Real Estate Investing Basics

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

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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.

syndicate-marketing

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.

aerial view of residential housing

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.

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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 comments.

Palak Shah (BiggerPockets Podcast episode guest #368) is the founder and owner of Open Spaces Capital and
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    Ricardo A Perez from Hollywood Florida
    Replied 19 days ago
    @palak Shah thank you for the great article !!!!
    Palak Shah Developer from Philadelphia, PA
    Replied 18 days ago
    Thanks! Glad it was helpful!
    Palak Shah Developer from Philadelphia, PA
    Replied 18 days ago
    Thanks! Glad it was helpful!
    Aaron Owens from Chicago, IL
    Replied 19 days ago
    the article was very good
    Palak Shah Developer from Philadelphia, PA
    Replied 18 days ago
    Thanks Aaron, let me know what resonated most with you.
    Joe Harrell from Los Angeles
    Replied 18 days ago
    Great food for thought here!
    Palak Shah Developer from Philadelphia, PA
    Replied 18 days ago
    Great to hear Joe. Let me know if you've got anything to add to this.
    Jess Holwick
    Replied 18 days ago
    The main thing that concerns me with purchasing rental properties right now is all the new eviction rules and people not paying. Has this been an issue for you/ others? Has it changed the way you buy properties? How?
    David Kaytes Appraiser from Philadelphia & Southern NJ
    Replied 18 days ago
    Good article. I have acquired vacant properties through various sales ( short sales, REO & Sheriff Sales ). With the moratorium on these sales for the time being, when they are lifted there maybe a large inventory available because of the backlog. Position yourselves for that time.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 17 days ago
    I don't know if you need to go down a full 10-15%. That may be a bit much, particularly 15%. I would say more like 5-10% and avoid higher risk projects for the most part (big gut jobs and the like).
    Federico Morales
    Replied 10 days ago
    I'm a rookie wanting to do my first BRRRR, I found a property in Baton Rouge, Louisiana that has potential for this strategy. Before I begin, should I speak with lenders to see if they'd refinance? What are you seeing lenders ask?