Smartest way to start BRRRR investing for me?

Question

Hello BP nation!

I would like to start by saying how grateful I am to have a platform such as this to be able to share ideas and learn from! There is so much information available to us these days it can be overwhelming. I have so much respect for my parents and grandparents generations as they did not have the world at their fingertips like we do today. I have listened to hundreds of podcasts, watched youtube, surfed forums, and just finished reading the BRRRR book. I'm ready to start taking action instead of just studying. Here's some details about me...

I own a small business that pays the bills but is not getting me closer to retirement.

My wife is a school teacher and we have 2 kids 12 and 10.

I want to start investing in real estate so that after our kids move out my wife and I can enjoy traveling while also leaving a portfolio that my kids could build upon.

We have some money in stocks so one strategy to get started would be to cash out. That would come with capitol gains taxes however so it seems like a bad idea.

We could borrow against our stock investments. I'm not sure if this would be smarter???

We also have equity in our primary residence. A HELOC might be the way to go.

In order to do the BRRRR strategy we would need to be able to pay cash for the property, the rehab, and holding expenses before could refinance and repeat. That holding part is what scares me. Even though we have money in stock and equity we live check to check. The equity in our house might not be enough to cover the buy, rehab, and holding costs. I can't ask my financial advisor because he will just tell me to buy more stock.

So I'm turning to you BP nation.

Thank you for reading this novel!!!

Jason Scott

Jeff Copeland · Answer

Keep in mind you will rent out the property before you refi. Getting the property renovated and rented is key - after that (assuming it's cash flow positive), you have some breathing room and there's not as much urgency on the refi.

The HELOC and the loan against your stocks are both great options for low cost debt.

Factor in a few month's holding costs (budget for 6, aim for 3 is a good rule of thumb) into the overall project cost and find a property that makes the numbers work and allows for some wiggle room. Also shoot for a property that you can be confident will rent quickly.

Keep in mind many banks want 6 months of seasoning (and having a stable tenant in place also helps) prior to the refi, so get the rehab done, get it rented and bringing in income, and then you'll have plenty of time to shop around for long term financing.

Jason Scott · Answer

Thank you Jeff! I will do some digging and meet with a couple of lenders.

Jeff Copeland · Answer

We probably don't know enough details to answer that. It likely depends on the type of account and where it is held.

Some retirement accounts will let you take out a low interest loan, but the interest is paid back to the account (in other words back to you), making the financing costs essentially zero (or better). But a standard brokerage account may not offer this.

I would suggest pursuing both. A HELOC costs you nothing (aside from maybe some closing costs) unless you use it, but it's always there if you need it.

Jason Scott · Answer

Thank you for the responses!

I’m planning on sitting down with a lender to discuss options but I’ll throw this question here.

Would borrowing against the stocks work the same way as the heloc? Similar interest rates? Would one make more sense than the other as far as taxes goes?

Kevin Sobilo · Answer

@Jason Scott, I agree with @Jeff Copeland.

I would also add that you could consider finding a partner. If you are fortunate, you might even find someone with more experience. That would allow you to each bring some funds to the deal and also for you to work with and learn from someone who has been there and done that.

There are other options for funding like hard money lenders, but I personally like the idea of self funding to start with.

Smartest way to start BRRRR investing for me?

Smartest way to start BRRRR investing for me?

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