The Rentish Podcast

The BRRRR Blueprint w/ John Blatchford: How to Build Wealth in Real Estate

• Zach and Patrick • Season 2 • Episode 37

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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.

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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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SPEAKER_00

What's going on, everybody? Welcome to season two of the Rent Ish Podcast. I'm Zach and I'm here with my co-host Patrick.

SPEAKER_02

We're two rookies chasing the dream of real estate investing. In this podcast, we'll talk about property management, wild stories, and everything in between. We don't know it all yet. But that's the point.

SPEAKER_00

We're learning as we go, just like you. We'll bring in the experts to educate and inform us, and we'll figure it out together. So let's laugh, learn, and dive into real estate side by side. Thanks for listening to another episode of the Rentige Podcast. Remember, follow the podcast on the internet at uh The Rentige Pod. I think that's our Instagram handle, right? The Rentige Pod? I'm getting a thumbs up from the producers. I think so. The Rentige Pod. Yeah, the Rentige Pod. And then email questions at the Rentige Pod.com if you want to send us topic suggestions or ideas or a commentary. Or if you're a guest that knows about real estate and you want to be on the show, feel free to send us a message and uh let's connect as the hip kids say on LinkedIn. Uh the hip kids on LinkedIn. Yeah. Are the hip kids on LinkedIn?

SPEAKER_01

They love it because Gen Z is good on LinkedIn.

SPEAKER_00

And then uh yeah, give us a rating, give us a review. If you're using Apple Podcasts or Spotify, whatever podcast service you use, give us a rating, give us a review, leave us a comment, and tell your friends about the show. If you've got a friend, family member, you're sitting around the Thanksgiving table talking about Turkey and you have don't you just want to talk about real estate for some reason, post it on LinkedIn. Yeah, post it on LinkedIn, let your family know. The real ones will be. Tag your grandma, she's on LinkedIn too. Yeah, enough silly business. Uh enough laughing, producer. Yeah, I think that was enough laughing. That was good. Now it's time to get deadly serious. Uh, we're joined today by a special guest that's been on the show before. Uh, we're diving into a favorite method among hands-on investors: the Burr method that's buy, rehab, rent, refinance, repeat. It's a smart, repeatable way to build wealth by recycling your capital and growing your portfolio with less money out of pocket over time. To help us unpack it, we're thrilled to welcome back John Blatchford, real estate investor and founder of cohorts. John specializes in historic renovations, adaptive reuse, and creative financing. So he's the perfect person to help us break down Burr and understand how to do it right. We've loved having Amond to talk real estate, and he's gonna educate Patrick and I because just a couple weeks ago, if you listened to our interview with Alex Bakiza, we didn't know what the Burr method was. We thought it was, yeah, we were like, can you explain to us? Three BRs in there, yeah. Exactly. Three more. We don't know. We're gonna get to the bottom of it today. We're gonna answer the question, we're gonna figure it all out, and we've got John here to help us out. And I think it's gonna be informative. Patrick, are you ready to take some notes, turn your brain on?

SPEAKER_02

I'm ready. We don't know it all, but John knows it all. So I'm looking at it. John knows it all.

SPEAKER_00

All right, so so then let's just get it out of the way right at the top. In your words, explain to us what Burr is. What the heck is Burr?

SPEAKER_01

Okay, so I think maybe one of the key parts of the Burr is the refinance, right? So probably every piece of commercial property, every every building, the building we're in now, your apartment building, if you live in an apartment, it probably has debt. It has a loan on it, right? So the owner of that building probably only put in 20% of the overall purchase price, and the rest was you know a loan from a bank.

SPEAKER_03

Right.

SPEAKER_01

Um, so it's kind of one of the superpowers of real estate, is that it has kind of intrinsic value, so you can get a loan and also has you know cash flow. It has rents coming in every month. So, you know, a bank is okay to give you a loan against it because if they really needed to, they could take the building and pay off their loan, which happens all the time. So the Burr method is really about buying a property, getting a loan against it. So, for sake of numbers, you're gonna buy a $200,000 property. A bank would typically give you 80% of that as a loan, so that's $160,000 they'll loan you, which means you only need $40,000 only, you know, quote. Uh only need $40,000 of actual your cash to buy a $200,000 property. Okay. So that's one cool thing about real estate. Where the Burr part comes in is if you can make that building 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 $160,000 loan, now you have a $240,000 loan.

