James:
The BRRRR strategy has always been dependent on getting several moving pieces right, buying at the right basis, managing the rehab, hitting the rent targets, and refinancing the debt without leaving too much cash trapped in the deal. In today’s market, there is less room for any one of those assumptions to miss, but experienced investors are still finding deals today. I’m James Dainard. I’m stepping in for the host seat, David Meyer. And today I’m joined by Zach Kepes, who’s been buying BRRRR properties for the past 20 years, and he’s still active today. We’ll break down Zach’s process, the portfolio he’s built, how his buy box numbers have changed, and what investors need to know before trying this strategy for themselves. This is On the Market, and let’s get into it.
Today, I’m joined by my buddy, Zach Kepes, who has been a BRRRR property investor for the past 20 years. I met Zach two years ago when I moved down to Arizona, and we quickly realized that we were like brothers from another mother. We like buying the same dirty things. We like getting into the trashy houses. We do heavy value add. And I just had a great connection with Zach because he is a real buyer in any type of market from 2008 all the way into the conditions now. And it’s all about creating that value today. So Zach, I’m really excited for you to be here.

Zach:
Great to see you. Appreciate the opportunity to be here with you and your great audience. Thank you so much.

James:
Right now in the current market, I mean, there was an article that just came out on CNBC and it’s talking about the investor appetite. Me and you have been chatting a lot about this, is that investors, they’re a little sour on real estate because it’s not as easy as what it was maybe in 2022. And according to CNBC, real estate investors have purchased 23% fewer homes in the first quarter of 2026 than they did in the first quarter of 2025. So what it’s saying is investors are starting to go, “Hey, I want to wait this out. I want to wait for better pricing.” And as an active investor myself, this has been the time to buy. You can buy deals today and still BRRRR in today’s market. If not, you can actually do it better than you could 24 months ago.

Zach:
For sure. I concur wholeheartedly. I’ve been buying consistent. So I’ve been buying since 2002 through 2026, so 24 years of the same strategy. Nothing’s changed in terms of strategy, but in any market you have to adapt and pivot based on market conditions. In 2018 and 19, you could throw a dart at the wall and you got appreciation behind you. You could make a mistake and pencil something and no matter what, by the time you go to sell it, you’re up an extra 10 or 20%. In today’s market, the myth is it’s almost impossible. Rates are high. Deals are taking longer to sell, but the reality is that’s what we’re talking about really the flippers. I know you do a lot of flipping, I flip, but I also do a lot of buy and holds, hence the BRRRR strategy where we’re retaining the homes. The key comes down to strategic relationships, which you’re amazing at, creating a lot of people that want to do deals with you and intelligent value add and just an amazing investor overall.
I’m the same way. So the key comes down to equity, equity, equity. So many people are fixated on just buying as many as they can or deploying money for not strategically, but the reality is if you can pencil a deal and like you said, the magic number is after you stabilize that deal, you buy it, you put your value add into it and you’re strategic with good economies of scale and you can stabilize it at the end with at least 20 or 25% equity, you can recycle those monies by pledging it to a bank and utilize that asset an infinite amount of times by moving those dollars with a good bank for sure. So you just have to buy deeper in today’s market and understand what’s going on in the macro markets and the micro markets.

James:
So the BRRRR strategy is to buy a property where your purchase price and your renovation costs are below 80%. Typically you want to be 75%, but 80% is kind of that threshold where your purchase price and your rehab combines and then you can refinance and use financing with that. So you were saying that you used bank financing to pledge over.

Zach:
So I use cash right now, but I’ll give you the whole break it down. I’ll use cash from a line of credit, it doesn’t matter where it comes from. It could be private or whatever. So the home is owned free and clear. I pay, let’s use a $300,000 house. I buy $300,000 cash, I rehab it, let’s say put 50,000 into it. 20% equity of that would, let’s call it about 70,000. So the home would be worth 420 to 450 ideally. Now there’s no debt on there. I can go to the bank and say, “Hey, Mr. and Mrs. Banker, can you give me some debt on this property? I want to refinance my, pull out my cash.” They say, “Sure, we could give you 80% of appraised value.” They go out and appraise that asset. It’s 420 and they take 80% of it. What’s that number?
You’re going to get a large majority, sometimes even more than your basis, and then you go on to the next deal. The key is how much is the cost of that debt? So if you’re using hard money to do that, it would never pencil. People that are trying to stabilize deals with 10, 11, 12, 13%, there’s no way that’s going to work because you’re going to be underwater. But if you’ve got good debt and you’re bankable, not enough people talk about being bankable. So many people just think you need hard money and personal relationships, but the key to this game is being bankable, being able to get cheap leverage on your portfolio or one home at a time and then recycling those dollars. So if these homes pencil on these burst strategies, you got to make sure that the rental market supports your carrying costs.
So if I’m getting an eight, nine, 10, 11 or 12% return on that asset, let’s say I rent it out for 25 or 2,600, I can now support the debt at 80% with the bank, borrowing money at 6%, but I’m yielding nine or 10. So you have that spread and you also have your equity. I always like to say, what happens to your net worth, James, when you buy that deal and you’re all in it at 350 and it’s worth 420? Your net worth overnight goes up gross, $70,000 in one deal. How many homes would it take for somebody to flip or wholesale to make 70? Probably six, maybe seven if your average assignment fee is $10,000 or $12,000, that’s five deals. You just stabilize one deal and your net worth, you go to the bank and say, Hey, you only have this deal, for example, I just increased my net worth $70,000 in gross profit.
That is very, very powerful and not enough people are talking about that. That’s huge. So the game is about delayed gratification, being bankable through the bank, arbitraging the interest rate. So again, if you’re borrowing at six or six and a half and you’re getting nine, 10 or 11, that’s a great deal. But most importantly is that equity that you’ve stabilized. You have 20% equity in that asset. That is huge and not enough people focus on that.

