How Much Savings Should You Have Before Starting To BRRRR

Question

Hey BPers!! I'm currently running a new wholesaling business that is doing just fine. I'm trying to come up with a strategy plan to real estate investing. I was just wondering on how much money should I save before starting to BRRRR properties. Should I jump in as quickly as possible or should I wait. Can anyone give me there thoughts on the pros and cons of waiting until I have more savings to then reinvest in to some BRRRR properties. In my mind I would say that it would be best to wait until I have more capital and then begin the BRRRR process, but I don't have any solid evidence other then gut instinct. Thoughts and suggestion please my friends.

Sathish Sekar · Answer

Trevor, I would suggest finding an experience partner who has done BRRRR before. You can leverage the partner's experience to minimize your risk as a beginner.

As far as savings, You typically would enough money for a down payment. Typically 20% of the acquisition price. Depending on values in your area, that could be from $20k to $50k. side note: i would consider partnering with you. But I am up in Chicago, IL.

Trevor Schuler · Answer

That definitely seems like a sensible number! I operate in a market of $70k-$200k housing market range. I definitely think I will be using private money for this and maybe some personal lines of credit.

Allan Smith · Answer

The amount of cash you need depends on the deal that you find. If you buy it traditionally (down payment with bank, or buy it cash and re-fi), you will need funds to close, perhaps funds to float payments to contractors (with or without a construction loan), and you'll need cash reserves for at least 3 months (6 is best) to cover all holding costs associated with the property.

If you want to go the creative route, that opens up a whole realm of options. If you have an equity partner, you don't really need any money...

Andrew Syrios · Answer

It really depends on your market, but I would say something like ~$50,000 would be preferable although you could probably get away with less, especially if you have access to some credit lines, people willing to lend you a little money, etc.

Trevor Schuler · Answer

As a wholesaler I would probably just use one of my wholesale deals to take on myself with a partner or preferably with private money. I am just trying to figure out any substantial pros and cons to waiting on lets say starting with 20k in reserves vs starting with lets say much more like 100+k. I could see the advantage of starting early as it would get the ball rolling and potentially getting to the refinance point sooner and thus getting the snowball effect going. Waiting for more money could also allow for security. But I'm kind of stuck there for the breakdown of the two.

Austin Fowler · Answer

@Trevor Schuler Great question! I've been curious about the same question. I think the more savings the better, BUT if you find a great deal then you move on it. I'm not sure there is a magic number unfortunately. I'm no expert by any means, but the experience of closing the first property more than likely outweighs the money saved. Obviously, you would want to have enough for closing costs, rehab, possible vacancy costs, etc. but if you have a private lender then you have some flexibility for additional costs. There is value in experience! Just my thoughts. Hope all goes well with your investing!

Kris L. · Answer

How do you BRRRR successfully if you take out a first mortgage (80/20)?

Sathish Sekar · Answer

A BRRRR would be possible after rehab. After repairs are done, the property would be worth more. So a refinance could pay back the purchase mortgage and hopefully the down payment.

Trevor Schuler · Answer

@Kris L. In my case as I mentioned earlier it would most likely be an off market deal. For you it could be through another wholesaler or  maybe a direct mail campaign. Something that may not qualify for a loan at first and would need private or hard money to purchase and fix up, season then re-finance. Buy, rehab, rent, refi then repeat

Trevor Schuler · Answer

@Austin Fowler experience is king I think too! Although technically you would be starting another business depending on if you do the rehab and management. I would definitely like to here from a few seasoned investors on what they think the right approach is? I'm sure that most investors started out slow and things snowballed.

How Much Savings Should You Have Before Starting To BRRRR

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