SPEAKER_02

Right. So you because you originally bought 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

Yeah. They'll, you know, in this case, like they'll give you 80% of the loan because again, if if they give you a $240,000 loan and for whatever reason you can't pay it back, they know they have a $300,000 building that they're just gonna take from you and pay off their loan.

SPEAKER_02

Oh, okay. Yeah. How do you make it like how do you do that?

SPEAKER_01

Yeah, so that uh so yeah, that's it. That's the game. And okay. And this exists for single-family homes, it exists for a hundred million dollar properties. You know, you can read about kind of any like big project in New York City. They're gonna get a loan to build it, ground up, they're gonna get a loan to buy it, they're gonna try to create some value, and then they're gonna get a bigger loan, which is gonna how they're gonna get a lot of their money out. Okay. So, yeah, there's there's probably a few ways, there's really two ways. One is you're gonna increase kind of the rents or the revenue that's in the building, and the second is you're gonna try to decrease the costs, and maybe you can do both of those things. But basically, if it's more profitable, 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 parking lot, you're gonna plant some trees, you're gonna paint the outside, maybe replace the windows, you know, and and that's all of what real estate is is like what investments are worth making, what are not worth making. But you know, if it's a crappy apartment that would rent for $500 and you put in all new appliances and you put in a new countertop and you put in new floors, and now someone will pay instead of $500, we'll pay $750. You know, that apartment's now worth a lot more money.

SPEAKER_00

Yeah, and that's uh the second R in the burr is the rehab. Yeah. And I think that's why real estate professionals around the world, and you can correct me on this one. I think they call it the second R 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 the professional is. That you know, obviously.

SPEAKER_01

It does sort of come boil down to that, which is like, okay, yes, you want to add value to the building, but how do you do that? Like, you know, there's you could invest a ton of money, you can invest a little bit of money, like what will people actually pay for? So that's really the whole entire, I would say, game of real estate is you know, how do you add value to the stuff?

SPEAKER_02

So I guess my question would be like, I guess maybe the refinancing part. I think I'm having a bit of a harder time understanding that one. So like the the rehab or whatever, like the as you put it, adding new countertops or new floors, and that increases the value. Right. That makes total sense. Right, like like turning uh to just use the current example, a $200,000 building into a $300,000 building from these renovations and whatnot. How do you get the refinance, like how do you get the banks to be on board and increase your loan? Like, how does that work?

SPEAKER_01

Yeah, so basically you're gonna, you know, you have your current loan, you're gonna you go to the bank and you say, Hey, these are the rents, and basically the profit, you know, in in real estate it's called like the net operating income, like NOI, but basically like it's like the profit. Like, what's how much profit does that building make every month? All of your rents, all the money that comes in, pet fees, all that stuff, and then all the things you have to pay for, insurance and utilities and your loan and all that. Um, you know, how profitable is that building? Um, so yeah, a bank basically a bank's main job is they they want to loan out money and they don'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. So yeah, as that building gains value, they'll give you more debt, they'll give you a bigger loan. And that could happen over time, like just over time the building gets more valuable, or because you have you know done something that's made it more valuable by getting higher rents.

SPEAKER_02

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 like kind of a set cost every every month. Right. Let's just say it's $200,000. Let's just, I don't know, let's say $2,000 is the mortgage payment every every month. When you go to refinance and the bank now agrees that your building is now worth $300,000, how does that like how does that actually how do you see that change with like your monthly mortgage payments or like yeah, like how would that be?

SPEAKER_01

Yeah, so your mortgage payment will go up. It basically is it's gonna replace your previous loan. So you used to have a $160,000 loan, you now have say a $240,000 loan. Yeah. And yeah, in this case, your monthly payment will go instead of two thousand two thousand, it's you know twenty four hundred a month. Um, so that you know, the the hidden risk, I would say, in all of real estate is like you now have to pay more every month, which means you know, it you by adding more debt to your building, it's not free money, you know, you had now have a bigger loan. It's right because that's true for anything. If you have a car loan, a house loan, you know, like more debt, you get that cash, which is good. Maybe then you can invest it in another property, but you also have a higher monthly payment and you're also just adding a little more risk because if you can't make that payment, the bank takes your building.

SPEAKER_02

Oh, wait, so you get so the loan I see now. So, like the the loan that they give you the increased amount, you can use that for other properties.

SPEAKER_01

Yeah, you get that cash. So again, we we can stick with our example from a $160,000 loan to a $240,000 loan. You now have $80,000, right? Because you'll pay off the old loan, so that all goes away. But you now have $80,000 that just comes as cash that you can use for Oh, so you now okay, I see.

