Closest BRRRR Alternative for New Investor

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Closest BRRRR Alternative for New Investor

Greg Smith
Member since 2021 · 5 posts · 2 votes

Hi, everyone. I'm looking to purchase my first rental property in a location that is a can't miss. The problem is that the price of the homes most in need of repair is beyond what I can afford to pay with cash. I'm guessing lots of you have found yourselves in markets that aren't necessarily BRRRR friendly anymore due to increased home values.

I'd really appreciate any advice about how to best set myself up on my initial purchase using a more traditional financing approach to be able to leverage that property going forward. 

I'd obviously like to own multiple homes, so my biggest fear is getting all of my money tied up in this property and having to wait 3-5 years to do the next deal.

How have you guys navigated this? Any advice?

Thanks in advance.

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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
5y

Why do you need to pay cash to BRRRR? The second to last R in BRRRR is refinance and that can mean out of your first FHA loan if you are house hacking or a modified conventional investor loan? Are you saying you don't have enough in the market for 20-25% down?

I advocate, for some, what I call reverse BRRRR which switches the first two Rs so it is Buy Rent Rehab Refinance Repeat, but this one is done better with cash or when you can leave your money in and banks on having a low price point with paying tenants and high appreciation potential if you just wait and leave it alone.

If you can't house hack, you will need to drop 20% down. If your target area is too hot, go on Google Maps and track 2 towns in each direction and drive them to see where the most activity is, the most dumpsters or flips to see which town may increase next.

[email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    5y

    Why do you need to pay cash to BRRRR? The second to last R in BRRRR is refinance and that can mean out of your first FHA loan if you are house hacking or a modified conventional investor loan? Are you saying you don't have enough in the market for 20-25% down?

    I advocate, for some, what I call reverse BRRRR which switches the first two Rs so it is Buy Rent Rehab Refinance Repeat, but this one is done better with cash or when you can leave your money in and banks on having a low price point with paying tenants and high appreciation potential if you just wait and leave it alone.

    If you can't house hack, you will need to drop 20% down. If your target area is too hot, go on Google Maps and track 2 towns in each direction and drive them to see where the most activity is, the most dumpsters or flips to see which town may increase next.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
    WebsiteView Page
    4Reply
  • Greg Smith
    OP
    Member since 2021 · 5 posts · 2 votes
    5y

    Jonathan,

    What I mean is that I can't afford to purchase the property with cash, re-hab it, and then refinance. That's not doable by me with cash.

    I can afford the 20-25% down if I were to do a conventional mortgage, yes. Based on David Greene's book though, he advised against doing this (financing up front prior to rehab) because you'd leave so much in the property when you go to re-finance.

    0Reply
  • J Zev J.
    CPA · Colorado Springs, CO · Member since 2016 · 413 posts · 258 votes
    5y

    @Jonathan Greene - Are you talking about rehabbing while the tenant is in there (if not a househack)? If you rent before the rehab I'm just trying to understand the logistics for accomplishing that (unless it's a small rehab).

    0Reply
  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    5y

    @J Zev J. no, you rent first at a lower amount with existing tenant and the let the property marinate while gaining appreciation. Tenant leaves, then you renovate and refinance and you will refi out way higher because you waited and got the appreciation if you time it right. You have to be able to leave the money in longer for reverse BRRRR. It's good for occupied properties that aren't in great shape, but in C+ areas and up, with tenants who are paying consistently, but under market value. You can get it for less because occupied properties are going for way less right now and if you can leave your downpayment in and wait a couple years, in a place like Philly you could be up 50k in appreciation and then the rehab puts you way up in a hot market still going. If the market goes down, you are still planning for longer time frames with it.

    [email protected]Podcast Guest on Show BiggerPockets Daily 667: 5 Amazing Benefits Multifamily Investments Offer (That Single Family Homes Don’t) by Gino Barbaro
    Zen and the Art of Real Estate Investing59 Reviews
    WebsiteView Page
    4Reply
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