Running the BRRRR Equation Numbers and No Properties Seem to Work

Starting Out
7yFollow

Running the BRRRR Equation Numbers and No Properties Seem to Work

Mitch Casey
SLC, UT · Member since 2019 · 24 posts · 4 votes

Hi all,

Currently looking into getting our first BRRRR property here in Utah. I have been looking for properties that fit the script. Have found some pretty beat up properties that need a lot of TLC.

However, when I place them into the pre-purchase equation of (ARV *0.7) - repairs = Max purchase price none of them are even coming close to where they would need to be.

Even with adding bedrooms, bathrooms, cosmetics, etc. it doesn't seem that any of those renovations would even get us close to the price we would need the new value to be.

Obviously, the Utah market is booming and the current sell price of these homes are too high. But, I am looking into the bottom-of-the-barrel properties that have the ability to be improved and they still don't work.

I have been looking on AllUtahHomes.com, AllUtahListings.com, KSL.com, etc.

Does anyone have any advice here? Do I need to be looking elsewhere on different listings? If so, where could I look for the proper properties?

Is it just a matter of the Utah market being too inflated and I need to look elsewhere? Out of state? More remote locations in Utah? (I have been looking between Sandy to Spanish Fork.) 

I don't think going out of state at this point would be wise because I am just starting and need to get experience in areas am more familiar with here.

Any and all advice would be much appreciated.

Thanks!

2Reply
124 views

Most Popular Reply

Frank Wong
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Mark Fries:

@Mitch Casey

Talk of how fantastic BRRRR is a tactic to sell books and increase Pro memberships on BP.

Example: you are out there trying to find a deal to make it work right now....its 99% harder than they make it seem.

Starting out I would recommend avoiding BRRRR, mortgages, refinances...etc.. and try finding an off market deal for cash, sheriff's sales or owner financing deals, maybe even a land deal.

Maybe try BRRRR on deal number 8 or something...

 Yup, well said Mark. In the beginning especially your first deal.  Look for something easy. The most you want to deal with is new floors and paint.  Buy it make some minor changes and get it rented out.  Don't try to hit a home run your first swing. 

1. The deals are very hard to find. Not like these BRRRR deals show up every day. Maybe 1 every 3-5 months that I would be interested in.

2. If you find it, doesn't guarantee you will get the deal.  Unless you know how to acquire it and close it. You probably won't get it and have wasted the 5 months of searching.

3. It's not easy. Gotta know what you are doing and it takes a lot of time. Most think I hire a GC and a PM and they will do everything. Nope, not the case. 

There are some great stories here on BP about people hitting some home runs but you never hear about the stories of everyone striking out or quitting bc they can't find and close a deal.  Swing for a base hit, get on base, get some experience and try for the double next time. You can make a lot of money just getting on base. 

18Reply
See this reply in the discussion

53 Replies

Jump to latestLatest
  • Henry Kaldenbaugh
    Verde Valley Arizona USA · Member since 2018 · 115 posts · 98 votes
    7y

    @Mitch Casey, You are right. This market has been going up for almost a decade now. Our BRRRR fell into our laps almost by accident in January this year and we haven't found #2 yet.

    Remember owners are getting old, infirm, tired, or worse, so something will turn up.  Just make sure you are ready when it does.  Keep turning over those rocks.  

    The successful BP'ers had the advantage of starting at the bottom of the cycle.  Well, we are no longer at the bottom.  Prices and conditions have changed but that doesn't mean that you should pick up a bad deal just to be in the game.  This is a cyclic industry.

    2Reply
  • Kyle McCorkel
    Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
    7y

    I have been thinking a lot about this lately. I was in your shoes one or two years ago. Just could not find any deals. Then when I did they slipped thru my fingers.

    Brings me back to when I was 12 and deer hunting with my dad for the first time. I remember asking “Why do we see so many deer? Why don’t we see squirrels or rabbits or foxes or any other animals?” He said “Because we are LOOKING for deer!” (Duh)

    Once you learn what to look for and where to look it becomes so much easier. Learn who the ideal seller is, then how to contact them. Then of course, how to execute on the deal.

    Then you’ll get to a point where you’re seeing deals everywhere. You won’t get all of them, but you’ll see the potential.