SPEAKER_02

So when you refinance, you get that.

SPEAKER_01

Yeah, it's a loan, you're paying it back, but you're paying it back from the property.

SPEAKER_02

Yeah, got it. So you can now use that and invest into a new property. That's the report.

SPEAKER_01

Yeah.

SPEAKER_03

Yeah.

SPEAKER_01

I see. Okay, I don't think that part was really. Yeah, and it wasn't apparent to me. It took me a bit to you, like, okay, you just get cash, but why, you know, it's like it's a little odd. But yeah, you have a more valuable asset, the bank will give you a bigger loan, and you can they'll give you cash for that, and you can use that cash for, you know, whatever you want.

SPEAKER_00

Pretty much. Well, you meant you mentioned the risk aspect. I mean, when you go to do some sort of refund, like when you go to attempt the burr, yeah, as they say. Yeah. Would are there cases where the bank would look at a proposal and be like, nah, we don't think so? Like, I mean, does it have to qualify for a specific amount of like because you mentioned like banks want want to mitigate their risk, but also, you know, have a steady flow of funds and loan payments and stuff like that. But is there a case where they would just straight up be like, nah, I don't think so.

SPEAKER_01

Yeah, and it all goes to underwriting and and it it is fairly subjective. You know, first you're gonna provide, say, six months or three months or twelve months of rent of of like previous, you know, basically your accounting from the past 12 months. Right. But you know, there's kind of an opinion, it's it's somewhat subjective of like what that property is actually worth. And there's plenty of cases where they're saying like, oh, it's not worth as much as you think, or it's you know, only worth as much as your current loan. So yeah, that happens all the time. And it's all like a bit subjective, but you're trying to make your case, you know, that it's worth more. Um, so you know, you can get as much money out as possible. But but again, like the bank is underwriting it, they bring in a third-party appraiser to see what the value is, and you know, ultimately they're trying not to give out a risky loan if if they which also happens, especially if people are fraudulent, you know, if they give you a loan as though the building is worth five hundred thousand dollars and it's only worth three hundred thousand, you know, that's bad. That's bad, that's bad. Yeah, yeah.

SPEAKER_00

Professional terminology, bad, bad. So what makes it that I I mean, obviously it's appealing, it sounds appealing. What makes it very appealing to you? I mean, do you have any great success stories of using it in your own personal life?

SPEAKER_01

Yeah, we had we had a building like this um on McMickan here in Cincinnati, you know, finished the building, went through the whole renovation, you know, did a good job with the renovation, had a nice, I don't know, eight months of rents or something. And then yeah, we refinanced it and I think it was, yeah, maybe like $80,000. So, you know, that's a challenge in real estate, is that it takes a lot of capital. And once you put it into a building, it's kind of sitting in that building. And so you can sell that building. That's one way to get it out. Or, you know, what we're talking about here is like you can you can refinance it or get a loan against it and get that capital out and do another project, which is what we did. We were able to invest that money directly into another project. So yeah, it's a way to you know own more properties, do more projects without having the money yourself necessarily or raising more money. Um, and if you can do it right, you can get to like a pretty large portfolio of properties, um, you know, without having to raise a ton and without having to be personally wealthy.

SPEAKER_00

I mean, it sounds like it works best for properties that are distressed or like make off-market deals, kind of stuff like that. So it's like in that way, it might be correct me if you feel differently, Patrick, but it might be a little bit more intimidating to like the casual like invest, like someone that wants to just get like a fix and flip property, like this is kind of like a step beyond that a little bit. Like it requires a little bit more brain power and planning and stuff like that.

SPEAKER_01

Yeah, and there's a lot in sort of the finances of it. You know, you have to um, you know, have a model for okay, this is what it's worth, and this is what you can invest, and this is what it could be worth. Um, you know, it's a lot of dealing with banks and underwriting. So yeah, I would say it's a it's a bit more complicated how a lot of these projects work. And you know, again, I think I think Burr, that specific term, is often used for like small, you know, doing single family or smaller projects, but the $100 million project in New York City, like this is exactly the same thing they're doing. They're they're gonna buy, even in a ground-up construction, they're gonna, you know, buy the land, develop the building, and hopefully from then they're gonna get a later loan, you know, to get some of that money out. Another way it works too is that in that case, if you're building a ground up building in New York City, you know, that construction financing could be very expensive because it's very risky, like maybe you never finish the project, it goes way over budget, tariffs, you know, so many things can happen during construction, and so that that loan you get can be very expensive, like a very high interest rate. But once it's done, you now have 200 people living there, they all have a year-long lease, they're all paying rents, it's a beautiful finished building. You know, that is a much less risky 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 uh you know do a refinance at that point at a lower interest rate at much better terms and get a lot of your money out as well. Um but yeah, it requires a project that like you're gonna buy for a certain value and you have an ability to make it worth more because that's really where you're gonna get that like uh refinance.

