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.
Don't take a hard money loan on something intended to be a rental. Take hard money to flip something, then sell it and make some money. If you want to own a rental, buy one thats a 10 cap or higher with 20% down through commercial financing with a big bank. Use your savings for the 20% down. If you don't have the downpayment, go make some cash so that you do, either through saving from your normal income or some real estate investing efforts.
Your point on debt paydown, although true, is not relevant to the argument of BRRR vs. traditional rental. If you buy a traditional rental you're getting debt paydown as well. The primary metric you should be focusing on is return on your equity position. ROE (rather than ROI) tells you the rate at which your current net worth is self-perpetuating. If that equity position in any property can be reapplied towards another asset or pool of assets to generate a higher net yield, it should be reapplied.
Do you have a substantial personal savings that you can use to invest?
@Account Closed
Can you go a little more in depth about why not get a hard money loan for a rental?
@Todd Fullerlove it's just pricey. People think it's so easy to just find a deal that when improved, is going to give you a 25% equity position so you can get all your money back when you refi. The reality is, that alone is HARD. Wholesalers dedicate significant time, efforts, and resources towards finding deals that meet that criteria.
Let's say you find that deal. ARV 100k, all in plan for 75k. You rehab it. You have incidental expenses of an extra 3-4k on the rehab maybe. You have closing and loan costs on the refi of 3k. Then you throw in hard money that costs you another 5k. That eats up half of your equity position right off the bat. At the end of it all you paid fees and did the work on a property to make a very low rental margin.
If you've got a higher price rental deal (multiple units), with a LOT of equity in it (I like 50% and above for deals I'm gonna sweat over), and after refinancing my return on the equity position in the property is going to be 20% or above I'll consider it.
Like @Spenser Harding was saying, a BRRR deal usually isn't worthwhile even when it's free. You throw in hard money and now you're paying to execute this messy, unprofitable investing strategy.
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.
well said!
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
Out-of-state investing is a great way to start without using all your capital. Look into markets with steady growth and affordable prices, like Indianapolis, Kansas City, or Chattanooga.
You can build your team remotely by contacting property managers, realtors, and contractors online, though meeting in person can help strengthen relationships.
Focus on your strategy (buy-and-hold, BRRRR) and use platforms like BiggerPockets to learn and connect with others.
Hi Seth! Starting out-of-state investing is a smart way to get into real estate without needing a ton of capital in high-cost markets like Seattle. For stable markets, consider places in the Midwest or Southeast where properties are more affordable and rental demand is strong. Many investors connect with property managers, realtors, and contractors remotely, but visiting the market at least once to meet key people can help build trust. Start by narrowing down a market, researching local teams, and setting clear investment goals. Good luck on your journey!