Hello, I’m interested on getting some insight from anyone willing
I currently live in Seattle and want to get into REI but the cost out here makes it tough to be able to get involved without capital
I read the out of state investing book and it got me interested in trying somewhere that I don’t have to burn up all my capital to get started
1. What are any recommendations on stable markets?
2. Do most people contact the PM, realtors, contractors in that area remotely or is it more ideal to fly there and meet people?
3. Any tips on where to begin my venture is greatly appreciated also.
Thanks
I would look at the approach from a revenue mindset, not a discount mindset (which is where the BRRR concept was born).
Firstly, I would like to point out that properties with great cash flow potential and deep equity positions aren't just floating around the MLS. In this market, people are willing to buy properties without any equity. This makes acquisition of a good deal a high active effort from you. You will have to work hard to find a good deal, and you will have to work hard to add value to that deal in order to generate an equity position.
This leads you to a decision, whether you are aiming to be a passive investor or an active investor. If you aim to be passive, walk away from BRRR, value add, rehab, deal hunting, etc... If you are willing to make a business out of this, then go for them and consider the following:
You are an active investor working to generate 25-30% equity on a property. Let's say you do, and the property is worth 100k and you have 30k of equity. You tied up 70k and a minimum of 6 months just to go through this process. You now how to decide what to do with that equity to generate the highest possible return. You can:
a. Refi the property to get your initial 70k back. Now you can rent this property out and net $100-$150 dollars in cash flow after taking aside money for current and future expenses (many get less, few get more on these BRRR deals). You can use the 70k to do this all over again over another 6mo period. You've also got 30k of equity in the property that you created, which you're choosing to leave tied up in exchange for that $100/mo. You have an infinite ROI bc the property was free, but you are generating a 4% annual return ($100x12) on your 30k equity position.
b. You sell this property immediately after rehab (maybe 3 months instead of 6) and get, lets say 95k back after expenses. 25k is profit. You can do this four times in a year and make 100k in profit from your initial investment of 70k.
If you're going to go through the trouble to buy and rehab... you're a flipper. Just a flipper that keeps his property as a rental, which is what many flippers do when they fail to sell. The effort level is lower to sell than to BRRR, because you don't have to rent or refinance the property. It's also faster. You also pay taxes on your profits. You also make about 80x the profit in this scenario than you would have made renting the property.
If you've read through this and that process all seems like a lot, you can take the passive investor route. I believe this is right for most. Go find a high yield property with a 20% cash on cash return, that can be purchased immediately with financing. Those are the deals my investors and I always go for. Invest the same 70k you would have tied up in that BRRR. Make 14k a year avg. Save it all along with your regular savings. Reinvest it. You won't get any "free" properties. You also won't have to do all of the work. You'll also make 6x more in rental income than if you successfully did 2 BRRR deals, all while being a passive investor.
Just make sure you run the numbers for all of the above scenarios with each deal you come across. The results will show you what makes the most sense.
The only situation I would consider the time, effort, and cash tie up in BRRR deals worthwhile would be in larger value add opportunities. A couple million dollar apartment building, office space, etc... Not on 100k single family homes.
#1 it's a big country there's a lot of stable areas to choose from.
#2 personally knowing and networking with people definitely helps build a more trustworthy reliable team.
Maybe you have Friends or family in other states that already have connections in the area you decide on.
@Seth Rose what types of properties are you looking for?
@Seth Rose Chehalis has some potential as does the peninsula.
Spokane might be an option as well.
@Joel Thompson
Yeah, I’m thinking those markets will be more in my target area for now. Only downside is they don’t have much multi family from what I was told from an agent.
I like Olympia for the fact of the Seattle and Tacoma trickle it could get
@Seth Rose I hear that. Spanaway, DuPont, and Yelm are areas I'd consider if you want to attract those working in Tacoma/Olympia and living further out as well.
The new fast ferry from Bremerton and Kingston is making the peninsula a more viable option.
@Seth Rose happy to help!
I am a hard money lender based in Washington and we also lend in Oregon
@Seth Rose happy to!
As @George W. mentioned, it is much better to meet any team members in person. Not to get too into the weeds, when you are face to face with someone, you can watch for mannerisms and non-verbal body language. You'll be able to gauge trustworthiness. It's also a lot harder to screw someone over that you've met in person. It minimizes your risk, especially if you aren't close by to pop over and take a look at the property. For a bit of perspective, I invest 1,100 miles away from my home.
I strongly recommend you find the best cash flowing property possible and buy it with financing out of the gates, rather than go the BRRR route.
1. I like the midwest. Secondary markets and tertiary markets only, no major cities. There are too many investors willing to make less money than you are.
2. You can fly out if you like. I work with a lot of investors who do everything remotely. I flew out to team build a few times, but now operate a full business that does about 50-60 properties per year with about 1 trip a year just to schmooze. If you design the business to be remote, it will be operable remotely!
3. By where, do you mean which market as mentioned in question 1? Or something different?
I can't emphasize more here that I recommend avoiding the BRRR nonsense. A free property is great... but if you find a deal good enough to BRRR (which can prove challenging) take that profit and invest it into a revenue generating activity. There's no point in putting in so much time and effort for the minimal monthly cashflow of a BRRR property. You need to make some more moola!
I would look at the approach from a revenue mindset, not a discount mindset (which is where the BRRR concept was born).
Firstly, I would like to point out that properties with great cash flow potential and deep equity positions aren't just floating around the MLS. In this market, people are willing to buy properties without any equity. This makes acquisition of a good deal a high active effort from you. You will have to work hard to find a good deal, and you will have to work hard to add value to that deal in order to generate an equity position.