SPEAKER_02

If if somebody is looking, like let's say somebody doesn't have like a ton of capital up front to like invest into multiple buildings, they just they have one building and they want to grow their portfolio. Would you in almost all cases recommend Burr? Or is there situations where it might not be the best option for some for somebody who's trying to grow but doesn't have capital?

SPEAKER_01

Yeah, I think it's the best, it's really the only way to do it, except for raising more money or or you know having the money yourself. Um because you know, a property itself 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 of profit, you know. So like it's gonna be very hard to build a portfolio or buy more properties just from that. So really the refinance, you know, is the potential to get money out. And with all this, like the the key caveat is like adding more debt in your life, you know, is not necessarily like there's obvious risks with that, right? Like more and more debt. A lot of these are personally guaranteed, and you know, the bank is gonna come after the building or come after you personally if you can't pay off a loan, like you're taking out a loan. So like refinancing sounds really good, and you pull your cash out, people say you know, cash out refi, and all this, you know, it all sounds so sexy, but like if you if you change that terminology, like oh, I'm taking more debt, you're like, it doesn't sound quite as good, right? Yeah, um, so it works. It's again, it's how all of commercial real estate works, and even you know, to get a 10 unit or to get like 10 properties, you're gonna be refinancing, taking cash out. So it's how it all works, but like 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

Yeah.

SPEAKER_01

Okay.

SPEAKER_00

Would you say taking on that debt is the most common like pitfall that a new investor would make getting into the like buying fixer fixer uppers and like kind of starting to get into it, or are there other pitfalls than like snags that you can see that people would be running into?

SPEAKER_01

Yeah, well, the you know, the main thing is like, okay, can you increase the value? And um, so you buy a $200,000 property, you're like, okay, how are you gonna make that worth $300,000? And so you might have some ideas, but that's where you get into trouble where you could spend a ton of money on the property and it might not be worth it. If you're doing this in a super suburban part of Kansas, like maybe just no one is can pay more than $900 a month, right? Like you could put a ton of money into it, but like the max rent in the entire zip code is you know $950. It's like, okay, no one's gonna pay $2,000 a month to live there. So you know, that's a lot of that goes into the utter ending of just like what's it gonna cost to renovate? What do other people pay for nice units? What would that mean for what it's worth? What could a what would a bank give you? You know, so this is you know, you can do this in pretty simple like Excel spreadsheet, but you do have to do that exercise because like you can't just kind of blindly invest and trust that someone will pay more and that a bank will give you a loan, and you know all that stuff.

SPEAKER_02

I kinda I want to come back to this, like the specifically, like the the how to decide the smartest ways to increase the the value of the property. I do have a question though, kind of unrelated. So with the naturally mounting costs of properties, that's been happening, especially over the past like five years, let's say. Let's say a property naturally is goes from 200,000 and you could sell it for $300,000 five years later, and you haven't made any renovations to it. Yeah, could that constitute getting it refinanced with the bank?

SPEAKER_01

Or yeah, it does? Yeah, that's it's the same thing, yeah. It's exactly the same thing, and that happens all the time too. That's really common of like you finish a building or you own a building, and just you know, six years later the area has improved a lot, the property's worth 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 have to do anything, you didn't have to put any money or time into it. Yeah, that's that's really common. That happens all the time. Okay, cool. Yeah, especially in areas where rents are increasing, property values are increasing. Yeah. And that's you know, you kind of hear like uh growing up, you might hear like, oh, they took out a mortgage or second mortgage on their house. Like, that's often what that is. Um, like maybe you heard that for your parents or something where they bought their house in the 80s and it was worth you know 50 grand, and now in 2000 it's worth 200,000 or whatever. You know, it's like it's worth a lot more, and so they can get a bigger loan, and that's like taking out a second mortgage or a new mortgage or whatever. Okay. I feel like I'm learning.

SPEAKER_02

I don't know about you, Zach. I feel like I'm learning a lot. Brain sponge right now.

