Lake Elsinore, CA · Member since 2018 · 235 posts · 300 votes
Can you talk about in what condition you are buying properties, and how are you buying them?
I really want to go down this road for my next investment but it seems a lot of the properties I see that would be "BRRRR-able" are cash purchases.
Are you buying properties so distressed they are cash purchases? In order to get your money out, assuming you have your financing fixed, it seems there needs to be a big upside. I'd love to say I have enough cash to buy more houses in cash, but I don't.
Would love thoughts/feedback on what you look for if BRRRR is your focus.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Courtney M. I’ve got 3 young daughters and I try to involve them as much as I can in our real estate business. Here’s why I’m telling you this. When I go to view properties I often bring the kids. They’ve gotten to the point that when we walk into a perspective property and It’s disgusting and stinks, I asl them what they think. Their response, “Smells like money Dad!!”
So, I’ve found success with making cash offers on homes that primarily require cosmetic fixes. I’m buying these anywhere from 20-50% below market value. We renovate, rent and refi our cash back out usually within 6 weeks.
Find the next property, and do it all over again. We started about 1.5 years ago and we’re (my wife and I) currently working on #11.
Let me know if you have any questions regarding the specifics of BRRRing
Best of luck!!
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Courtney M. I’ve got 3 young daughters and I try to involve them as much as I can in our real estate business. Here’s why I’m telling you this. When I go to view properties I often bring the kids. They’ve gotten to the point that when we walk into a perspective property and It’s disgusting and stinks, I asl them what they think. Their response, “Smells like money Dad!!”
So, I’ve found success with making cash offers on homes that primarily require cosmetic fixes. I’m buying these anywhere from 20-50% below market value. We renovate, rent and refi our cash back out usually within 6 weeks.
Find the next property, and do it all over again. We started about 1.5 years ago and we’re (my wife and I) currently working on #11.
Let me know if you have any questions regarding the specifics of BRRRing
Best of luck!!
That sounds like a fantastic process. The markets I'm looking in probably would require $40k - $60k to buy a distressed property with cash. I'm just curious as to your average house price using your strategy.
New England · Member since 2018 · 43 posts · 21 votes
7y
One option for financing this sort of deal is private money. If you develop the necessary relationships, you can BRRR a property without every putting any money in to the deal. Without proof of execution capability, it may be hard to do on the first one.
In any event, what you need to look for is a property that fulfills the Purchase Price + Rehab _less than_ ARV formula, keeping in mind your lender will have a cap at the LTV you can pull. So, if the ARV is 100k and you purchase at 40k, you need to put less than 40k (or 30k) in to the property.
I just got my first rental under my belt. I have some private money prospects in mind, but to your point I don't have experience in this arena yet. I'd like to stay in my target market because I have a team at this point, but I know BRRRR isn't feasible on my own.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
7y
Usually they need a good amount of work. Those are generally the ones you can get a discount on (but not always). Usually we get private loans, so they'll finance it even if it needs some work.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Courtney M. Fairly close to your market. On average we are able to purchase around 30k (direct purchase from seller). Now typically when I go to look, the price starts around 50-60k, however once I walk through, build some rapport with the seller and show them some comps we drop down to a more realistic number. I then schedule my inspector and after his walk through, we renegotiate if needed, and sign the deal on the spot.
I like to be all in (post renovation) around 40k.
These will then usuuatypically appraise for around 65k.
So back to BRRR.
I’m all in at 40k, bank appraised it now at 65k (commercial appraisal taking rental income in to consideration).
Bank loans on 80% ARV (after renovation value).
I cashout at 52k. I recoup my original 40 so I can do it again, make a quick 12k, and now have a loan for about $370/month.
The house rents for $875/month, so after expenses (including $150/mo cap ex), I also cash flow about $150/month.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Julia Gray I did my first deal and froze for about 4 months. 😁 Then I learned about BRRR, got my
Money back and started the process.
The girls know that the worse the smell, the more money we make!!!