James:
Well, yeah. And it’s that instant gratification that people are looking for where a lot of times equity in the bank, it’s not that satisfying, right? It’s satisfying when everything’s going well and you have different income coming in, but when the market cools down, like flipping profits have gone down for sure in the last 12 months. Development profits have gone down. It’s hard to find a yield and profit in today’s market. And when you’re in that kind of environment, you create the equity. It doesn’t feel as good though, because it’s there, but you can’t use it. Now when everything’s coming in, you have equity, you feel like you’re Superman. But real estate’s never been about that instant gratification. It’s about the hard work that goes into it to push you through for the long term. And creating a consistent portfolio of 20% equity has a big impact over a one, two, a five-year period.
And to create that equity though, you got to buy nasty houses. You got to buy value add. And so what do you have in your portfolio right now? What is your bread and butter?

Zach:
So my bread and butter, I’m currently sitting on north of 300 single family homes in Arizona. So I’ve been doing this again since 2002. So this is over two plus decades.

James:
I mean, 300 homes, that’s a lot of rental houses. It

Zach:
Sure

James:
Is. What are you buying in today’s market? Because it’s a lot different than what you were buying in 2008. I remember the 2008 days you’re buying house 50 grand, right? They were nasty, they’re gross, 50, 60 grand. They would pencil out. But today they’re not 50 anymore.

Zach:
What’s interesting is I’m buying the same asset class. They’re just a lot more expensive, but guess what? The math still works today. So I’m still buying those same assets in the 250, $300,000 range and still putting in. They’re still nasty as they were then. The prices and inflation has increased the pricing on those assets. I’m still buying those same deals and retaining them. And obviously rents have gone up because back then the rents were by the way, 800, $900. Today those rents, believe it or not, are 22 to 2,500. So the rents went up that no one’s talking about, but so did the pricing. So the math still works today. I’m buying 225,000, putting in 50. And if you’re renting that out for 2,500, you’re getting a 10% gross cap rate. Again, and I’m paying cash, but if I’m pledging it to the bank and I’m putting debt and I’m not getting 100% financing on it, you’re not servicing that full $300,000 of your basis.
You’re only servicing 240 at 6%. So the math is still mass. The key is you just need to buy at a deeper basis because of pricing and cost of capital. Insurance has gone up, taxes have gone up, et cetera. But rents have also gone up almost at the same level to where you’re acquiring these deals today. So it still works.

James:
No, and I think there’s a huge boomerang coming where if you buy now and you don’t worry about the cash flow today and you can get that thing to break even, you create the 20% equity. Rents are climbing. They are going up and especially for single family houses. We’re seeing it in Seattle. We’re seeing, I mean San Francisco wet rents popped over 20%. And there’s these little jolts in the market because people always want to jump back in when the market’s already rebounding, but you want to buy when investor purchasing is down 23% because those are the best opportunities. We’re going to hit pause here for a quick break. More Zach after this. Welcome back to On the Market. I’m James Dainard with Zach Kepes. Let’s jump back in. Tell us a little bit about the most recent deal you bought.

Zach:
So I’m closing one literally tomorrow. It’s in Peoria. It’s a three bed, two bath, two car carport. I don’t like in my buy and whole portfolio, which is really important. When you flip, you can buy anything. You buy a one month condo, you buy based on value and what you can resell for. On the retention stuff, what I call legacy property, stuff that I’m retaining and that I want to own for a long time so that my dogs, one of them behind me and my boys could inherit in the future because they’ll live for thousands of years, God willing. It’s the stuff that I want to have at least three bedroom, two baths. That’s the stuff that rents the best or four bedroom, two baths. Typically, a four bedroom is even better than a three or you can create it because families and affordability is still getting tough.
So there’s families that are aggregating purchasing power and rentability by living together, friends with wives, et cetera, are aggregating their purchase power so that they can save money. So it’s beneficial when you’re looking at retaining assets to have number one parking, enough room for potentially four adults or a couple kids that are working. Ideally, I like cover parking. This one has a carport. And this one is a full gut remodel. I’m buying it for $240,000. It’s worth 360. I’ll probably put in $40,000 or so and I will rent that house out for $2,400. That is a deal that is closing tomorrow in Peoria. It’s a great solid entry level neighborhood. The other thing that I want to allude to that you mentioned before is you talk about breaking even on cash flow or $100. I see so many beginners and so many experienced investors, they’ll pass on a deal because they say that the rents don’t support that long-term hold.
But what they’re negating is, I say this and I’ll ask you the question. If you could buy a deal with $100,000 in equity at 200,000, it’s worth 300, let’s say it just needs $20,000, but you’re going to break even or maybe lose $100 a month in cashflow for a year or two till maybe rents come up, would you pass on that deal because you may have to service it 100 or $200 a month or would you buy it?

