Opinions on My Strategy

7 Replies

Wanting to get some thoughts on my strategy. I'm going back and forth between buying strategic/sensible MLS properties, or using the BRRRR method:

First off, my goal is to replace mine & my wife's W2 Income with rental property cash flow. My wife and I live entirely off her income, and we end up pocketing about 60k/year after taxes with my income. I have about 85k in cash ready to be invested. My dilemma is how to best strategically invest my income. 

Option A) BRRRR Strategy

This is the one we always here everyone talking about because you could potentially get infinite ROI and equity capture. Other pros are the relationships, experience you gain in this method. The downside is just more moving parts, the 6 months seasoning, managing a project, trying to get a deal with the right numbers in a hot market and tying up all my cash at once. I know people say private money is an option, but without having a track record I don't feel comfortable asking for money. That being said, I'm beginning rehab on my first BRRRR investment, with all my own money, so perhaps after this project I'll be able to use OPM, pending this one is successful.

Option B) Current Strategy - Rent by Room

December 2019 I bought my first investment property. I saw it on the MLS, it was turnkey, no rehab needed and it was right at market value. I bought the property knowing it wasn't the smoking hot deal, but I bought it because I knew, more than anything, I just needed to take action. Moving forward, I'd probably try to get things below market value. The property is in a military town and I rent out to soldiers by the room. Benefits of this are that 1) I'm in touch with their CO so if they act out then we have direct line for reprimand, 2) We have direct contact with HR, so it gives us a steady stream of tenants, 3) If they move out, because of PCS-ing, then we usually know 3 months in advance, 4) When the move out, usually its just one of the roommates, and the one that stays will recommend a buddy - zero vacancy. Long story short, I am running about a 36% Cash on Cash Return in my first year. If I was renting out by single family, it would be around an 18-20% CoCR. I could probably pick up 3-4 of these deals per year. The cons of this strategy are just giving up the "hopeful infinite ROI" for the 36%. Just makes me feel like I am leaving a lot of money on the table.

So summarizing - do I stick with a more passive rent by room for stronger cash flow, or do I go with a more active BRRRR strategy for cash flow by volume?

It depends on which scenario makes you feel more comfortable. It sounds like you have a good thing going with the second strategy, so don't give that up. The BRRR method has potential to give strong returns, but it involves a lot more hassle. I know that on a personal level, I would not want to live in the midst of a remodeling project and then go do it again every few years. That is a decision based on personal comfort level.

There is no right or wrong answer to your question, it really comes down to what you are comfortable with. 

Originally posted by @Tucker Cummings :

Wanting to get some thoughts on my strategy. I'm going back and forth between buying strategic/sensible MLS properties, or using the BRRRR method:

First off, my goal is to replace mine & my wife's W2 Income with rental property cash flow. My wife and I live entirely off her income, and we end up pocketing about 60k/year after taxes with my income. I have about 85k in cash ready to be invested. My dilemma is how to best strategically invest my income. 

Option A) BRRRR Strategy

This is the one we always here everyone talking about because you could potentially get infinite ROI and equity capture. Other pros are the relationships, experience you gain in this method. The downside is just more moving parts, the 6 months seasoning, managing a project, trying to get a deal with the right numbers in a hot market and tying up all my cash at once. I know people say private money is an option, but without having a track record I don't feel comfortable asking for money. That being said, I'm beginning rehab on my first BRRRR investment, with all my own money, so perhaps after this project I'll be able to use OPM, pending this one is successful.

Option B) Current Strategy - Rent by Room

December 2019 I bought my first investment property. I saw it on the MLS, it was turnkey, no rehab needed and it was right at market value. I bought the property knowing it wasn't the smoking hot deal, but I bought it because I knew, more than anything, I just needed to take action. Moving forward, I'd probably try to get things below market value. The property is in a military town and I rent out to soldiers by the room. Benefits of this are that 1) I'm in touch with their CO so if they act out then we have direct line for reprimand, 2) We have direct contact with HR, so it gives us a steady stream of tenants, 3) If they move out, because of PCS-ing, then we usually know 3 months in advance, 4) When the move out, usually its just one of the roommates, and the one that stays will recommend a buddy - zero vacancy. Long story short, I am running about a 36% Cash on Cash Return in my first year. If I was renting out by single family, it would be around an 18-20% CoCR. I could probably pick up 3-4 of these deals per year. The cons of this strategy are just giving up the "hopeful infinite ROI" for the 36%. Just makes me feel like I am leaving a lot of money on the table.

So summarizing - do I stick with a more passive rent by room for stronger cash flow, or do I go with a more active BRRRR strategy for cash flow by volume?

Ive found BRRRR to be very helpful in recycling cash and creating new Cash Flow. It does take a bit more heavy lifting, but in the end your left with a newly renovate property pulling the best tenants.

@Tucker Cummings I would say that using cash up front makes your deal a lot less parts. You're not as worried about paying interest or owing it to someone else, so there is less pressure to pull it all out, or even rush for a seasoning period. it sounds like you guys have a good savings rate, so what if you waited until the remainder of the year before you refinanced?

The other thing that I would consider when comparing the two projects would be, even if you BRRR all your money out, but only have 100/mo in cashflow because you got so much extra equity it drove your payment up. vs your rent by the room strategy which only gives you 36% COC return, but that 36% is 400/month. In this instance, the rent by the room will move you 4 times closer to your goal of replacing your income.

@Kyle A. Isaacs Awesome post of yours there. I'm experiencing those benefits you listed as well, but didn't even realize it or have words to put to it. I've been thinking about branching out to other military towns, particularly Columbus, GA, as the market I'm in seems to be getting a little overbought. 

I was going to suggest the same thing as @Kyle A. Isaacs .

I have been using a different combination.  Instead of rent by the room, which seems very hands-on, have you considered doing short term rentals using a property management company?  

I'm not sure about your area, but in Fayetteville, we have someone that stages the properties and then a short term rental property manager that manages everything.

We purchase foreclosures and wholesale deals mostly to get value add properties. We are doing this with two right now. Once the 6 month seasoning period is up we are going to use a commercial portfolio loan to do a cash-out refi. We plan do groups of at least 2 but hopefully more properties at a time so the season period is up around the same time. Then refi and repeat. The refi will have to be done in an LLC and the interest rate will be higher since it is a commercial loan. It is based on the deal and not on the persons credit and income.

I am happy to answer any questions you might have!