    It’s easier said than done but you learn these things through experience. Do one deal and maybe you don’t get all your money back. No problem - you should expect that and build contingencies around that - learn some lessons and move on to the next one.

    After you do a few you’ll learn a ton and everybody will want to lend you money on your next project.

    6Reply
  • Tyler Bushey
    Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes
    7y
    Originally posted by @Michael Ealy:

    @Mitch Casey

    In a hot market the 70% rule will not work. As @Jay Hinrichs said that's a unicorn.

    70% is based on a rehabber making 20% profit, 3 months days on the market (DOM) and you pay about 2% in closing costs. In hot markets, which tend to be more expensive (above $200K), 80% will work better because you have 30 days or less DOM and you're paying closer to 1% in closing cost.

    80% x ARV - Repairs = Maximum offer

    When you refi, you get 75% so you still have 5% in the property but that's OK because at least you will have a property (vs. now when you can't get any).

    Great points about the hot market and using 80%  I love that you brought up leaving a few bucks in the property.  It seems everyone thinks they'll refi and get a ton of money back.  I don't know of any lender who will do 5% down like in your example. I'll take that deal anyday!

    1Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Henry Lazerow that's great feedback. I am definitely pivoting and broadening my vision on what can be realistically done. I'm most certainly not opposed to leaving a few thousand in deals if it means we gain equity on the home and have either a positive cash flow or breaking even.

    @Henry Kaldenbaugh great points as well. We will definitely continue to turn up those rocks and see what we can find. We will just try to be as prepped as possible when they do show up.

    @Kyle McCorkel thanks a ton for this! super helpful. Obviously, just getting started and trying to learn the tricks of the trade and most certainly am beginning to learn things here and there. I will take those acts and put them into action!

    @Tyler Bushey absolutely. I will as well. Going to push for that.

    0Reply
  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    7y

    @Mitch Casey

    You need to look harder or network

    I’m getting 15 emails a day with deals..

    1Reply
  • Tyler Bushey
    Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes
    7y

    @Mitch Casey. I'm working on putting my 2nd deal for this right now. The first is probably going to hit the market, but my price is firm. If I get it, cool nice payday, if not it'll cash flow and I'll be happy! Good to leave afew ways out!

    1Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Chris Purcell for sure. Trying to start developing those connections and network to get on those lists.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Mitch Casey whats funny is that the BRRRR was originally used more in the commercial space, but it is almost impossible now to get all your money out on the initial refinance in under a year. I am doing a deal now in Cicero, IL, and all of the local banks will do cash out refinances up to 75 or 80% of your loan to cost.... not loan to value. That pretty much means I have to leave some money in the deal at the end of the day.

    2Reply
  • Simeon Miller
    Fort Wayne, IN · Member since 2018 · 33 posts · 25 votes
    7y

    @Mitch Casey

    The BRRRR strategy is typically used for a rental purchase, and the "70%" rule which is normally use for flipping, are you looking for a rental or a flip?

    I live in the area that you are looking and went out of state to do my first BRRRR because prices in this area don't match the rental rates. When I was doing my calculations I was more concerned about cash flow rather than ARV.

    If I were going to try something close to home I would think about looking in Nephi, North Ogden, Tooele, Grantsville areas. (I have not looked into these markets yet but I think prices are better).

    The websites you mentioned are just the MLS plus KSL will have a few FSBOs. FSBOs are normally over priced because they are trying to avoid realtor fees and get the most out of their house but sometimes you can get lucky.

    I would network at local BP meet-ups and REIAs and get to know other investors, realtors, and wholesalers to help you find a deal.

    Hope this helps.

    1Reply
  • Simeon Miller
    Fort Wayne, IN · Member since 2018 · 33 posts · 25 votes
    7y

    @Mark Fries

    The BRRRR is difficult but it greatly depends on your market and the time in that market. A lot has changed in the last few years.

    0Reply
  • Randall Weatherall
    Real Estate Agent · Memphis, TN · Member since 2019 · 261 posts · 253 votes
    7y

    This is probably the most helpful thread on BP for beginners in recent history. BRRRR is not a strategy that just 'works' but it's talked about so much and among such a wide group that so many newer investors think it must be BRRRR or else I'm losing money. In our market, the BRRRR buyers are so many that when one hits the market that may come close to this strategy, it's multiple-offer, sold the same day and that's on the off-market. Listing prices are inflated here in Memphis with some room to move down, but the margins are decreasing; that's the current market. BRRRR is an experienced player's game but it's definitely not sold that way.

