Would you recommend a remote BRRRR as your first investment prop

Member since 2020 · 15 posts · 6 votes

The title essentially sums up the question. I'm sure there are many out there who live in markets that have a high financial barrier to entry and have thought about investing elsewhere.

As a first time investor, I'd love to hear from folks who have done this. I'd like to know how you made it happen and if you'd recommend it to someone else starting out.

I live in the LA market with no option but to live in a very expensive area (forced to live close to the hospital!)

Looking forward to hearing from you.

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Joseph CacciapagliaBusiness Member

Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes

I often discourage new out of state investors from using the BRRRR strategy. I sell investment properties in San Antonio, and because of this I get a lot of inquiries from people in higher priced markets that are looking to invest here. Lately most of these new investors have wanted to BRRRR (it's kinda funny how getting a new name made an old strategy so popular). It's certainly possible to do a remote BRRRR on your first deal, but in general I believe you're setting yourself up for failure. The few investors that I know that execute the strategy well are basically magicians, or at least have amazing project management skills, experience dealing with contractors, and loads of free time. For the most part, I recommend a more standard buy and hold strategy to get started. Why not learn to walk before you start doing cartwheels?

I have a lot of clients that start with buy and holds first, which allows them to get comfortable with their team and the market. Over time, they may branch out into strategies that require more involvement, like flips and BRRRRs. However, some decide that traditional buy and hold suits them just fine. Another strategy that works well is to execute flips locally, and then park your profits in buy and hold deals in better markets.

I'm sure there will be a lot of people that will happily share their successes with the strategy, but for every one of those, I would bet there are 4-5 that lost their shirts. Unfortunately, a lot less people are willing to share their failures. Those that do often try to spin it into some great learning experience, but you don't have to fail that hard to learn.

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Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
6y
I often discourage new out of state investors from using the BRRRR strategy. I sell investment properties in San Antonio, and because of this I get a lot of inquiries from people in higher priced markets that are looking to invest here. Lately most of these new investors have wanted to BRRRR (it's kinda funny how getting a new name made an old strategy so popular). It's certainly possible to do a remote BRRRR on your first deal, but in general I believe you're setting yourself up for failure. The few investors that I know that execute the strategy well are basically magicians, or at least have amazing project management skills, experience dealing with contractors, and loads of free time. For the most part, I recommend a more standard buy and hold strategy to get started. Why not learn to walk before you start doing cartwheels?
I have a lot of clients that start with buy and holds first, which allows them to get comfortable with their team and the market. Over time, they may branch out into strategies that require more involvement, like flips and BRRRRs. However, some decide that traditional buy and hold suits them just fine. Another strategy that works well is to execute flips locally, and then park your profits in buy and hold deals in better markets.
I'm sure there will be a lot of people that will happily share their successes with the strategy, but for every one of those, I would bet there are 4-5 that lost their shirts. Unfortunately, a lot less people are willing to share their failures. Those that do often try to spin it into some great learning experience, but you don't have to fail that hard to learn.
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Luke AndersonPro Member
Rental Property Investor · Enterprise, AL · Member since 2016 · 166 posts · 117 votes
6y
I am a buy and hold, out of state investor. I have a great management team in place that allows me the confidence to invest out of state. The most I look to do in a purchase is flooring, and carpet, and of course light repair work, but no full rehabs. My management team is not in the business of managing a construction project, and I am over 1,000 miles away. I honestly prefer to buy from rehabbers who do quality work that I can have my team immediately place a tenant for a long term hold. That is the strategy I use, and for me it works well being out of state.
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y
It can work, but it really depends on what you are looking to do. If you want to learn in order to grow a long-term plan to make you more money, you can't do that by only investing out of state and not visiting. You can still do well, but you lose money in management and oversight and new investors often think they've found a team when they haven't, and they pay for it. I think the best strategy is to find something more local, that you can visit and oversee, so you understand cost structure, rehab, timing, etc. When you do your first deal out of state you are putting a high amount of trust in a bunch of people you don't know. If you do have a family member of good friend in a desirable area, that is preferable than building a team from scratch, when you are new, in a new market.
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Account Closed
Investor · Columbus, OH · Member since 2017 · 861 posts · 1k+ votes
6y
I BRRRR in Ohio. I would never try and any serious rental rehabs remotely, at least not in typical C type rental areas in the midwest and/or at "trying to save money" pricepoints. You will wind up with crap housing stock in crap areas with sketchy contractors who bleed you dry while subbing it out to rusty-trucked bozos who think a caulk gun is the fix for everything. Your AC units will go for so many walks you'll think they were an incontinent dog. Then once they are done bungling the rehab, the property management companies will take the rest of your money trying to keep the place together for your randomly chosen tenant.

Maybe it would work an hour or so away from you where you could at least appear to be local and to keep an eye on the rehab and take over if it goes too far off track.