James:
No, it’s return on equity. How much cash am I putting in and what kind of equity and wealth? And so if I’m creating $100,000, if I leave 20 in, that’s a four to 5X my multiplier.

Zach:
Bingo. But it doesn’t pencil when they just look at it and say, “Okay, I’m getting hard money to stabilize it and I’m going to go rent it.” And they’re like, “Well, for the first six months I have to service it maybe 100 or 200.” And then I pull back and say, “Good. Now put this on an Excel spreadsheet and run what we call proforma. Let’s evaluate the deal.” If you’re getting an $80,000 increase in your net worth, but you can invest, let’s say your negative cash flow, $200 a month for a year, minus $2,400 to make 80, would you invest 2,400 to make $80,000? And then they say, “Well, of course.” I said, “Well, that’s what you need to think about. You’re hyper-focused on your bank account each month. You’re playing the short game.” I want people’s mindset to transition to, “Wow, if I just slow down, take a deep breath, decompress and realize I just about to make 80,000 stabilized, by the way, in a long-term gain because if you sell that in a year, and let’s say you just didn’t want to hold it for whatever reason, you’re only investing $2,400 more into the deal to make and stabilize 80,000 at a long-term gain.
And that’s why one thing we should talk about is taxation. All these flippers, every deal you make, let’s say you make 500,000, you’re not making 500,000 because you’re paying 40% or whatever in California, these other areas, more in taxes. But the beautiful part about these BRRRR strategies is we’re achieving a long-term capital gain. So instead opposed to you sell for 500, you’re only making 300 net after taxes. But in that 500, if you retain that deal or 10 deals at 50 and you’re making that say 500 and you sell after, you’re only paying roughly 20% in taxes or you 1031 exchange that asset and you’re paying zero in taxes. So that’s a really key strategy of how I’ve acquired a lot more deals in terms of wealth preservation. Instead of giving it to the government, I’ve retained these assets and leveraged them to acquire more deals and buy better assets.
So that’s really important strategy.

James:
It is because it’s money in the bank and when people say, Hey, you’re going to lose a couple hundred dollars, that’s a liability. And for me, we’re in a more expensive market and that’s why Arizona is so attractive to me. I can’t buy a lot of homes for 250 grand in Seattle or it’s going to be three hours out of the city. But the upside and the growth isn’t quite there. It’s a little flatter, right? There’s nothing wrong with that. But if I’m looking for upside, I want to get into markets that are more affordable, but also can grow at a little bit higher appreciation rate. And so like Peoria, that’s a little bit out of town. That’s like 40 minutes out of Phoenix and Scottsdale. 30

Zach:
Minutes, call it. Not too far.

James:
It’s

Zach:
Still within the 101 general circle. It’s not like you’re going out to Queen Creek or Maricopa City or Pinal County. It’s pretty close and it’s very affordable and it’s within my 50 mile buy radius because you want economies of scale.

James:
Yeah. And when you buy that property and you’re losing $100 a month, you can then 1031 exchange it out where I’m going, “Hey, I can now trade this, use this equity, take it tax free, go buy another BRRRR property or two and then double my portfolio and also double that return on equity because you’re now creating 20% equity on two properties at that point.” For sure. That’s a lot of my strategy. If I’m going to eat money on the deal, I’ll do it for a one to two year basis, but knowing that I’m going to trade it into two to four more units at that point, because as investors, we run out of money to put in these deals. We can’t just put 20% in, 20% in because we’re going to run out of bandwidth. And so it’s all about creating that equity in the BRRRR strategy.
And so you mentioned a 50 mile radius. What is Zach’s buy box?

Zach:
I’ll give you a very fundamental kind of a green light, red light, yellow light strategy. I call it my four pillars of acquisitions. My strategy is this. Number one, when you buy the asset, is it something that if the market shifts and you get stuck with it, you’re happy to own it. So no matter what, it takes out all emotionality in these deals. So again, legacy, I buy this, I’m happy to own it. It’s not on some major street. If I get stuck with it, I’m not paying 800,000. I can only rent it for 2000. That would not work in a legacy property. It’s an area that there’s growth. They’re building the Starbucks and nice restaurants. So will there be future appreciation? Am I happy to own this for the next decade? Okay, yes. Next, when I buy this and after I run my numbers from acquisition to stabilization or value add, we’re doing the full surgery, will there be at least 20% equity after stabilization?
Just simple math on this one. There’s no emotionality again. Is there that equity after? Will it increase my net worth? Will my net worth break even or could I potentially lose? If I’m going to break even or lose, it’s immediately, it’s a no. Next is, do I get my yield on the rental in today’s market conditions? Not hoping for future rent growth because Arizona is unlike other markets, we’re kind of stagnant in terms of rents. We’re not going up, maybe a little downward pressure, but if you have a nice product, my rents are kind of stagnant and I’m getting the yields that I’m projecting. So can I get an eight to 10% gross rental yield? Very simple math, again, very predictable. I know the areas because I work in them every single day. It’s in my 50 mile radius. Can I get my 24, 25, 26, 2,700 on this?
And number two, by the way, I like to use this. You want to be proactively marketing it. As soon as I’m done with the rehab, I already want to have earnest money from a tenant before I’m done with the asset. So that’s number three. Does it give me the eight to 10 or ideally more cash on cash return? And my fourth pillar and summation is, can I buy the asset less than replacement cost? So there’s that intangible value. If it costs a builder to build $200 a foot in today’s market plus land value, is the asset that I’m buying cheaper than if I can build it for cheaper, why am I buying anything? I would just build it. But the reality is if the replacement cost is greater than what I’m buying it for by default, that’s another strong green light to say proceed. So in summation, legacy property, I’m happy to own this for multiple years.
Do I get my stabilized equity, the 20, 25%, that magic number for a BRRRR strategy after stabilizing? Do I get my minimum eight to 10% and can I buy this less than replacement cost? That in summation, if you deploy those same pillars and strategy, I don’t think you can go wrong.

