybe wait sixmonths, try to push rents a
little bit more, see if interestrates will come down or
whatever.
Okay, yeah.
SPEAKER_00 (28:17):
Patrick, how's your mind sponge going over there?
SPEAKER_02 (28:20):
So absorbed of information.
SPEAKER_00 (28:24):
Any questions you have for John?
SPEAKER_02 (28:26):
No, this is this has actually been really like I feel
like I've learned a lot,actually.
Not that I typically don'tsometimes, but you know, yeah.
Like this has been a veryhelpful.
SPEAKER_00 (28:35):
It's nice to know when it con uh like to know it
in context now because we've hada few guests on the show and
like we've done topics wherewe've mentioned the Burr method,
but it's like not having anycontext for the specific steps
and stuff, it makes it makes ita lot more uh you've made it
easy to understand.
This is like the Sesame Streetof uh real estate podcasting
right now.
SPEAKER_02 (28:54):
If let's say somebody owns a house and they
live in that house, they don'thave any investment in
properties, it's just theirhouse that they bought that they
own.
And let's say there's like thevalue of that house has gone
over up over the past 10 years,for example.
Yeah, is it common slashrecommended to maybe do a
refinancing situation with theirown house, get that refinanced,
and use that to then invest intheir first rental property?
SPEAKER_01 (29:16):
Yeah, I think that's definitely a way to do it.
I mean, people do it all thetime.
I think I can recall you see itin movies, or even if you're at
Shark Tank or something, like wetook out a second mortgage on
our house.
Like that that term is like iswhat we're talking about.
Like you refinanced your houseto take money out and then use
it for something else.
Got it.
So I think you know, I think ifthat has happened to your to
your home and you have a lot ofequity in it and you want to
(29:38):
pull that money out, and if itmakes sense to you to invest
that in real estate, like Ithink that could work.
You know, I I think if you seeabout this online, people will
talk as though it's free money.
You're like, oh, you just youknow, you go for the cash out
refi, and now you have a hundredgrand of profit and it's just in
your bank and you can dowhatever you want.
And you're like, again, that'strue, but you have more debt,
like you know, yeah.
(29:58):
You have a higher monthlypayment, you have a bigger loan,
you know, like you're just youare adding risk.
And what's crazy is like thebiggest developers, you know,
multi-billionaires, you like youcan see it all over the place
now.
They kept refinancing, they keptgetting a bigger and bigger
loan.
I mean, all these officeproperties, like that's what
happened.
Yeah, they they were getting 100grand a month in rent, all of a
sudden they're getting 20 granda month in rent, and you know,
(30:19):
that math works in the otherdirection.
That building was worth 100million, and now it's only worth
you know 50 million.
Like it all drops down.
You can't pay your monthlypayment, you know, the bank
comes for the loan or bank comesfor your building, the building
isn't worth as much, and thenthey're gonna come after you
personally.
So, like yeah, so you know,they're there that's the risk,
and and again, it's like Burr, Ithink, is talked about in a much
(30:40):
smaller context, but like allthe biggest buildings are doing
a similar thing, but the reasonthat makes it so good, you know,
can also be the reason where itall like collapses.
So yeah.
SPEAKER_02 (30:49):
Okay, that no I feel like it's important to like
highlight the the risk or atleast make the risk
understandable, or you know whatI mean?
SPEAKER_01 (30:57):
Yeah, like if you and and what the the question
you the example you gave of likebasically taking out a bigger
loan on your house, like thatyou know, you can use that money
for help with college payments,you can you know invest in
property, but like you'reputting your home at a greater
risk of like being taken fromyou, you know.
SPEAKER_02 (31:13):
If you're basically if you're not able to make those
higher monthly.
SPEAKER_01 (31:17):
Yeah, if you can't that and that's the main thing.
If you can't make the monthlypayment, then the bank's you
know coming after you, comingafter your house.
So like uh I think that side ofit like isn't talked about
enough.
You know, you just kind of seeit like, oh, cash out refi, we
paid everyone back.
You're like, yeah, even thateven the term like cash out
refi, it sounds so sexy.
Or just like just exchange thatfor like we got a bigger loan.