You would do better buying turnkey or just buying grandmas house off the MLS that just needs some cosmetics. Of course that eliminates a lot of the benefit of BRRRRing but if you buy right you will still have cash flow and appreciation.

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Stone Saathoff
Investor · San Antonio, TX · Member since 2019 · 576 posts · 307 votes
6y
If you're going to BRRRR out of state please do yourself a favor and read/listen to the entire book if you haven't already. There are many pieces of this where you could be taken advantage of if you don't know how to set expectations up front. A 15 dollar book is a small price to pay to be able to avoid most of those issues from the get go. San Antonio is a great place to deploy that strategy.
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Jaysen Medhurst
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
6y
Sure, @Madhav Thaker, I think the key is to identify markets with the qualities below. You then have to weight each one for your own situation.
1. Strength of market fundamentals
2. Your return expectations
3. "Boots on the ground"
4. Ease of travel to the market
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Chris F.
Rental Property Investor · WA · Member since 2020 · 15 posts · 4 votes
6y
@Madhav Thaker, I am new to the US market In general, and BRRR has been something that has caught my attention due to the fact it is much easier for me to do that in this country.
Coming from Australia where in my area the average house price was >$1m I started looking out of state (I’m glad I purchased my first property locally and not OOS)
As many have pointed out on these forums, it is easier to get into the game locally because you can learn more from the nuances of running a rental with hands-on experience.
As much as I would love to dive deep in other markets, being at a disadvantage of not knowing the area like a local will be hard.
If you must here is something I have started doing, but you might go in a different direction:
1. Identify your area (whatever your criteria)
2. survey locals (this can be done online, I have started surveying people in the transport industry Uber, Taxi, Bus, as well potential tenants) - You’re looking to acquire as much local knowledge as possible. You want to know where people do and don’t like and what is coming up. (This is why it is sometimes easier to start locally, you’re at an advantage.)
3. Visit the place and spend time there. Nothing beats physically seeing areas, and I have gone to places that just immediately gave me the creeps.
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Chris F.
Rental Property Investor · WA · Member since 2020 · 15 posts · 4 votes
6y
@Chris Fentiman I would also add, this is an addition to everything you still need from your team.
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Tim JacobPro Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
6y
I would focus on atleast 1 or 2 relatively turnkey properties. I would get a good investors agent and a good pm. The pm should know good contractors and will share them if you are paying them. Once you are comfortable with your team and your team building abilities maybe then give them more responsibility which could include a brrrr.
A lot more can go wrong with a full reno than what a pm can do. Another key team member is a home inspector. Id consider having them inspect your brrrr before making a final payment to your gc when doing a brrrr.
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Madhav Thaker
OP
Member since 2020 · 15 posts · 6 votes
6y
@Joseph Cacciapaglia: Thanks for your thorough response, this was really helfpul. My main reason for looking at BRRRR was to maximize the small savings that I have. The more I read the more I realize I may just need to take it slow and start with buy and rent properties.

@Luke Anderson: I'm wondering, what percent of your monthly ROI goes to your team? Or maybe a better question, how much do you think you'd save if you were investing local and didnt need to spend so much on your team?
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Luke AndersonPro Member
Rental Property Investor · Enterprise, AL · Member since 2016 · 166 posts · 117 votes
6y
They get 10.5% and even if I was investing locally, I would still have a management team in place. I don’t want to be in that business and the numbers make sense for me. I build their cost into my analysis on every deal.
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Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
6y
To the same degree I would recommend a Ninja 1000 as your first motorcycle.
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Virginia MarphisPro Member
Real Estate Agent · Reno / Sparks, NV · Member since 2013 · 174 posts · 59 votes
6y
YES! If you are able to, getting into buy&hold investing is the BEST! Get your portfolio started now! IF YOU NEED HELP IN Northern Nevada, let me know.
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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
6y
No
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Tom Ott
Equity Raiser and Turnkey Provider · Cleveland, OH · Member since 2016 · 4k+ posts · 1k+ votes
6y
Originally posted by @Madhav Thaker:
The title essentially sums up the question. I'm sure there are many out there who live in markets that have a high financial barrier to entry and have thought about investing elsewhere.

As a first time investor, I'd love to hear from folks who have done this. I'd like to know how you made it happen and if you'd recommend it to someone else starting out.

I live in the LA market with no option but to live in a very expensive area (forced to live close to the hospital!)

Looking forward to hearing from you.