SPEAKER_00

Yeah, just taking it all in, just letting the letting it hit me. It's great.

SPEAKER_02

Okay. I I got a couple, I got a couple more questions. Sorry, do you have I'll be polite. Do you have any questions?

SPEAKER_00

No, no, no, just call me the Segway Master because I was about to start segueing into other steps, but you keep questioning. Yeah, yeah. Sorry to steal your own. Question everything.

SPEAKER_02

Um okay, what are like what are some of your favorite ways to invest into a property and make it worth more? Like, do you have like some strategies that you regularly use for your properties?

SPEAKER_01

Yeah, so I mean, you know, there's all kinds of different versions. Like our properties are basically like the example is you know, we're gonna buy it for let's go like per unit. We're gonna buy it for 50 grand a unit, we're gonna invest 150,000 per unit, so the total of 200,000, and then hopefully it's worth 250,000 units.

SPEAKER_02

Oh, because you you really get the fixer of the stuff.

SPEAKER_01

Yeah, so ours are like ours is like the most extreme version of this, where it's like a year-long process, total gut renovation, but it's the same thing where effectively like we hope that the day the building is done, it's not just worth what we put into it, it's worth 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, you know, you can refinance or you refinance a year later or two years later. Um, so there's that. But the the common, the most common is like you hear if you heard the term or we may have talked about like value add, right? You're gonna buy a building that was built in 1986, it kind of has old crappy interiors, and it rents for a thousand bucks a month. And so you're gonna come in and you're gonna you know put in new floors, countertops, kitchens, you know, invest a bit of money into it, and then you know, increase that rent a lot. So it goes from a thousand a month to fifteen hundred a month, and then that you know it's worth a lot more. So you know, typically it's pretty cosmetic in a lot of these sort of value add projects. Just like what does somebody walking into that apartment, you know, like and want to like pay more for? So yeah, it's that's that's the most common. It's like kitchens, countertops, floors, okay, paint. Paint is like the easiest one because it doesn't cost much. Um but can like paint, even just a fresh coat of paint can add yeah, and you'd be surprised. Like you look at some of these buildings and people buy, and it's literally paint the outside, you know, put new sh uh lines down in the parking lot and plant some trees, and you're like, oh yeah, that does look a lot nicer. Yeah. And that you know, it's like kind of hard to capture that, but it like, yeah, people probably would pay now $100 more 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 stuff like that.

SPEAKER_00

Okay. This reminds me of how I used to manage my uh roller coaster tycoon. Yeah. Are you familiar with this? Are you not familiar with it?

SPEAKER_02

Is that like a Sim City Creator kind of thing? Yeah. Okay.

SPEAKER_00

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 Sims or whatever, and you build it. Right. But like I would make these horrifying, terrible roller coasters that no one would ever get on, but then you just put some trees and some fountains and come to pathine park.

SPEAKER_01

But you know, there kind of is something to that. Like it is sort of real estate where 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 to invest 20 bucks into more trash cans, but then you get five dollars more in uh you know concession sales. Concession sales, right? And like that makes the park more valuable, right? Like it it's it's a it's a bit silly, but it actually kind of is how it works. Like you make these small investments which make people want to pay more rent, and that makes the building a lot more valuable. Yeah, and so I I don't know if this makes sense. So basically, like because you're getting a loan against the building, like every incremental amount of rent you can get is worth a lot for the building because they're they're basically loaning against kind of like the cash flow of the building. And so it's not just like $100 a month is makes the property worth $1,000 more. It actually makes it like $20,000 more valuable. Like that's that's the actual math. Like $100 more per month in rent means 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 dollars a year of increased rent, right? $100 a month, a thousand bucks a year. Well, there's this idea of like a cat like cap rate, which basically is kind of like your I don't know, the yield on a property. Like what what for the money you invest into it, like what is gonna be your increase in profit a year? I don't know if that makes sense. But that's like how a lender looks at the building. And so a thousand dollars more a year, say of like profit of net income, you know, will be like twenty times more valuable. Okay. Yeah and tw that's that's pretty standard across the board, is twenty times more. It depends. It's it's um it's more in a place like you know, New York City. You know, this there's this term cap rate. Yeah, so like a cap rate in New York City might be like three percent, which means it's like 30 times more valuable. Oh, okay. In Cincinnati, maybe it's five or six percent, making it like twenty times more valuable. In like a really crappy market, that cap rate might be like ten percent, so it's you know, ten times more valuable. If that makes sense.

SPEAKER_02

Okay.

