Should I start off with Brrrr method?

Question

I’m from East Texas , and my father lended me 100k to start my portfolio. I have many questions , first thing I wanted to know is, should I use the Brrrr method?

Pete Harper · Answer

@Xavier Williams A lot depends on your personal goals. Brrrr is an active strategy. Do you want to be a hands on investor?  Chasing after contractors or doing the work yourself? Ready to hustle?

I personally like Brrrr because it scales. If you find good deals and manage them correctly you can keep recycling your capital. Over time you can build a larger portfolio than if you purchased with conventional 20-25% down financing.

East Texas is a good market to start out with $100k. You will find a lot of 1% rule properties under $100k that will cash flow. Ideally look for something close to $70k that needs less than $30k in rehab. Target ARV of $125k plus so you can pull most if not all your seed capital out. AR-rent needs to be $1200-1300. Once the rehab is complete rent it out and let it season 6-9 months. Refinance to pull your seed capital out and go buy another one.  The second one is easier.

Pete Harper · Answer

@Uyen Hoang

1) No issue with getting cashout refinance on home you own. Shop around smaller regional banks doing portfolio loans for best rates.

2) Hard money is certainly an option. Just factor in you will be paying points plus 8-10% interest rate on short term loan. If your project takes longer than expected the lender can call your loan before you are ready to cash out refi.

3) You can fill the gap with hard money, seller financing, personal loan, credit cards or many other options. Be creative.

Dustin Morris · Answer

@Xavier Williams absolutely if you can start with that amount of money and recycle it you can scale a lot faster than leveraging more turnkey properties and paying the down payment back over time

Uyen Hoang · Answer

Thank you for the great advice. I'm in a similar situation and still a little confused about the refinance step.

Follow up on your above example, after I found a renter and starting to refinance, since the house is paid off with cash 70k + 10k in rehab,

1. can I still get Conventional cash out refinance loan on a paid-off property? Could you please explain a little bit more in that step?

2. Somebody told me it's better to just put down 30-40k and get hard money to finance the rest so that I can have more cash in the next deal instead of having all of my cash in 1 house. What do you think about this idea?

3. I live in Nashville, and it's hard to find a house below 150k. If I only have 120k, what would be the best way to finance the rest + rehab money?

Thank you so much!

Ari Hadar · Answer

It's a bit hard to estimate rehab costs via photos but maybe it is practic to learn it.

Do you think zestimate rent are accurate in Cleveland for example?

Di I need to look at the online comps  and try to filter them and use my agent and pm for every listing until I have a clue how to do it by myself?

Pete Harper · Answer

@Ari Hadar

ARV = After Renovation Value

Use Zillow to pull comps in your market. If you are buying a C class property and renovating to B class you will want to pull B class comps. I try to find 3-5 similar properties and take an average. Or is you are working with a real estate agent ask them to help you with comps.

Pete Harper · Answer

@Ari Hadar

I don’t personally use rentometer. It is not very accurate in small markets like mine.

You misunderstood how I use Zillow to determine market rent. Similar to rentometer these online estimates are not very accurate in smaller markets. Instead I was suggestion you use Zillow to pull rent comps. These are active for rent listings in your search area. Then you need to go in and review the comps to weed out the ones that don’t match your target property. For example the A+ property with granite counter tops and stainless steel appliances doesn’t go with the C property with 1980’s Formica. If you are buying a C property only include C comps.

The save search icon is the magnifying glass with heart in the center. If you set up a Zillow account it will send listings that match your search criteria to your email. It also saves them in a Zillow folder with same icon.

Ari Hadar · Answer

Do you look for the rent in rentometer?

What if the house price is 109,024 4/2 1816 sqft and in rentometer is 1450$ median rent, zillow Zestimate rent 1250$, b neibourhood, 2 detached garages, price to sqft 67$, schools 5/10 (great schools site), lot 7000sqft... https://www.zillow.com/homedet...

How do I find the saved searches in zillow?

How do I assess the arv here?

Pete Harper · Answer

@Ari Hadar It is said in real estate you make most of your money when buy not when you sell.

To effectively scale you need to force appreciation. By buying below market you lock in appreciation early. Your other lever to drive appreciation is Renovation. Your goal in BRRRR is to drive enough appreciation in a short period of time to pull out all or all-most of your original seed capital to reinvest in the next property.

Whitney Hutten · Answer

@Xavier Williams I love the BRRRR method.  Just take a step back and look at your goals and make sure this is where you want to be.  Here is a guide to help you.  Once you have your goals and strategy aligned, go for it!

Should I start off with Brrrr method?

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