    2Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @John Warren that's very interesting. I have been doing my due diligence with lenders here and am finding out that unless you purchase a property all cash upfront, they will only refinance 75% on the loan to value after 6 months. So, you have to sit on the property for 6 months. So, at that point the cash flow the rent generates each month is crucial right to cover your costs and not bleed? 

    @Simeon Miller most interested in obtaining properties to rent. Most interested in the long term cash flow. Yes, this is what I am beginning to learn, but obviously a lot of experienced investors have advised to try to execute your first properties locally. I have been trying to network with individuals that could help me with out-of-state opportunities. Any suggestions/advice and best ways to go about this?

    @Randall Weatherall this is definitely true here. I have come in contact with 3 properties so far that would fit the bill for BRRRR but on day one they have multiple offers and sell like you were saying. So, we are trying to get creative with property opportunities and what we can do effectively.

    0Reply
  • Nathan Slemmons
    Dublin, OH · Member since 2018 · 11 posts · 4 votes
    7y

    I'm feeling the same strain here in central Ohio. The market here has seized up and good deals are few and far between. I have been looking for months and found some decent properties but have been waiting on getting a better opportunity. I think the important thing is DON'T GIVE UP! As soon as you quit one will pass you by. The market as a whole has been very strong with the economy doing so well and mortgage rates being low. Real estate is cyclical and it will change in the future. Try to prepare now so you can capitalize on opportunities then. I would encourage you to not focus completely on getting all your money out but focus on your income and expense for a potential property. If you aren't finding good single family opportunities, make sure to look for multi-family as well. They can provide more cash flow with similar expenses. And don't forget you are also working to build a portfolio that holds income generating assets. You are building equity as you pay down the mortgage which will help position you for future investments. And one last thing. This will take time. This, like any investment, is not a get rich quick scenario. It will take time, patience and persistence.

    2Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Nathan Slemmons really appreciate the feedback and insight. All great points. Not going to give up at all, that's not in my DNA. We'll make it happen, just wanting to make sure we do it in the most effective way possible. 

    We have started looking for multi-family as well, so that's a great strategy tip! Much appreciated on the note!

    0Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    I think people need to come to the realization that if you want to use this method consistently.... you’re going to have to leave money in these deals. Nothing wrong with that. Just account for it. I’d happily leave 15-20k in a cash flowing asset with 100k or whatever. The idea that you’re consistently going to find these deals and make them work with no money out of your own pocket is a pipe dream. Especially if you aren’t doing this for a living.

    1Reply
  • Deanna O.
    Rental Property Investor · San Diego, CA · Member since 2010 · 377 posts · 314 votes
    7y

    Agreeing with other posters -- there is a get-rich-quick vibe about BRRR that is very appealing, but not realistic in much of the country.

    When money is easy a LOT of people can buy, & prices go up. In order to succeed you have to be bringing something special to the table - either a lot of cash, an ability to wait, exceptional skill with negotiating, the experience & technical skill to solve problems,imagination to see the potential in a property that other's don't ---and of course, the wisdom and willingness to walk away if the deal is a dog.  

    And of course do your research and have your ducks in a row so you can move quickly if plain dumb luck drops something into your lap. 

    "Opportunity is missed by most people because it is dressed in overalls and looks like work" - Thomas Edison

    2Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Tanner Marsey that's great insight and I am definitely coming to the realization of what is doable and better managing my expectations and seeing what is plausible.

    0Reply
  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes
    7y

    Like everything else in this business, you keep working on it until you find a way to make it happen. No never means no, it’s only not now, not yet, not with me, not with you, but never ever allow no to be the last word for you.

    (Persistence + Determination) x Time = Eventual Success

    Your mileage may vary...

    2Reply
  • Simeon Miller
    Fort Wayne, IN · Member since 2018 · 33 posts · 25 votes
    7y

    @Mitch Casey

    The out of state market I chose was the area I grew up in and lived till a few years ago. I knew a couple of realtors that I trusted and used in the past and the home I ended up with was an off market deal that one of them brought me. The biggest thing was finding a good PM. I joined a REIA FB page that was local to that area.