SPEAKER_01

I think I'm following. Yeah, that that that that part gets a little you know niche, but but you know, it's effectively that the bank is is valuing the cash flow of the property. So every every incremental amount of rent you can get, assuming your costs are the same, uh, makes the building a lot more valuable. So that's that's the whole game. Is like, can you get $100 more a month in rent? Like, yeah, if you can, the building's worth $20,000 more. So you're like, okay, so like so. If this makes sense, like you would gladly invest $10,000 into the property to add $20,000 worth of value to it, right? So if $10,000 into the property makes someone pay $100 more a month, then it's worth $20,000 more, you know. So that's like the whole game. That makes sense.

SPEAKER_00

Yeah.

SPEAKER_03

Okay.

SPEAKER_00

So so I do want to talk about the specific steps of refinancing. So when you do get to that part of 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 that you go to? Do you typically go through the bank? Like, what are your steps and like when do you know that it's the right time to actually get to the refinancing step?

SPEAKER_01

Yeah, so so you've invested into the property, so you want to see that that has worked. You've been able to increase the rents, right? You had a previous tenant at $900 a month, you have a new tenant that's at $1,200 a month, you're like, okay, it's working. Um, you know, a bank typically wants some longer-term proof of that. So at least probably three months of rents and maybe more like six months or 12 months. Often in our case, you know, you need kind of like 12 because we just finished the property, had no income before. So we need at least like a year of rents that show the bank that that's you know real. It's like been proven over 12 months. Uh-huh. So you kind of need that. You need a historical record. Uh, you know, I definitely recommend like good bookkeeping because that just makes it really easy for the bank. But yeah, then you can go to a lot of local lenders, you know, are happy to lend against a building that has rents and cash flow and has a value. Um, so yeah, you just go to them that you want to you know refinance the property. You know, sometimes if you have a previous loan, you know, and this is all in your loan documents, there might be like a penalty to pay off that previous loan early. Interesting. Um, you know, there's kind of different different things there. That's the biggest one, like a prepayment penalty. But yeah, you go to the bank and you know, they'll typically underwrite it for free, or maybe you know, you pay a small amount and you can just see like what's it worth? Like, is it worth what I think? 300,000? Is it worth 350? You know, and then you can kind of make a decision like, does it make sense to refinance? And what the terms of the refinance will be too.

SPEAKER_00

Okay. Um, do you find that a lot of the time that you get that initial like is it is it a like not a cat and mouse game, but like do you find that most of the time when in the situation you would go in to do the refinance, you get a number that you're not super satisfied with, and then you would like be like, okay, I'm good, and then come back later, or do you think have there been any that you've executed on the first offer?

SPEAKER_01

Yeah, it you know, and it's an interesting mix because you you theoretically want that value to be as high as possible because you can get the biggest refinance possible, right? Again, with the caveat that is more risk. So you kind of want the biggest number possible. The bank also kind of wants to loan as much money as possible. Like there's a lot of incentives for this refinance to happen, but you know, they everyone needs to be realistic because again, if the property is only worth $300,000, like you don't want a $500,000 loan because you know so anyway, so yeah, so so we've had it before, and you kind of go to different lenders and they're gonna work with different appraisers and they're gonna evaluate it a different way, and ultimately just kind of choose the best one. And we've we've definitely had it before where you know you go for the refinance, it just doesn't make sense. So you know, maybe wait six months, try to push rents a little bit more, see if interest rates will come down or whatever. Okay, yeah.

SPEAKER_00

Patrick, how's your mind sponge going over there?

SPEAKER_02

So absorbed of information.

SPEAKER_00

Any questions you have for John?

SPEAKER_02

No, this is this has actually been really like I feel like I've learned a lot, actually. Not that I typically don't sometimes, but you know, yeah. Like this has been a very helpful.

SPEAKER_00

It's nice to know when it con uh like to know it in context now because we've had a few guests on the show and like we've done topics where we've mentioned the Burr method, but it's like not having any context for the specific steps and stuff, it makes it makes it a lot more uh you've made it easy to understand. This is like the Sesame Street of uh real estate podcasting right now.

SPEAKER_02

If let's say somebody owns a house and they live in that house, they don't have any investment in properties, it's just their house that they bought that they own. And let's say there's like the value of that house has gone over up over the past 10 years, for example. Yeah, is it common slash recommended to maybe do a refinancing situation with their own house, get that refinanced, and use that to then invest in their first rental property?