For example, we bought a nasty house with bed bugs for 11k. Had it professional treated and cleaned. Did some
Minor cosmetic updates and that now rents for $850/mo. We put 4K into the Reno.
So all in about around 15k, great cash flow, and refied it at 41k.
Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
7y
@Mike Dorneman that’s awesome and long the story. I need to embrace having my 3 and 4 year old with me, that will certainly open up more time to look at deals. Congrats on your success thus far.
Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
7y
@Courtney M. That's exactly what I'm doing here in Ohio. The stuff I buy needs more than a cosmetic rehab though. We do most of the work ourselves to keep costs down. At the price point you mentioned I'm putting 15 to 30k in a distressed small multi family and getting an appraisal back in the low 100s after 6 months. It lets me get all of my cash out along with a few thousand extra to add to the bank roll.
Rental Property Investor · Drums, PA · Member since 2017 · 345 posts · 365 votes
7y
@Al Norman I use listsource.com to get updated list of properties not occupied by owner. (Rentals). But most of my properties if found be driving around. I drive a neighborhood and send letters offering to buy to the 100 or so worse looking houses.
Rental Property Investor · Medford, MA · Member since 2016 · 288 posts · 171 votes
7y
@Mike Dorneman Do you HAVE to do a commercial appraisal? I don't know if I've read anyone specifying that before but perhaps I missed it. Keep up the good work Mike.
Real Estate Agent · Washington, DC · Member since 2018 · 15 posts · 7 votes
7y
Look for an agent that specializes in value add properties if you are looking on the MLS. It will take you longer but my first deal was a 3 family I purchased for 216,000. Admittedly it turned into a house hack and I lived out of one of the units for a year before the numbers were in my favor but I am now cash flow positive and in the middle of refinancing with a new appraised value of 325,000 and looking for my next deal. Point being, not all BRRRR opportunities are instant ones, because if they were they wouldn't be on the market long. An agent that specializes in value add properties can help you identify ones that work with the BRRRR method even if they are few and far between in your area.
Madisonville, LA · Member since 2018 · 125 posts · 71 votes
7y
I think you can still compete without cash, you just dont get the best price. I won the last two I bid on by coming in slightly higher than I figured the cash offer would be. As long as that number is still below where you need it to refinance it and get your money back then it's still a good deal. Cash definitely makes it easier but it's still doable through lending
Contractor · Pensacola, FL · Member since 2017 · 311 posts · 156 votes
7y
I've bought cash, but also considered HML which I refi out of at seasoning. You can also look into personal loans, or private money loans with folks sdira
Bound Brook, NJ · Member since 2018 · 171 posts · 37 votes
7y
Newbie here. When you buy with HML, you tend to have a higher Holding Cost since you are paying high interest on a HML. So is it still possible to get 70% of ARV to be greater than Purchase + Rehab + Holding?
Realtor · Decatur, GA · Member since 2017 · 135 posts · 92 votes
7y
I've done 2 BRRRR deals using conventional financing on the initial purchase. Thought I'd mention that as I don't see if often on here. These properties were in need of mostly cosmetic upgrades, so there were no issues getting the loans.
Newbie here. When you buy with HML, you tend to have a higher Holding Cost since you are paying high interest on a HML. So is it still possible to get 70% of ARV to be greater than Purchase + Rehab + Holding?
It is still possible, however it just has to go into the math formula you use. If everything else is a good deal, and the math works then you can get 70% still easily, however if the other numbers are already high, then adding a hard money lender interest rate could push this deal into the "no go zone"
Example, a 5% interest rate on a 100k loan has a monthly payment of nearly $800 a month.
However, a 14% interest rate on the same loan has a monthly payment of almost $1450 a month.
These two examples are based on a 30 year term, and many hard lenders may only offer shorter times, so that number could be muchhigher.
So, if your goal is to fix and flip right away, ask if an extra $1950 for 3 months needed to fix the property is enough to make a good deal into one that will lose money.