James:
I have the same type of strategy. I have to hit 10% if I’m leaving any cash in the deal. And it’s like that is my make or break. If it doesn’t hit there, I’m buying the property for other use. Maybe it’s future development. Maybe it’s a one to two year flip or a buy and hold in a flip. But it kind of narrows your strategy of can I keep this for a long time? Because like you said, you wanted legacy properties. So typically what price point are you buying at? 10% return, at some point you get too expensive, right? Of

Zach:
Course. There’s an inverse relationship between price and yield traditionally, right? You could have these ultra luxury properties at two or three million and I see these people Airbnbing in these short-term strategies. Sure, they’re getting their 12 or 13% or whatever, but that’s a huge exposure and I’m not a huge proponent of that. That only works for 1% of the population. I don’t do in fact any, for clarification, Airbnbs on these or midterm rentals. These are all long-term kind of warm buffet, set it and forget it long-term stabilized strategy. So my stuff is long-term tenancy, yields that are going to pay over the time, that eight to 10. And so the stuff that I’m buying is the cheaper stuff in an average, 250, 200, just like the deal I bought, 240,000. Those deals still pencil and will give me that eight, nine or 10. Maybe I’m more aggressive than you in terms of I’ll take a lesser cap, but I recognize the equity play and they almost give a little more favoritism to the equity that I’m not as hyper-focused on hitting that 10.
I’m happy with an eight. Shoot, I’d be happy honestly with a six if there was a lot more equity after stabilization too, because just like I mentioned earlier, I’m happy to invest to stabilize that equity and make that net worth larger for my portfolio. You know what I’m saying? Of course you’re going to take a lesser yield as long as there’s the equity, larger equity on the backend to support that. So that’s what I want people to hyperfixate at. Equity is the key to every deal. If there’s no equity in my opinion, I would not buy it.

James:
What the house look like, Zach? And what improvements were you doing to that house? When you’re doing these 240, because value add isn’t for everybody. And I always say, Hey, look, if you can’t control your cost, you can always bring on an operator too and partner with that person because if you’re creating 20% equity, there’s nothing wrong with leaving a little bit of cash in the deal or breaking even and taking 10% of the equity, right? It’s better than just buying traditional. So what are you doing when you buy that 240,000? Are you adding bathrooms? Are you adding bedrooms? Or is it kind of inside the walls work?

Zach:
It’s all inside the walls. This one happens. And I like that too, right? If you can avoid major permanent work and delays, I like stuff that I can. I value the time of my money. So if I could turn this project in 30 days, which I know that I can, the work is as such. So I’m already proactive. I’ve already walked it because I got in the asset. It’s very important not to really buy sight unseen. I always encourage people to get in it, video it, tape it, get your contractors in there, get some numbers so you have definity going into the project. You don’t want guesswork. Sometimes it’s hard to see when we’re buying these hoarder houses. Those are some of the best too, but there’s of course risk because if you have all the stuff all over the floor, there could be major foundation that’s hidden.
So you have to pencil that in terms of cushioning and deal. This particular asset, the floors are probably 25 years old. They stink from the cat urine and feces. The cabinets are original to the home. There’s popcorn ceilings and old lighting fixtures. But once you get through that dust, it’s a must to buy that house, right? You got to get in there, clean it up. So we got paint, we got texture, we got floors. We’ll do it. There’s already an existing fireplace. I’ll do cabinets, what I call like for like. We don’t have to do major design. These are not like, “Hey, bring in your Megans and all these people to do your stuff.” This is like for like remodels, upgrade windows, like for like bathrooms, tiles opposed to the plastic surrounds and really just give it what I call a really nice facelift, a full facial surgery, make sure that it’s a clean environment, it’s a safe home, it’s a stabilized asset.
What I believe in is spending the money today to save the money tomorrow. A lot of people have the wrong mentality. They come into, like I said, that bandaid mentality. They just want to maybe put. I see all these people doing LVP over floors or leaving popcorn or leaving old fixtures or fixing some copper on a 20-year-old water heater just to give it an extra six months. The guys and gals are already working on this home. Do it right the first time. Their trip to go back and forth is actually going to cost you more money than getting it right the first time. So come in, do a comprehensive remodel, spend the money to make more money tomorrow. You don’t want to be a slumlord. You want to be a great landlord because if the tenant moves in and they’re constantly calling for service, they’re likely to move out because they’re missing time off of work to let people in.
It’s an inconvenience. So serve a five star product. If you look at Yelp and those things, it’s not just about the food, it’s about the service, communication, all the factors on these bur houses, you want to think about all of them. So many people are hard to focus. I have a nice house, but I don’t give good service. Forget about the tenants. That’s the wrong mentality. If you treat and retain these tenants that are coming in like your family, like your mom or sister or brother or wife, you’re going to treat them well. They’re going to see and feel that and they’re going to refer you to other tenants so that you can rent your houses out faster and continue to get those referrals, less time on the market, less commissions paid to other agents because you’re vertically integrated. So again, in summation on this home, this is going to get all new tile.
And I don’t do LVP, I’m doing tile because again, legacy properties, I plan on owning these for a long time. It’s not like, “Hey, let’s just make this look good, put some lipstick and sell it, and then it’s going to wear off with the little rain.” No, these things are built for durability and time tested. So when the tenants move out, I can simply. I’m not doing carpet, by the way. I’m doing all tile so I can clean the tile, have a faster transition. I’m not spending money on new carpet or anything else and making this thing timeless, durable, beautiful, have that emotional renter appeal and executing. That’s the game