SPEAKER_01

Yeah, I think that's definitely a way to do it. I mean, people do it all the time. I think I can recall you see it in movies, or even if you're at Shark Tank or something, like we took out a second mortgage on our house. Like that that term is like is what we're talking about. Like you refinanced your house to take money out and then use it for something else. Got it. So I think you know, I think if that has happened to your to your home and you have a lot of equity in it and you want to pull that money out, and if it makes sense to you to invest that in real estate, like I think that could work. You know, I I think if you see about this online, people will talk as though it's free money. You're like, oh, you just you know, you go for the cash out refi, and now you have a hundred grand of profit and it's just in your bank and you can do whatever you want. And you're like, again, that's true, but you have more debt, like you know, yeah. You have a higher monthly payment, you have a bigger loan, you know, like you're just you are adding risk. And what's crazy is like the biggest developers, you know, multi-billionaires, you like you can see it all over the place now. They kept refinancing, they kept getting a bigger and bigger loan. I mean, all these office properties, like that's what happened. Yeah, they they were getting 100 grand a month in rent, all of a sudden they're getting 20 grand a month in rent, and you know, that math works in the other direction. That building was worth 100 million, and now it's only worth you know 50 million. Like it all drops down. You can't pay your monthly payment, you know, the bank comes for the loan or bank comes for your building, the building isn't worth as much, and then they'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, I think, is talked about in a much smaller context, but like all the biggest buildings are doing a similar thing, but the reason that makes it so good, you know, can also be the reason where it all like collapses. So yeah.

SPEAKER_02

Okay, that no I feel like it's important to like highlight the the risk or at least make the risk understandable, or you know what I mean?

SPEAKER_01

Yeah, like if you and and what the the question you the example you gave of like basically taking out a bigger loan on your house, like that you know, you can use that money for help with college payments, you can you know invest in property, but like you're putting your home at a greater risk of like being taken from you, you know.

SPEAKER_02

If you're basically if you're not able to make those higher monthly.

SPEAKER_01

Yeah, if you can't that and that's the main thing. If you can't make the monthly payment, then the bank's you know coming after you, coming after your house. So like uh I think that side of it like isn't talked about enough. You know, you just kind of see it like, oh, cash out refi, we paid everyone back. You're like, yeah, even that even the term like cash out refi, it sounds so sexy. Or just like just exchange that for like we got a bigger loan. We took on more debt.

SPEAKER_03

Yeah, right.

SPEAKER_01

If you just if you could just do that in your mind, like we took on more debt, and if it still makes sense, like okay, then it makes sense.

SPEAKER_00

Yeah, when you said free money, I don't know why, but I that whole thing, I pictured Saul Goodman saying that like directly at a camera with like a like a like a crappy TV suit behind it's like it's free money. We're getting it right now. Yeah, cash out refin. Exactly. Put that money right in your pocket.

SPEAKER_01

You can imagine some infomercial, you know, like cash out refined. Yeah, and again, so uh uh it's the way all of real estate works. I think it's the you know one of the only ways or best ways to kind of build up a portfolio as you're you know as an individual person or as a real estate investor, but um, yeah, there's risks.

SPEAKER_02

With a sort of caveat of like make sure, you know, regardless of how things can change that you will be able to make the monthly payments and not 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

If you can't make your monthly payments, yeah. You know, as like I would say a working couple, if you're gonna do that in your house, like you know, if someone doesn't have a job for three months, are you gonna not be able to make that monthly payment? You know, like you lose your house, right? Like you know, so so that's just you know, that's like the way to look at it. But but yeah, as long as you kind of know those risks, then it it can be really awesome.

SPEAKER_00

Right. And that's the last R, which is repeat. Repeat. So it's like that also comes with it, you know, the the fair warning signs of everything. Make sure you're doing your due diligence and educating yourself and make sure you're in a right spot to be able to pull something like this off, especially if it's something that you think that you're gonna be able to do over and over again. Like you need to make sure that it's something that you're prepared for.

SPEAKER_01

So yeah, yeah, and you know, if you're good at it, you can just kind of keep doing that. You take the money out of one, you put it into another one, do the same thing, take the money out of that, you know, do it again. And so, you know, you can do that kind of indefinitely, but you know, again, with with the risks involved.

SPEAKER_00

Yep. Okay.

SPEAKER_02

You know that episode of SpongeBob where he puts like corks in his like pores and he becomes really big? Yeah. That's my brain right now. Information.

SPEAKER_00

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 ready for a new segment?

