First steps to start?!!

[Elliot Runkle]

Hey I’m 20 years old and I’m trying to get into investing into real estate the right way. My father in law does flips and rentals but does everything in cash. It would be very slow and hard to scale for me to try this especially in today’s economy. I’ve heard all kinds of conflicting advice about how to get started building capital and scaling after I buy my first property. How would I get started with building lots of capital quickly ($30-60k) and how would I scale without getting stuck on one property at a time? I know brrrs is one way to do that but I would really like to not be so highly leveraged in the beginning. 

[Kevin Sobilo]

Quote from @Elliot Runkle:

Quote from @Kevin Sobilo:

@Elliot Runkle, think more about BRRRR.

When you refinance out your BRRRR deal, you may look "highly leveraged" if you just look at the deal you just refinanced, BUT you also have a pile of CASH in the bank. So, are you really over-leveraged in any way.

Once you start the next project, you have purchased and are rehabbing the next property. Your cash has dissipated BUT you are building lots of equity fast in that next deal!

So, while you are leveraging the properties when you cash-out refi, you are not as much at risk as you may feel because you always either have a pile of cash on hand or a bunch of equity in the next deal. So, when looking at the whole picture you are not over-leveraged at all.

 Ok! That makes sense. Do the high rates have any affect on brrrr since you are perpetually financed?

Yes, they have an affect because it will be harder for the refinanced property to cash-flow off the batt.

However, the old investing adage says, "You marry the property, but you date the rate" meaning that eventually you will likely have an opportunity to refinance again at a lower rate to lower your payment, pull out more cash to work with or BOTH and as a result improve your cash-flow situation.

So, if you can make a deal today at today's rates that cash-flows positively after refi, if you manage it well and hold onto it over time rents will likely increase and you will likely be able to decrease your expenses when rates go down and you can refinance again.

In addition with a 2nd refinance later on, you stretch the payments out again. So, if you refi a 2nd time after 5 years, you have paid down some principle on the 1st loan so you need to refi LESS money on the 2nd refinance and are starting a new loan again at hopefully a 30 year term and that again helps lower the payment.

So, even if rates stay the same, if you refi'd again after 10 years your payment would go down and your cash-flow would go up.