MT

I am not a huge fan of it unless you have a trusted team set up.
See more here:

Why the BRRRR Method is a Risky Gamble for Out of State Investing

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Account Closed
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Madhav Thaker
What if I took a random poll and asked people; "If you had an opportunity to do something you really wanted to do, and that opportunity also had the potential to create wealth, comfort, and stability for you, would you do it?...the only requirement is, you would have to move out of state in order to give yourself the best chance of success."
I'm willing to bet the majority of people would say "yes" they'd do it and move. Now, why do some people want to take on the extra risk by doing their 1st BRRRR from afar? Oftentimes they don't really want it.
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Morgan Madill
Contractor · State College · Member since 2018 · 51 posts · 25 votes
6y
@Luke Anderson good to hear someone having success in long distance buy and hold! I’m working on the road (pays very well for W2) stacking away the capital and right now it looks like long distance is going to be the way it’s going to be for me. Just curious but what got you to invest out of state vs your own back yard?
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Luke AndersonPro Member
Rental Property Investor · Enterprise, AL · Member since 2016 · 166 posts · 117 votes
6y
@Morgan Madill I’m from the DC area and it is very expensive in my own back yard. I found I can cash flow the same amount after expenses with properties a quarter of the price out of state, and in an area that is more landlord friendly. If you’re on the road, that’s the best way to find areas you may want to invest in. Research and get to know players in the area and build a team while you’re traveling.
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Stephen KeigheryBusiness Member
Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
6y
I am advocate of out of state investing @Madhav Thaker as think you should chase the best markets and diversify. Doing your first investment as a BRRR in an out of state market might be a stretch though. A rehab is hard to manage at the best of times, but for a first timer out of state this is putting a lot of pressure on yourself. My fear is it might be to hard and you make a loss and get turned off investing. Personally I would try a more manageable strategy to start. That being said if you are motivated and confident go out and prove me wrong.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
Rehabbing is high risk. Long distance is high risk. Probably drawn to a high risk property without realizing it. Combine those 3 high risk activities together, and they dont just add up....they multiply exponentially.
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Jack Seiden
Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes
6y
It depends on if you like losing money or not.
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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
6y
Originally posted by @Account Closed:
I BRRRR in Ohio. I would never try and any serious rental rehabs remotely, at least not in typical C type rental areas in the midwest and/or at "trying to save money" pricepoints. You will wind up with crap housing stock in crap areas with sketchy contractors who bleed you dry while subbing it out to rusty-trucked bozos who think a caulk gun is the fix for everything. Your AC units will go for so many walks you'll think they were an incontinent dog. Then once they are done bungling the rehab, the property management companies will take the rest of your money trying to keep the place together for your randomly chosen tenant.

Maybe it would work an hour or so away from you where you could at least appear to be local and to keep an eye on the rehab and take over if it goes too far off track.

You would do better buying turnkey or just buying grandmas house off the MLS that just needs some cosmetics. Of course that eliminates a lot of the benefit of BRRRRing but if you buy right you will still have cash flow and appreciation.

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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
6y
Originally posted by @Madhav Thaker:
The title essentially sums up the question. I'm sure there are many out there who live in markets that have a high financial barrier to entry and have thought about investing elsewhere.

As a first time investor, I'd love to hear from folks who have done this. I'd like to know how you made it happen and if you'd recommend it to someone else starting out.

I live in the LA market with no option but to live in a very expensive area (forced to live close to the hospital!)

Looking forward to hearing from you.

MT

Certainly possible once you develop trusted local partnerships.
Wouldn’t recommend it for your first rodeo.
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Kyle Daniels
Rental Property Investor · Kansas City, MO · Member since 2019 · 24 posts · 12 votes
6y
@Madhav Thaker
I was in a similar situation. I read the BRRRR books and had to be out of state.
My strategy was to essentially "build up to" a BRRRR.
The first home we bought was a turn key property from @Mike D'Arrigo company Pinnacle Investment Properties. The process was highly educational and allowed us to "get our feet wet" in the market we were interested in. Multiple colleagues of mine had used Mike and to find out he was on Bigger Pockets was great!
Our next 2 homes we bought through a realtor, knowing that these homes could rent right away, but if some money was put into them could appraise and rent for me. I like to refer to this as a "mini BRRRR", as it was mostly to get us familiar with prices for rehabs and fixing up homes on a smaller scale.
Now, we are in contract for a HUD home that is a full rehab and BRRRR. We feel so much more comfortable with the process. We have a VERY strong team, and everyone is on the same page.
We worked out way up to a full BRRRR and have gained priceless knowledge along the way. This would be my recommendation.
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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
6y
@Madhav Thaker It's very risky, especially when you have no experience. The two most important pieces you have to get right are your ARV and your rehab costs. That determines how much you should pay and whether you can get your money back out. The questions you should ask yourself are:
1. How will you determine the ARV upfront
2, How will you determine the scope of work for the renovation
3. How will you determine how much the rehab will cost
4. How are you going to manage the project and keep crews on schedule remotely
5. How are you going to monitor the quality of the work
You don't always have a lot of time to do youe due diligence and get answers to these questions.
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