    If I were to go to an out of state area that I do not have a history with I would probably start with researching areas that I have family in that I would probably be traveling to anyway. If the area has good job demand and growth, if so I would then see if it could meet my goals for cash flow and NOI. If that all checks out I would work on building a local team.

    I’ll be honest even with people on the ground that I trusted it was still nerve racking at point for my first investment.

    1Reply
  • Curtis Rasmussen
    Member since 2018 · 5 posts · 4 votes
    7y

    @Mitch Casey

    Is living in the house as you renovate part of the equation? My wife and I recently completed our first BRRR in Lehi, but we are having a tough time pulling our money back out given the current interest rates. It just doesn't make sense to refinance right now. It was a great project and we have great tenants but it certainly wasn't an amazing deal. But at least we got it for very little down since we lived in it for a year before renting.

    We are living in and working on our second in Draper and it’s a similar situation. Not a steal, but if we do the work ourselves and update it cost effectively, it should be great rental. Utah’s market is tough to get a steal, but this method seems to be working for us.

    1Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Simeon Miller those are really good points. I appreciate the insight. I am beginning to try and build a network of those who could potentially help me with out-of-state properties.

    @Curtis Rasmussen not at all. We are going to move out of our current home in Herriman, which we currently rent out the basement, and then rent out the top part as well. Based on the current rental rates we could cash flow really nice. We are then wanting to move into another property, 3.5% down and occupy the top with a basement rental or half of a duplex. Basically, gain another property while decreasing our current payment. Then hoping to come across a property that might fit the bill for a BRRRR. Then, just repeat the process again. Get another home to move into in 6-12 months, rent out the last property and so on. Sounds similar to what is working for you. It doesn't scale as quickly and you end up leaving some in the properties, but it seems like the most effective strategy given the market right now until some gems come around for a BRRRR opportunity. But, if they do come around they seem to go like hot cakes. So, I am now looking to expand my network and try to find some BRRRR opportunities out of state.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Mitch Casey you are correct. Most lenders are more conservative on the refinance, and I have seen everything from 70-80% LTV for the cash out refinance. Keep in mind as well that the 6 month rule is for conventional 1-4 unit financing. My commercial lender is willing to take me out pretty much as soon as it makes sense, BUT, they will only do 80% loan to cost... not LTV.

    If you do the BRRR right, you should be able to stop the bleeding pretty quickly. You have to get the cash flow numbers up so that you can afford the new debt. If you can do a BRRR but the cash flow isn't there to support the new debt, you should not do it!

    1Reply
  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 728 posts · 500 votes
    7y

    Additionally, you must look at the back end numbers too. Just because it might meet the numbers required to make it a good BRRRR, doesn't mean it will make a good property to hold as a long term rental. These are two entirely separate evaluations.

    In my area, and IMHO, I feel like the rent to home value starts to get out of whack on SFR's after you pass $150K'ish on the home value. Basically a +/- 1% rule situation. You may be able to support a property with much higher rents now, but the worm can and will turn. IMHO when it does turn the high rent places are the first to take the hit. I stick to simple people boxes for my SFR holdings personally. There will always be demand for these.

    That’s what I love about real estate. A million ways to do it.

    2Reply
  • Jason L.
    Rental Property Investor · Delray Beach, FL · Member since 2014 · 224 posts · 169 votes
    7y

    Don't be afraid to leave money in the deal. If after a refinance you had to leave $10,000 of your money in the deal but it conservatively cash flowed for $2000/year, then is a 20% return really not worth your time? The latter is a far more common scenario than the "BRRR -- Buy houses for free -- CLICK HERE" examples that most of the blogs and books talk about.

    0Reply
  • Mitch Casey
    OP
    SLC, UT · Member since 2019 · 24 posts · 4 votes
    7y

    @Deanna O. appreciate the post and the insight. Well said. I would agree that the podcasts, articles, books, etc. make the BRRRR method seem easy and that anyone and everyone can do it tomorrow. If that was the case, everyone would be doing it tomorrow. I do agree that anyone and everyone can do it, but it takes research, practice, and sacrifice, whether that be putting in the work or leaving some money in the deal. For me at this point, I'm not concerned with leaving money in the deal as long as the ROI makes sense on the cash flow and the equity works. Love the comment by Edison, perfectly put. Thanks for the support.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free