James:
Plan. Yeah. It’s that bulletproof rental, right? Bulletproof

Zach:
Rental.

James:
Because what kills investors is the maintenance and the repairs. And what you touched on is really, really important. When you’re looking at a house, you can’t force the numbers. It either needs the work or it doesn’t need the work. And when people try to make the numbers work and they’re like, “I can squeeze a couple more years out of that roof.” Well, when you have to replace that roof, that’s going to be eight to $12,000, if not more. And all of a sudden that’s eight to $12,000 that just ate up your equity, it ate up your cash flow, and that’s what all of a sudden you have this massive liability that you’re feeding and feeding and feeding for $100 a month in cash flow. And so you got to do an accurate scope of work. I think what you talked about is really important. You meet the contractor there, especially for new investors.
Don’t guess. Don’t go off of the wholesaler’s proforma. Don’t go off of what Zach’s numbers are or what my numbers are. Meet your contractor there because the key to the BRRRR is to make your rental bulletproof so it lasts. Your maintenance cost is paid for, your roofs, your hot water tanks, your furnaces, your appliances. Those are things that last three, five, 10 years. You want those in the deal upfront. And then if you’re making your $100 a month in cash flow, the upside’s actually there because you have equity built, you don’t have a liability you’re feeding, and the upside is only going to go up with rates going down as the market could go up. These are things that you can explode your wealth and that’s where everyone’s sour. 27% of people are buying less houses because real estate doesn’t work anymore, but it works if you underwrite it and look at it correctly.

Zach:
Those 27% of those people, a lot of them were using what I call hope is a strategy. They’re hoping for appreciation. They’re hoping that that roof doesn’t leak. They’re hoping that the AC lasts a couple more years. What we’re talking about is being hyper conservative. We’re not hoping for anything. We’re actually projecting worst case scenario, which is really important to be conservative. I see a lot of investors, they’ll leave an existing tub that looks good in a full remodel versus pulling it to put a new tub in for $150 and scoping the sewer because you know how much more expensive it is when those landlords come in and the tenants are there and you have to pull the floors and pull the tub and excavate and break concrete because they didn’t check for one simple thing and run a camera through the plumbing. That’s crazy.
They’re hoping that the plumbing is good versus knowing definitively that they don’t have to replace the plumbing or they do it before they start laying all the tile and it doesn’t cost them $10,000 in the future and kill them with their capital reserve. So I think that’s a great point of putting a 10% reserve for unknown expenses, being conservative. And guess what? If you come in and you don’t need any of that, that’s additional ammunition for your next project or anything else. You want to be conservative, you hope that the market’s good, but you’re not using hope as a strategy. You’re using fundamentals. What we’re talking about is buying right, having all that equity as liquidity for the future and your profitability. That’s key.

James:
We’re stopping one more time for a quick break. When we return, more from Zach Kepes. Welcome back to the On the Market Podcast. Let’s continue. So this deal you bought, 240,000, you’re putting 50 into the renovation and it’s worth 375 to 400 roughly?

Zach:
360 to 380. I’m conservative, so just say 360, run those numbers.

James:
360,000. So you’re creating $70,000 in equity. And so for your typical investor, you have 300 rental properties, you’re using a little bit more of your cash, your equity, sometimes you use private financing. So your typical investor has to buy that with a construction loan, right? You come in, you buy that property, you take a loan out for 80% or 85% of the total project cost of the 290,000. So you got to come up with roughly $50,000 to do that deal. The lender’s going to finance you back your construction costs, and once you’re done, you’re going to refinance into a conforming rate. Or right now, a lot of investors are using DSCR loans, right? Correct. Where it’s the debt coverage ratio loans, and they can then refinance that back out, get all their cash back, create the $70,000 in wealth. But then the numbers on this, for everyone that says BRRRRs are dead, if you take out a loan at $290,000 with a DSCR at a six and a half percent rate, your payment is 1833 a month.
At 6.75, you’re 18.81. 7%, you’re 2,000. Then you got taxes and insurance, but what are you renting that house out for again?

Zach:
I will get between 2,400 and 2,500 conservatively for this home.

James:
2,500. So after all expenses, you’re going to be making 100 to $200 a month with no cash in the deal.

Zach:
Correct.

James:
That is the definition of a BRRRR. Now, if you were buying that property 18 months ago, would you have bought that property for 240,000 or is that more, right? That’s where the opportunity is right now. We’ve seen a dip, at least in acquisitions where we’re at least 10 to 15% lower on this stinky value add. Now, the turnkey cleaner grandma’s houses, we’re competing against end users, different types of investors that don’t have any value add, so they’re paying more, but for the beat up homes, we’re seeing good discounts in today’s market. We’re buying them cheaper than we were buying them 12 to 18 months ago. And the interest rates are still the same as what they were for us 12 to 18 months ago. So what blows my mind is why are investors not buying when they were buying 12 to 18 months ago?

