3 Tips for New Investors When Buying for BRRRR During COVID-19

3 Tips for New Investors When Buying for BRRRR During COVID-19

3 min read
Palak Shah

Palak Shah (BiggerPockets Podcast episode guest #368) is the founder and owner of Open Spaces Capital and Open Spaces Women. An engineer by trade, after the birth of her two kids, Palak decided to make the move to entrepreneurship to be able to spend more time with her children.

She brought her knowledge and 17 years of experience in building systems, processes, and scaling from her corporate career in engineering leadership to fast track her real estate investing journey. In her first three years investing full-time, Palak purchased, renovated, rented, and refinanced properties creating an almost $5M rental portfolio and generating $1M in annual revenue. It is now her passion to empower other investors to pursue entrepreneurship through real estate investing to live an empowered and financially free life without taking undue risks or over-leveraging through her coaching program Open Spaces Women. Follow her on Instagram @openspaceswomen for tips and motivation for building and scaling your buy and hold portfolio.

Experience
Palak worked in engineering leadership in various industries. She was in the nuclear industry for six years until she joined a startup as a consultant to analyze big data to predict power plant failures. A few years later, she moved over to the management side in engineering at a startup for efficiency measures. She then spent six more years in the pharmaceutical industry, running a specifications department at a glass manufacturing factory.

After the birth of her two kids, Palak realized she needed to create a life of financial independence—one that allowed more time for her family while allowing her to still make an impact. She decided to make the move into entrepreneurship, co-founding and managing Open Spaces based in Philadelphia. Her focus is on renovating deteriorated properties in and around the city.

Palak manages the end-to-end lifecycle, starting from sourcing properties, completing renovations, and renting them out, along with financing and investor relationships. She takes pride in bringing people together to achieve the common goal of empowering a community through real estate development. She believes that profitable growth can be achieved, sustained, and even enhanced by embracing diversity in business partners and by engaging with local communities to foster development that is inclusive.

Open Spaces accomplishes this by providing high-quality rental homes and apartments, with great customer service, at prices that are affordable.

Palak is active on Instagram @openspaceswomen and is passionate about inspiring other professionals.

Press
Palak was honored by Billy Penn in the “Who’s Next Real Estate and Housing” series of 2018, highlighting Philadelphia’s most dynamic real estate, housing, and development professionals under the age of 40. She was also featured in the BiggerPockets Podcast episode #368 and Real Estate InvestHER’s podcast episode #47.

Education
Palak graduated with an MS in Mechanical Engineering from University of Illinois.

Follow
@openspaceswomen on Instagram
OpenSpacesWomen.com

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Do you know how they say that change is the only constant? Well, it couldn’t be any truer than today.

The impacts of the coronavirus pandemic are far-reaching. It is affecting all of us.

For parents of small children, the broken system of childcare vs. career will impact our well-being and finances tremendously. However, this can be a great time to introspect and chart out your real estate investing journey.

If you’ve heard BiggerPockets Podcast episode #368, you know that I built my business using the BRRRR strategy.

Successful BRRRR Investing Despite the Pandemic

During COVID, in the last three months, we have acquired five units and are negotiating a seven-unit deal. We have rehabbed two duplexes and a single-family home. We have rented out five units—all within one week of the listings going up. We have also refinanced two properties, and we are in the process of refinancing 11 more units. And most importantly, we have received 95% of the rents from our 35 tenants.

It may seem like our business has been fortunate or our success is a coincidence, but realistically, it is a result of how we have used systems, processes, and best practices to build it. Making progress has required us to think outside the box and pivot in multiple ways. And we are learning and evolving every single day.

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Related: Why I’m No Longer Using the BRRRR Method—for Now

As a new real estate investor, the pandemic might’ve put you in analysis paralysis mode, and the more articles you read and podcasts you listen to, the more it plays up your fear. But if you want to not just survive, but thrive, throughout the pandemic, you will need to learn to start your real estate investing journey a little bit differently than your predecessors.

As the Business Insider article “14 successful companies that started during U.S. recessions” states, some of today’s biggest, best-known companies—such as Microsoft, Square, Venmo, and Trader Joe’s—got their starts during difficult times. Adversity can bring out the best in us if we allow ourselves to rise up from our circumstances and be willing to look outside the box, work hard, not postpone our goals, and explore our higher potential.

In a series of articles called “BRRRR During COVID,” I will share five posts outlining tips that you can use for every step of the BRRRR process (i.e., buy, rehab, rent, refinance, repeat).

3 Real Estate Buying Tips During COVID-19

The BRRRR strategy starts with buying the right property. Here are three strategies to add to your toolkit as you embark on the acquisition journey during the coronavirus pandemic:

1. Buy Vacant Properties

The BRRRR strategy works on the principle of adding significant value to a property, which means property needs to be vacant in most cases. Purchasing occupied properties—even prior to the pandemic—specifically for the BRRRR strategy required the finesse of a seasoned investor. Either you or your property manager would need to establish a relationship with the tenant and work out a plan to vacate the property so you can start construction. Whereas with a vacant property, this would allow you to start construction as soon as you close.

Related: BRRRR Investing: The Ultimate Guide to the Buy-Rehab-Rent-Refinance-Repeat Strategy, Made Simple!

I don’t recommend purchasing occupied properties, especially as a new investor. Here are three reasons why:

  1. Delays are expected because of the pandemic, and this adds a layer of uncertainty.
  2. Eviction moratoriums will stop you from evicting tenants who you yourself did not screen.
  3. I personally do not want to displace a family during a pandemic.

2. Reduce After Repair Value by 10-15%

After repair value, or ARV, is an extremely important component for the BRRRR strategy to work. In interviewing multiple lenders for my properties and for this article, I have found that a large number of lenders are changing how they calculate their numbers under the current circumstances.

Related: Before Hopping on the BRRRR Bandwagon, Consider This

Most lenders I have talked to are reducing the ARV by 10-15% to be conservative. This would mean that as you are looking for properties, you would need to find a really good deal for the numbers to still work. Otherwise, go in it knowing that you will be leaving some money in the deal—which is still WAY better than putting down 25% up front for an investment property.

Pro Tip: I have started expanding my network of wholesalers to access a larger pool of deals, making my deal pipeline more robust.

3. Stick to Your Property Avatar

To reduce risk, use the three S’s. As a part of my A.B.L.E. framework, which you can read about in this post, I recommend defining your property avatar early on in your investing journey. And right now, it is even more important to define your property avatar so that you stick to a deal that is right for you rather than chasing shiny objects. (That will only lead to frustration and analysis paralysis.)

Do you have any questions about how to implement these?

Ask me in the comments.