We took on more debt.
SPEAKER_03 (31:36):
Yeah, right.
SPEAKER_01 (31:37):
If you just if you could just do that in your mind,
like we took on more debt, andif it still makes sense, like
okay, then it makes sense.
SPEAKER_00 (31:42):
Yeah, when you said free money, I don't know why,
but I that whole thing, Ipictured Saul Goodman saying
that like directly at a camerawith like a like a like a crappy
TV suit behind it's like it'sfree money.
We're getting it right now.
Yeah, cash out refin.
Exactly.
Put that money right in yourpocket.
SPEAKER_01 (31:56):
You can imagine some infomercial, you know, like cash
out refined.
Yeah, and again, so uh uh it'sthe way all of real estate
works.
I think it's the you know one ofthe only ways or best ways to
kind of build up a portfolio asyou're you know as an individual
person or as a real estateinvestor, but um, yeah, there's
risks.
SPEAKER_02 (32:11):
With a sort of caveat of like make sure, you
know, regardless of how thingscan change that you will be able
to make the monthly payments andnot lose the property among
other things.
Yeah.
That's kind of like the main,that's the main risk to be aware
of.
Yeah.
SPEAKER_01 (32:25):
If you can't make your monthly payments, yeah.
You know, as like I would say aworking couple, if you're gonna
do that in your house, like youknow, if someone doesn't have a
job for three months, are yougonna not be able to make that
monthly payment?
You know, like you lose yourhouse, right?
Like you know, so so that's justyou know, that's like the way to
look at it.
But but yeah, as long as youkind of know those risks, then
it it can be really awesome.
SPEAKER_00 (32:44):
Right.
And that's the last R, which isrepeat.
Repeat.
So it's like that also comeswith it, you know, the the fair
warning signs of everything.
Make sure you're doing your duediligence and educating yourself
and make sure you're in a rightspot to be able to pull
something like this off,especially if it's something
that you think that you're gonnabe able to do over and over
again.
Like you need to make sure thatit's something that you're
(33:05):
prepared for.
SPEAKER_01 (33:06):
So yeah, yeah, and you know, if you're good at it,
you can just kind of keep doingthat.
You take the money out of one,you put it into another one, do
the same thing, take the moneyout of that, you know, do it
again.
And so, you know, you can dothat kind of indefinitely, but
you know, again, with with therisks involved.
SPEAKER_00 (33:20):
Yep.
Okay.
SPEAKER_02 (33:21):
You know that episode of SpongeBob where he
puts like corks in his likepores and he becomes really big?
Yeah.
That's my brain right now.
Information.
SPEAKER_00 (33:31):
I'm glad I got you on this train of the mind spot.
Yeah, the mind spots.
That's good.
It's gonna be a recurring theme,I'm sure.
So, uh, Patrick, are you readyfor a new segment?
SPEAKER_02 (33:42):
Oh, wait, that wasn't the whole episode?
SPEAKER_00 (33:44):
Well, I've got stick with me.
Okay.
You just want to questioneverything every day.
That's fine.
You just want to questioneverything I do.
It's totally fine.
You ready for a new segmenthere?
Yeah, I'm ready.
All right, it's called We'reTrying to Appeal to Gen Z.
So I'm gonna explain everythingthat John just explained in Gen
Z terms.
Are you ready?
Tell me if this sounds right.
(34:05):
Found a chopped property, don'tbe unk.
Use burr and ris it up to makemoney, no cap.
SPEAKER_02 (34:12):
That hurt, dude.
Why?
Sounds right.
SPEAKER_00 (34:15):
Put that on social media.
We're going straight to the top.
Sounds right, man.
Draco.
Okay, cool.
Well, so I think unless you hadany other questions, Patrick, I
did want to use like maybe wegot like five minutes left or
whatever to ask John anythingthat we want.
Do you have anything else aboutBurr or are you good on that?
Dude, I'm so you're good onthat?
I did want to ask because, andyou know, they they didn't prep
(34:37):
you for this, but we just did anepisode where we talked about
the 50-year mortgage stuff.
And I'm just curious becauseright now that is topical.