Zach:
I think a lot of them, that’s a great point. You’re exactly right. That home, if I bought 18 months ago, I probably would’ve paid 265 to 270 for that asset. And now I can buy it 10% cheaper, which is significant. Just because a lot of these investors, they’re only using, and I think it’s important to have a hybrid strategy. We didn’t talk about it, but I don’t just have one strategy. It’s important to have multiple strategies and diversify your investments. So if you can sell and make cash, you’re never going to go broke by having a profit. And a lot of times when you’re flipping, you can take those profits and buy more BRRRRs and retain that or find new opportunities. You constantly want to be moving money, obviously, other than your long-term whole portfolio. So it’s important that you can exit some of those deals.
But the investors that only have one strategy, which is just flipping, their time on market is longer. Interest rates have crept up. So their holding costs are longer and they have no other source of income. They don’t have that income from their BRRRR portfolio or equity that they’ve created that they could tap into for more opportunities. So essentially they’re stuck. They’re not refinancing it. They could look at some of those people should look at potentially BRRRRing that. Does that home that they anticipated flipping, does it work as a rental? Could you just turn around and retain it and have that long mindset, that delayed gratification mentality and then cash it out and go on to new opportunity? Some people need to think about they’re only fixated on one exit. It’s important to every deal, for me at least, to look at every deal and say, “Hey, is there multiple exits?” By the way, even if your intent is not to rent it, but you put it out to flip and you have that rental service say, Hey, someone calls you as a potential buyer like, “Well, I see you’re asking 360.
It’s been on the market now 60 days. It’s delayed. I’m going to offer you 320.” And then you say, because you’re leveraging the fact that you’re a dual exit, “Well, I have a tenant that I have an application that I’m processing.” And I say, “Oh, shoot. Okay. Well, I’ll come up on price because it creates that demand by default by having traction on that asset.” It’s a really important strategy to get people to, one, if you’re going to flip to maximize your value and vice versa. If you have a tenant like, oh, I’m looking at another rental property. Well, I have a potential buyer, so I really need to know. So it forces those decisions and demand on that asset. Even if that’s not your full intent, you should evaluate multiple exits to maximize the yield on that single home.

James:
Yeah. And that’s that low, I call it the low risk flip because there’s multiple exits. If you’re buying some of the stuff I’m buying right now where I’m paying 800 –

Zach:
You’re not renting that

James:
Out. No, I just paid 2.8 million for a flip. And the only reason I shop there is because that’s where the best deals are. I have no desire to buy a bunch of $2.8 million houses. But if the math works, it works. And if I can build in a bunch of contingencies and still make profit at the end of the day, I will look at that deal. But that is not a low risk flip. That is you got a lot of capital in the deal, you can’t rent that thing out. And that’s the strategy when people get nervous about it, then switch over. That’s why I’m starting to explore Arizona because I want to buy in the Peorias for 240,000. That deal you described, I will buy all day long.

Zach:
Correct. You buy as many as you can of that for sure. It just makes economic sense. It hits the four pillars. You’re sleeping better. The problem is respectfully, like your $2.8 million deal, your Laguna 10 million, you probably could lose a little sleep overnight. I know you’ve been busting your butt for the last year, but you’re probably thinking about the contract or what’s going on, the cost of capital, the per diem expense. For me with a diversified portfolio of lower income stuff, I can immediately get somebody in there and get it rented out if it’s not selling. So I would venture to say, and I’ll ask you the question instead of speculate, would you rather own 20, $400,000 houses in terms of ARV versus one $8 million flip or would you rather just do the eight million?

James:
Of course. But I’m a pressure makes diamonds guy. So I do well when I got a lot of pressure on me. And I just go where the opportunities are because there’s different engines that we always look at, flipping, development, rentals, apartments, lending. I like to have a pie chart of income coming in. So no matter what’s going on with the market, a couple things hit well, some don’t. But what always works is the BRRRR. And that’s why I really wanted to bring you on because I kept hearing like, oh, it’s dead. I hear this. It’s all over social. Turn off social media too. It’s dead. No, it’s not. It actually is the most workable that it’s been because they’re real numbers and you can create real equity on that. So Zach, for someone getting started, how did you find that deal? You’re the Zach Kepes Arizona.
People know you like to buy them down and dirty. How did you find that deal and what’s the best way for people to go find a deal just like that?