This leads you to a decision, whether you are aiming to be a passive investor or an active investor. If you aim to be passive, walk away from BRRR, value add, rehab, deal hunting, etc... If you are willing to make a business out of this, then go for them and consider the following:
You are an active investor working to generate 25-30% equity on a property. Let's say you do, and the property is worth 100k and you have 30k of equity. You tied up 70k and a minimum of 6 months just to go through this process. You now how to decide what to do with that equity to generate the highest possible return. You can:
a. Refi the property to get your initial 70k back. Now you can rent this property out and net $100-$150 dollars in cash flow after taking aside money for current and future expenses (many get less, few get more on these BRRR deals). You can use the 70k to do this all over again over another 6mo period. You've also got 30k of equity in the property that you created, which you're choosing to leave tied up in exchange for that $100/mo. You have an infinite ROI bc the property was free, but you are generating a 4% annual return ($100x12) on your 30k equity position.
b. You sell this property immediately after rehab (maybe 3 months instead of 6) and get, lets say 95k back after expenses. 25k is profit. You can do this four times in a year and make 100k in profit from your initial investment of 70k.
If you're going to go through the trouble to buy and rehab... you're a flipper. Just a flipper that keeps his property as a rental, which is what many flippers do when they fail to sell. The effort level is lower to sell than to BRRR, because you don't have to rent or refinance the property. It's also faster. You also pay taxes on your profits. You also make about 80x the profit in this scenario than you would have made renting the property.
If you've read through this and that process all seems like a lot, you can take the passive investor route. I believe this is right for most. Go find a high yield property with a 20% cash on cash return, that can be purchased immediately with financing. Those are the deals my investors and I always go for. Invest the same 70k you would have tied up in that BRRR. Make 14k a year avg. Save it all along with your regular savings. Reinvest it. You won't get any "free" properties. You also won't have to do all of the work. You'll also make 6x more in rental income than if you successfully did 2 BRRR deals, all while being a passive investor.
Just make sure you run the numbers for all of the above scenarios with each deal you come across. The results will show you what makes the most sense.
The only situation I would consider the time, effort, and cash tie up in BRRR deals worthwhile would be in larger value add opportunities. A couple million dollar apartment building, office space, etc... Not on 100k single family homes.
@Seth Rose Total get where you are coming from. I have only done a few deals but the thing I constantly having to remind myself is R/E is a long game. What do you want that to look like for you? I have done a few things, I have rentals, I have driven for dollars, I have sent out marketing, I have knocked on a few doors, and I have flipped houses. You may not know what you want until you try it but one thing is for sure you just need to get started.
as @Account Closed has said, the BRRR strategy is a LOT of work. His point on the revenue perspective is right on. It is straightforward, results are more predictable, and repeatable just like the BRRR, but it's slower. I am nearing the end of my hardest flip and after I am complete I am finding a multifamily ASAP, save the cash flow and repeat. I could refi and have the property for free plus maybe 5k and $120/mo but to me - that just isn't a good return. My wife and I both have full time jobs, take care of our 2 boys and I have spent almost every day off for the last 8 mo working on this house. Not to mention it's 70 miles away and the stress/sleepless nights. 5k and a free property? It's not free. Flipping with the intent to BRRR became a 3rd job.
@Seth Rose good questions. I analyzed over 20 markets and picked three so there are a lots of markets to choose from.
Start networking on bigger pockets as well as attend local meetups and REIs to find referrals for GC, PM, broker, TKP, lender, property inspector etc.
@Seth Rose Best if you have some boots on the ground team that can meet with contractors. I had a contractor run off with $20K of my cash on a rehab. Big lesson learned there! Also, good to pay contractors in draws, not upfront. In real estate you make money or buy an education I guess! ; )
@Elliott Elkhoury
So how do you pay off a hard money loan if you were to do a rehab for equity? Or is it more ideal just to get into a rental that needs work using a bank loan?
Also, if you go into the BRRR strategy to add more properties faster, every time you get rent and make a payment, you'd still be paying off the loan which is increasing your equity so it's like a savings account that builds itself. You hold it long enough or pay it off faster, now you got a property for low initial investment with a chance of cash flowing a nice amount when I get older. That's kind of my whole plan for this. Or build up enough equity to dump properties and get into multi family or something of that nature.
I appreciate everyone’s advice though. Just want to be able to not worry about finances one day so trying to do this through real estate
@Spenser Harding
Wouldn’t it be more ideal in your situation to of just sub it out? I’m an electrician and I’d only do electrical since I know I could do it fast enough to be worth it but other than that I’d get someone who could do it fast and high quality.
@Seth Rose real estate is a small world. I found one of my partners in Atlanta at a real estate event in Dallas. I also met other investors who were investing OOS at a local meetup.
A friend of mine invests in out of state fix and flip and fix and hold. He visits with PM, realtors, contractors, etc. He also visits the properties, inspects them and builds a work scope with line item budgets for each trade work. Considering that he isn't there personally for the renovation he hires someone to manage the construction project. The manager is there from 2-5 weeks and he pays him a salary plus room and board. He says it's worth it to pay a manager because not seeing what's going on is like the fox watching the henhouse and the landlord can easily get ripped off.
@Spenser Harding you are right on the money, and speak from the perspective of someone who has invested using a variety of methods + gotten in the trenches with a BRRR. I did the same for one property. Then started it for a second... and said screw it, I'm reselling this without doing the work for some quick cash. I worked in sales before going full time in my rental property business- making 5k plus $120/mo could have been done in a regular job with less work than doing a BRRR SFR.
Your family and your well being are too important to put on the back burner! For any amount of money!
What kind of deals are you focusing on now? I flip rentals as a primary and do it in pretty high volume & use any spare revenue not reinvested in this business to buy very high yield stable MFR in working class neighborhoods. If I rehab anything I'm selling it lol.