One of the primary reasons that people end up being interested in property investing is the allure of monetary freedom. Purchase enough property to cover your personal costs and voilà, you’re economically independent. For some, one of the hardest parts might be learning how to determine whether the rental residential or commercial property in question is great financial investment.

There are numerous methods and strategies to implement in order to achieve the feat of financial self-reliance, like Josh Sheets’ combination of individual and professional funding, Fernando Aires’ 3 principles to accomplishing monetary independence, dedicating to this simple four step process, and passively buying home syndications, amongst numerous others.

However, the fastest monetary liberty method I have actually ever stumbled upon is Andrew Holmes’ 2-5-7 strategy. He has successfully implemented this technique, which is a version of the popular BRRRR strategy (buy, rehab, rent, re-finance, repeat) on over 160 residential or commercial properties. In our current conversation, he outlines, in severe detail, his exact step-by-step 2-5-7 formula for how he acquires a minimum of 5 residential or commercial properties every 2 years and pays them off in 7.

What is the 2-5-7 Investment Formula?

Andrew’s investment method sticks to what he calls the “2-5-7” formula. In 2 years, the objective is to build up a minimum of 5 residential or commercial properties and utilizing the cash flow pay them off in 7 years. Andrew said, “The formula doesn’t alter, it’s simply the number of residential or commercial properties, just how much capital you want to develop, and you scale based upon that.”

In order to attain his specific investment goals, Andrew has the following four extra requirements at are not always consisted of in the initial BRRRR Strategy:

1. Deal Location - “Most individuals, whenever they own rental residential or commercial properties, they tend to purchase … in locations that are rather challenging. We have a different approach, which is we tend to buy in bread and butter locations, ideal beside what we would call premium locations. Basically, if premium areas are A, we tend to purchase B- or C+.” Click on this link for my ultimate guide on selecting a target financial investment market.

2. Minimum 25% equity- “Whenever we’re purchasing a residential or commercial property, after rehabilitation, it must have a minimum of 25% equity.”

3. Small Ranches- “We concentrate on buying small, three-bedroom, one and one-and-a-half bath cattle ranches.”

4. $400 to $450 capital- “They should cash flow to the tune of $400 to $450 per residential or commercial property after all costs, including management.”

Similar to the BRRRR Strategy, you start with completion objective, which will likely be the amount of capital needed to cover your personal expenses, your current salary, or your ideal way of life, and after that reverse engineer your 2-5-7 method to identify what market to buy, just how much equity you need (more on that later), the residential or commercial property type, and the regular monthly capital requirement for each deal.

Related: How to Find a Capital Friendly Real Estate Market

Example Deal

Here’s an example deal Andrew supplied to see the 2-5-7 formula in action:

” Let’s state you’re purchasing a bread and butter residential or commercial property: three-bedroom, one bath cattle ranch for $65,000. You’re going to put $20,000 to $25,000 into rehabbing the residential or commercial property. You have a carrying cost of another $5,000 to $6,000, so you’re all in cost into the residential or commercial property is someplace around $90,000.”

” This is the most crucial part, which to me [distinguishes] investing versus what the majority of people do, and that is the residential or commercial property needs to appraise on a conservative re-finance appraisal for $120,000 to $130,000. That’s the crucial thing - that’s the only method you’re going to be able to get all the capital that you take into the residential or commercial property out, so that you can effectively recycle the very same money over and over and over.”

” So the residential or commercial property appraises for about $125,000. The lender is going to give you about 75% of assessed worth … That’s the crucial thing. That’s the benchmark individuals have to take a look at. If the residential or commercial property assesses for $120,000 to $135,000, now they’ll offer you the $90,000 to $95,000 refinanced.”

” So you take that loan, you pay your very first lending institution off - the loan you used to buy the residential or commercial property and to do the rehab - and then you just recycle the exact same funds. Or if it’s your own money, that’s fine likewise, but you simply repeat that process over and over and over, [with the] objective being you need to get to a minimum of 5.”

Related: How to Secure a Supplemental Multifamily Loan

How to Finance the Properties, Completing the “Buy” Step of the famous BRRRR Strategy?

On the front-end, Andrew described that there are three major methods he funds his offers:

1. Partnership- “Primary, you can partner with somebody that has the capital and do a 50/50 joint endeavor. They purchase the residential or commercial property, they put up the money for capital [and] you’re the driving force. You’re doing all the work, however you’re offering up 50% of the returns. That’s where I started at first”

2. Hard Money Lender- “The 2nd way to do it is the traditional path, which is you borrow cash from a difficult money lending institution, and put in some of your own money.”

3. Private Money- “The 3rd route, which we tend to utilize the most [is] personal cash … Join your regional REIOs, join the local groups