Zach:
One, you got to be ready. You got to be knowledgeable. So if someone brings in, I’ll teach you how to cast the net to attract that opportunity, but you also have to be knowledgeable. So if you’re just getting into this, I recommend finding a James or a Zach in your market and trying to emulate what they’re doing. Go out. We’re always open books. People could see our projects and whatnot. And try and understand before you’re putting your hard earned money and 240,000 in a deal, get a full comprehensive basis for that asset. Go drive the home or pull up in tax records, all public record.What’s James buying?What’s Zach buying for this bur portfolio? And understand, okay, he bought it for 240. How does he only put 40 or 50 into it? What are the improvements? It’s a copy and paste. There’s abundance of deals for everybody to win.That’s what’s beautiful about real estate.
It’s not like, oh, there’s only a few opportunities. Everybody can win. There’s a huge seats at our tables anytime and you’re always welcome to join. The point is understand the game so when that opportunity hits you in the face, you’re ready to execute. People want definity. So when it comes, you got to be ready to move fast. So it’s like I say when people go to the casino, you don’t just sit down at the $100 blackjack table and not understand the rules. Understand the rules, watch the fundamentals, learn from James and all these guys online that are doing it. See it firsthand. Do these investor walkthroughs to understand, okay, now when I see that next deal, I’m ready to execute and I’m not going to hesitate because hesitation will cost you the deal. These deals move in seconds, minutes. So what happens is I, number one, project.
I’m always on social media. I’m the same way I am right here, the same way you were on TV, which I love authenticity. Be authentically yourself and say, “Hey, I’m Zach. I’m looking for my next buy and hold in any of these areas. If you’re a wholesaler, if you are an agent, call me. I’m ready to go, cash ready.” People want someone who’s motivated, who’s definitive, knowledgeable and ready to execute. Be that guarantee. So I projected. Title companies are a great resource too. Call the different title companies that are investor friendly and tell them, “Hey, do you have any wholesalers you can introduce me to that have opportunities in any of these areas?” They would love to do it because they want their deals to flow. If they have an escrow and they don’t have a buyer, they’re losing that money. So they’d be happy to connect you.
Do an event where you’re inviting people. It doesn’t have to be a lot of money. I did hikes and said, “Hey, come on out and meet me. I’m going to have other investors there. Let’s collaboration, collaboration over competition.” So do something that’s unique to you. If you’re a bowler, if you like ice skating, if you like racing cars, create a little event to invite the top wholesalers and agents in the areas that you want to buy, aggregate them in a room, shake their hands. People want to do business with people that they know and feel comfortable with. The more hands you shake, the more money you make. It’s a fact. So be authentically yourself, shake those hands and the opportunities will come. And when they come, you got to be ready to pick up your phone, respond quickly. I was working out the other day, this one came, my buddy who a friend of through the title company introduced me to this guy named Ryan.
And he said, “Hey buddy, I got this deal in Peoria.” He sends me over the address and photos. I looked at him literally in the middle of my set working out of the gym and I said, “I like it. I really love it, but I liked it.” I said, “Yeah, I’m very interested. You could send me the assignment because I wanted to lock it up. I signed it on my phone in one minute, but I have one contingency. I needed to walk it because again, I love everybody, but I only trust myself. For a quarter million dollars, I will spend the time to walk the asset. I already had it under assignment with the contingency of a 20 second walkthrough. I walked it, put the earnest money and it’s closing tomorrow.” So that is literally how that deal originated, how it’s executed. Deals aren’t just getting created by sitting in your office all day and hoping for opportunities.
You got to get out in the field, shake the hands, get around the people that are doing the deals and they’ll start coming your way. That’s just the fact.

James:
Title reps are the most underutilized people because they think it’s all title and escrow reach out because they need to know who’s in their market and they see the transactions going down. And it’s a great way to get introduced to wholesalers. So then you get the deal sent to you just like Zach did, but then you have to be prepared. Prepared means you have to be pre-qualified. If you’re Zach and you’re a little bit more experienced, you might have your line of credits, you’re set up with your financing, but you got to be set up with the right lenders.

Zach:
That’s a great point. So when the deal comes, you need to know that you can execute. You’re just like, okay, you tie it up, you put up your $5,000 earnest money and then you’re scrambling to get the money. That’s a great point. Make sure that you are collaborating and have yourself pre-approved, whether it’s a bank, whether you have a HELOC on your house, whether you already have the cash, which would be the best, or you’ve got high net worth individuals that you can use private money from. You should actually have two sources in case one falls apart. And I’ve seen that happen before. So talk to your rich uncle or rich friend or friend of a friend to say, “Hey, I’m doing this and I’d love to partner with you. What type of return are you looking for? How much is your capital?” And then also call hard money lenders in your market so you have two, if not three sources of capital for execution because the last thing you want to do is commit to a deal and then you don’t execute and then you’re going to be SOL for any future opportunities if you can’t perform.
So performance is key.

James:
Yeah. And you got to have that money available. So get pre-qualified with numerous different hard money lenders, not just one. They cold called you and said, “Hey, I can do this for you.” You want to get through the full pre-qualifications. Investors forget and they skip the line. They’re like, “Oh, now I got to go get the money.” No, you got to get the money before you can buy. That’s how this works. But then you have to have the money there for you once you buy and stabilize it. And this is another big thing that people skip, right? When you’re buying these properties, you know that you can get bank financing to pledge that to. You can’t make a quick decision unless you know these things are in place. And so you have lines of credits, that’s usually going to be like a business line. But the other things that investors are using, DSCR loans.
You got to get one to two DSCR lenders pre-qualified. Get qualified for conventional financing. If you’re buying single family, you can own up to 10 single family rentals. And it is your gum powder for growth to get pre-qualified because that’s when you can make that quick decision, right? You know the deal, you’re able to underwrite it, you’re able to walk it, verify your costs. You have the financing so you can commit because you know you can pay for it. But then how do you stress test that deal? Your good buddy sent it to you, but that doesn’t mean it’s a good deal. That people make all theime. Oh, so-and-so sent it to me, so it’s goodbye. No. It