I'm just curious to hear youropinion on all of that right
now.
While we have a real estateprofessional that can sit with
us in the room and actually kindof break down their opinion on
what's going on with that.
SPEAKER_01 (34:53):
Yeah, it's interesting.
You know, it's all kind of a youknow, we're we're all just
making up the rules, right?
Like, I don't know, is it 30years or is it 50 years?
But I think in Canada, I thinkit's I think a lot of the rest
of the world thinks it's odd weeven have a 30-year-old.
As opposed to what?
Much shorter.
I think in Canada the max is 15years.
And I think in the US therewasn't a 30-year and like I
think historically it was likeit was more responsible.
(35:14):
Like you had a seven-yearmortgage.
Like, yeah, you just you paidoff your house in seven years.
You weren't just like makingthese little monthly payments
for 30 years.
So yeah, I don't know.
I what's the motivation?
I guess you have you have alower payment, it's probably
better for people, they havemore money to spend on things,
you know, which I guess thatmakes sense, but I don't know.
I think this idea of like likewhat's your like surface area of
(35:37):
risk, you know, and the longeryou own the property and the
longer you're sort of paying itoff, you're kind of like
increasing this like surfacearea of risk, you know.
Okay.
So I think it's I don't know, itseems like riskier, but probably
better for homeowners.
Sure, if you could pay it offover 50 years instead of 30,
like you know, why not?
Okay.
SPEAKER_02 (35:52):
So you don't think you don't immediately think it's
like a predatory sort of bank,like the banks are like, yes,
this is pay us all this interestfor 50 years.
Yeah.
SPEAKER_01 (36:04):
Yeah, I don't think so.
No, I mean they want a shorterloan in general.
I think you know they want theirloan to be paid back plus
interest if they can.
Okay.
And they'll just underwrite itappropriately.
If it's a longer loan and maybeit's whatever it is, a higher
interest rate or something.
SPEAKER_02 (36:18):
Okay, interesting.
Okay.
I didn't I didn't know that likeCanada is like a fifty fifteen
year loan.
SPEAKER_01 (36:25):
Yeah, I think fifteen is a it's very odd.
And it used to be seven.
Yeah, in the US, I think it wasvery short until like recently.
SPEAKER_02 (36:31):
How is that doable?
Just because property priceswere so low compared to income?
SPEAKER_01 (36:35):
Yeah, I think um we'd make much larger down
payments on the house.
So you you know you'd you'd pay20% or more, so it was just a
smaller loan you were takingout.
Yeah.
You know, all this is like thehigher, the higher the loan, the
longer term payment.
It's like it's kind of just morerisk, I think, but it's better
for homeowners as long as youcan make the payments.
SPEAKER_02 (36:57):
Yeah.
Okay.
SPEAKER_00 (36:58):
Okay, cool.
Well, John, thank you again forjoining us for another episode
of the show and uh talking withus about the Burr method, giving
your insights on some stuff is apleasure to have you.
Hope you had fun.
Great times.
Okay, great times.
A plus review.
Speaking of reviews, leave us areview.
If you're using Spotify or ApplePodcasts, go ahead and leave us
a review, give us a five-starrating, thumbs up, whatever the
(37:20):
service is.
That like button.
Exactly.
There you go.
And uh yeah, follow the podcaston social media at the rentish
pod.
Email us questions at therentishpod.com if you want to ask any
questions, maybe a question forJohn for the next time he's on
the show, topic suggestions,anything you got, we'd love to
hear it.
And tell a friend about theshow.
If you have a friend that youknow that is into real estate or
(37:40):
investing or propertymanagement, whatever it is, let
them know that they can checkout the Rentish Pod weekly on
podcast services around theworld.
Until the next time, I've beenJohn.
It's time to go to bed.
Until the next time, I've beenZach.
That's been John, that's beenPatrick, and we'll see you guys
next time.
The Rentish Podcast is recordedin Cincinnati, Ohio, hosted by
(38:02):
Patrick Giro and me, ZachRotello.
Produced by Mousse Gabermescelland Charlene Mulcendani.
Edited by Elliot Mongenes.
Theme song by me, Zach Rotello.
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