How to get my husband on board with the BRRRR method?

Question

How do I get my husband on board with the BRRRR method? He is a Dave Ramsey guy 100%. Please help, thank you.

Todd Rasmussen · Answer

@Susan Thelen

Invest his way to start. Just buy a rental cash or start putting the money away to do so.

I don't know your husband to tell you why he's not seeing the light, but this is what my wife and I mutually experienced:

Once you have a history of operating income and expenses to use for reference, decide what it would look like if you had a mortgage at 25, 50, 75 LTV and the number of properties that corresponds. The growth trajectory of saving up down payments compared to buying cash is not hugely significant. Once you two are mutually disappointed with how long it will take you to be financially independent, explore value add and then BRRRR.

Debt is impatience expressed financially, so give him a chance to get impatient.

Mack Benson · Answer

Dave Ramsey is a great first step for financially uneducated. Most people don't understand the difference between an asset and a liability so the Dave Ramsey way is a great method for them to crawl out of the debt hole they have gotten into. They try to eliminate all liabilities which is smart until you learn you can't save your way to financial freedom. You can, however, invest your way to financial freedom. Unfortunately the Dave Ramsey method doesn't take into account good debt and leverage.

I'll start with a baseline for comparison. If you want to invest in stocks $100,000 will get you $100,000 worth of stocks.

Now let's run a hypothetical on a BRRRR. I don't know where you are so I'll use an average property around me. It will be a 3 bed 2 bath rambler built in the 1950s or 1960s. Let's assume that it hasn't been touched by renovations in the last 50 years so it has the original everything. The ARV would probably be about $250,000, I'll assume it needs about $75,000 in renovations because the bones are good it just needs some updates. The equation many use for a BRRR is 70% * ARV = Purchase Price+Rehab. Do some math and we find that we can offer $100,000 for the property. Remember, it hasn't been updated and needs a lot of work. Now for the financing assuming you are using a conventional loan we'll say you need 25% down on that $100,000 loan so you need $25,000 down. Your all in cost including down payment and renovation end up at $100,000, the same as the stock purchase. Here's where the BRRR diverges though. After it is renovated and rented out you go back to the bank that you got the original loan from and have an appraisal done and ask for a cash out refinance. We'll assume the bank allows you to go up to 80% of the ARV for the cash-out so ARV x 80% = The amount you can cash out refi. You'll take that amount and subtract your cash invested to give you how much profit you can realize in addition to the return of your original cash investment.

$250,000 * 80% - $80,000 - $20,000 - $75,000 = $25,000

In this case you have a cash flowing asset that the resident is paying the mortgage for you on. You also have an extra $25,000 you didn't have before and the original $100,000 you had before.

For comparison, you originally had $100,000 and if you bought stocks you ended up with $100,000 worth of stocks. Alternatively, if you used that $100,000 on a BRRR you ended up with $125,000 in cash plus a property that is paying you every month and you will one day be able to sell at a profit.