SPEAKER_02

Oh, wait, that wasn't the whole episode?

SPEAKER_00

Well, I've got stick with me. Okay. You just want to question everything every day. That's fine. You just want to question everything I do. It's totally fine. You ready for a new segment here? Yeah, I'm ready. All right, it's called We're Trying to Appeal to Gen Z. So I'm gonna explain everything that John just explained in Gen Z terms. Are you ready? Tell me if this sounds right. Found a chopped property, don't be unk. Use burr and ris it up to make money, no cap.

SPEAKER_02

That hurt, dude. Why? Sounds right.

SPEAKER_00

Put that on social media. We're going straight to the top. Sounds right, man. Draco. Okay, cool. Well, so I think unless you had any other questions, Patrick, I did want to use like maybe we got like five minutes left or whatever to ask John anything that we want. Do you have anything else about Burr or are you good on that? Dude, I'm so you're good on that? I did want to ask because, and you know, they they didn't prep you for this, but we just did an episode where we talked about the 50-year mortgage stuff. And I'm just curious because right now that is topical. I'm just curious to hear your opinion on all of that right now. While we have a real estate professional that can sit with us in the room and actually kind of break down their opinion on what's going on with that.

SPEAKER_01

Yeah, it's interesting. You know, it's all kind of a you know, we're we're all just making up the rules, right? Like, I don't know, is it 30 years or is it 50 years? But I think in Canada, I think it's I think a lot of the rest of the world thinks it's odd we even have a 30-year-old. As opposed to what? Much shorter. I think in Canada the max is 15 years. And I think in the US there wasn't a 30-year and like I think historically it was like it was more responsible. Like you had a seven-year mortgage. Like, yeah, you just you paid off your house in seven years. You weren't just like making these little monthly payments for 30 years. So yeah, I don't know. I what's the motivation? I guess you have you have a lower payment, it's probably better for people, they have more money to spend on things, you know, which I guess that makes sense, but I don't know. I think this idea of like like what's your like surface area of risk, you know, and the longer you own the property and the longer you're sort of paying it off, you're kind of like increasing this like surface area of risk, you know. Okay. So I think it's I don't know, it seems like riskier, but probably better for homeowners. Sure, if you could pay it off over 50 years instead of 30, like you know, why not? Okay.

SPEAKER_02

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 interest for 50 years. Yeah.

SPEAKER_01

Yeah, I don't think so. No, I mean they want a shorter loan in general. I think you know they want their loan to be paid back plus interest if they can. Okay. And they'll just underwrite it appropriately. If it's a longer loan and maybe it's whatever it is, a higher interest rate or something.

SPEAKER_02

Okay, interesting. Okay. I didn't I didn't know that like Canada is like a fifty fifteen year loan.

SPEAKER_01

Yeah, I think fifteen is a it's very odd. And it used to be seven. Yeah, in the US, I think it was very short until like recently.

SPEAKER_02

How is that doable? Just because property prices were so low compared to income?

SPEAKER_01

Yeah, I think um we'd make much larger down payments on the house. So you you know you'd you'd pay 20% or more, so it was just a smaller loan you were taking out. Yeah. You know, all this is like the higher, the higher the loan, the longer term payment. It's like it's kind of just more risk, I think, but it's better for homeowners as long as you can make the payments.

SPEAKER_02

Yeah. Okay.

SPEAKER_00

Okay, cool. Well, John, thank you again for joining us for another episode of the show and uh talking with us about the Burr method, giving your insights on some stuff is a pleasure to have you. Hope you had fun. Great times. Okay, great times. A plus review. Speaking of reviews, leave us a review. If you're using Spotify or Apple Podcasts, go ahead and leave us a review, give us a five-star rating, thumbs up, whatever the service is. That like button. Exactly. There you go. And uh yeah, follow the podcast on social media at the rentish pod. Email us questions at therentish pod.com if you want to ask any questions, maybe a question for John 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 the show. If you have a friend that you know that is into real estate or investing or property management, whatever it is, let them know that they can check out the Rentish Pod weekly on podcast services around the world. Until the next time, I've been John. It's time to go to bed. Until the next time, I've been Zach. That's been John, that's been Patrick, and we'll see you guys next time. The Rentish Podcast is recorded in Cincinnati, Ohio, hosted by Patrick Giro and me, Zach Rotello. Produced by Mousse Gabermescell and Charlene Mulcendani. Edited by Elliot Mongenes. Theme song by me, Zach Rotello.