Zach:
Must be good. Yeah. Listen, I love all my buddies and they’re all good buddies and you got to walk the house. At the end of the day, unfortunately, you got to be contingency mindset, which is he sent it, but everyone’s human. By the way, people make mistakes. They walked it quickly. They forgot about that foundational crack or the hole in the roof in the back garage that they didn’t walk. So it’s also a protectionary measure for them because people are human. We make mistakes. So it also covers them. And when they walk it and they’re a good friend of yours, I’m sure they’re going to say, and you can point out, “Hey, you forgot about this.” And then when you go to buy it, even though you locked it up at 240 and they neglected something probably erroneously and say, “Hey, I need another 6,000 off this deal because you didn’t show me this and it wasn’t conveyed.” And they’re going to say, “Well, I’m so sorry.
Yeah, I’ll get this to you at 234.” So it helps you mitigate that additional risk if you didn’t walk it, which would be crazy. I always say this. When you go to Burger King, you don’t walk in the kitchen to go have them make your burger to look and make sure it’s clean because it’s $8. If you take a bite and it’s undercooked, you throw it out. We’re talking about hundreds of thousands of dollars. If you’re too lazy to walk or drive the deal, you should not be in the business. I drive all of my deals. I make sure that they’re sound. You want to protect your hard-earned money for sure.

James:
So how do you evaluate that property, right? Especially for new investors out there, if you misvalue that home, your BRR strategy is toast because you can’t get your cash out. If you misevaluate your rents, you could be really bleeding out or your DSCR lender who’s going to finance you based on income isn’t going to give you the money you need. So as your experience, you kind of know the neighborhoods well. I can drive through neighborhoods and be like, “That’s worth about that.” For new investors out there, who are the people that are directing you on your rents and your values?

Zach:
Yeah. I mean, just like you say, you never really want to trust a wholesaler. You want to do your own due diligence and slow it down. You’re putting hundreds of thousands, if not millions of dollars at risk. And that’s a key question. No matter what the deal is in every neighborhood is finicky and different. You could be a quarter mile away from a comp that they’re showing you that says it’s worth 500,000. So never trust anyone. Slow it down. I literally get on the MLS or Zillow, whatever you have access to, or get a friend that has access to the multiple listing service and do both. I want to call the most recent homes that have rented in that neighborhood. I want to see days on market. So if that home took 342 days to get your 2,500, that’s going to be a problem. By the way, you want to pick up the phone.
Remember that proactive versus reactive mentality. You’re not hoping that you’re going to get this number. I want it quantified and qualified through real conversations from today. So I’m going to look at all the pending homes in that exact subdivision first and say, how much activity did you. There’s a model match. I love starting there. Go in the first quarter mile, same sub. “What type of activity have you had on this asset? What’s the feedback? Have you had multiple offers? Did it fall out of escrow?” And by the way, when you make those calls, ask them for more opportunities. “Hey, I’m an active buyer in this neighborhood. I want to introduce myself. Thanks for taking the time. I’m asking because I’m looking at a home in this neighborhood. Maybe you could even list it or sell it for me. “So create that strategic relationship with them and give them something in return.
But the reality is you’re extracting real value from today, real knowledge. I love calling pendings and UCBs to say,” How strong is your offer? Are you taking a backup? “These are good questions because it really will dictate the reality of what’s happening in that neighborhood. If a home goes under contract in two days over there and you’re going to do a like for like remodel, that’s pretty compelling if the number that you’re projecting, right? Or there’s three sold in the last month for the number that you’re hoping are for more, that’s pretty conforming information of what you need to say,” Okay, that value’s there. “Same thing on the rents. Look at the last rentals in that neighborhood or that zip code. How fast did they move? Were they similar construction? Was it the three two? If the rents are way off, there’s a problem. You have to have real tangible assets that have recently traded or they’re pending or they’re under contract and having the conversations.
Don’t just assume you see a pending for a number and it shows 360 and you think,” Okay, well, there’s a 360 pending because the wholesaler said there’s a pending at 360. “When I pick up the phone and I say,” Hey, how strong is that offer? And they’re like, “Well, they’re getting a divorce. We’re at 290 even though it shows pending at 360. Now I got some solid information. It’s not a 360 because that was their only offer.” So take the extra steps to truly understand your capital at risk and hey, is the value really there? You can’t just judge a book by its cover. It’s the same thing on a pending in real estate. Delve into it, open that book and read into it as much as you can to extrapolate all the critical information to make sure you’re making the best decision for your acquisition.

James:
Got to verify, right? Property managers, if you’re using a property manager, have them tell you what the rents are. Don’t guess, especially for a low risk flip. The broker that could list it for you say, “Hey, what can you sell this for? And if you can get that number, I might sell it instead of keep it.” They’re going to have a vested interest to get you an accurate number. And these people around you can really guide you because the numbers on the papers coming your way typically are to sell the deal, not to put you in the best position. Well, Zach, I want to thank you for coming on. Good to see you, man.

Zach:
Appreciate it. Best of luck. Thank you. Take

James:
Care. That’s it for today’s episode of On the Market. Big thanks to Zach Kepes for walking us through how we still finding deals and executing the BRRRR strategy after 20 years in business and for showing us that you can still do the deals in today’s market. Make sure you follow the On the Market Podcast wherever you get your podcasts. And if you’re already listening, check us out on YouTube for more analysis. I’m James Dainard and I’ll see you next time.