BRRRR as a first investment or SFH?

15 Replies

As a first investment, would anyone on here consider a BRRRR?

In David Greene's BRRRR book, he suggested that it is better to wait and save up for a BRRRR as opposed to the speedier route and just doing a conventional loan on a SFH.

Would you guys advise on saving up 100k on a BRRRR with a chance to repeat and get the reps of REI much more frequently, or use 50k on a SFH because it's less complicated and can be a good intro into REI?


Would love to hear your suggestions, pros, cons and everything in between.


Thanks!

I have many clients do 20% down to start then jump to BRRR. It is up to your comfort level, research you've done, team established and finding the right deal. Many people do it their first time but you need all your ducks in a row so it goes smoothly

@Joe Villeneuve I guess the question is between the BRRRR strategy or buying a SFH that needs minimal work as a first time investor.

Example 1 - Save up 100k. Buy a distressed property (SFH) for 50k, then spend 50k rehabbing it, renting it, then refinancing it.

Example 2 - Save up 50k and use that as down on SFH along with light repairs.

Hypothetical numbers, obviously. 

Originally posted by @Joshua Sun :

@Joe Villeneuve I guess the question is between the BRRRR strategy or buying a SFH that needs minimal work as a first time investor.

Example 1 - Save up 100k. Buy a distressed property (SFH) for 50k, then spend 50k rehabbing it, renting it, then refinancing it.

Example 2 - Save up 50k and use that as down on SFH along with light repairs.

Hypothetical numbers, obviously. 

 Hypothetical, and unrealistic.

First, don't buy properties your intend to rent for all cashh.  All you;re doing is maximizing your cost.

Second, the BRRRR method is not a method that will get you very far very fast. Every time you refi, you're going backwards...not forwards, and your returns are slow and linear.

Third, when you refi, you're NOT getting your money back out.  The bank (or lender) is selling you new money.  Your money (cash) is still in the property and being used as collateral for the bank to sell you their money.  If it was your money, you wouldn't have to pay for it, which you are doing  (interest charge) every time you refi.

@Joe Villeneuve Thanks for the insight!

From what I've read and heard, the biggest advantage of BRRRR is creating forced appreciation for when you get it appraised, to pull out more money then you put in. And depending on the grace period before a lender allows you to refinance out, you can repeat the process every 3 to 6 months. So if you did go 100k all in on a buy, and rehab, you should be able to bring the value of the distressed property for over 100k, therefore allowing you to pull out all of your money out, if not more.

In David Greene's book BRRRR, he gave an example of a person who is buying a SFH home with conventional loans every year for 10 years versus someone who waited till the 2nd year to save and BRRRR and was buying multiple homes a year every year for 10 years. The difference between 10 SFHs versus 20 or 30 in 10 years.

I also read in John Schuab's book, Building Wealth One House at a Time, he says that it is as easy as buying a SFH every year for 10 percent below market value, for 10 percent down, for 10 years. Simple as that.

Just wanted to pick your brain and others. I know some people love BRRRR and others don't believe in it. I definitely want to absorb the pros and cons before starting a strategy.

Hey Josh, I am a new investor in the Pittsburgh area and I recently just bought my first property and currently renovating it to be used as a short term rental. I don't have a lot of experience but from the research and networking that I've done, I would highly recommend using the BRRRR strategy to approach your first deal. The whole point of the BRRRR strategy is to create equity in a property and then pull your cash back out of the property to then go and do it again. Theoretically you can by 10s or even 100s of properties on the same cash if you're really good at what you do. If you go for the 20% down, conventional method of investing (which is still a good option for some) you keep all of your money tied up in the property until you save up enough to then go and do it again.

When you put 20% down on a property your LTV is 80% from the start. If you use BRRRR and your total costs (purchase and rehab) are at or below 80% of your ARV then you will be able to pull all your money back out and still have a LTV of 80%. And now you have the money to repeat as well as 20% equity in the property.

IMO when you use the BRRRR strategy your intention shouldn't be to generate tons of cash flow, but to generate equity so you can then move on to other investing strategies. The cash flow you do receive in the mean time is just a bonus.

Lastly, if you are asking because you don't necessarily have 100k to buy a house and fix it up with cash, I was just in the same boat as you. But I found a lender in my area that offered 80% of the purchase and 100% of the rehab and it automatically converted into a mortgage after the rehab was completed. I now have over 30k in equity in that property and I only had to put a 20% down payment for the loan but the lender is currently working on getting me a HELOC to access all of my money again. It is a little bit of a twist on the BRRRR strategy but it was a good option for me because I didn't have all the cash up front.

I hope this helps and if you or anyone else has any feedback on anything I said it is much appreciated!! 

Originally posted by @Joshua Sun :

@Joe Villeneuve Thanks for the insight!

From what I've read and heard, the biggest advantage of BRRRR is creating forced appreciation for when you get it appraised, to pull out more money then you put in. And depending on the grace period before a lender allows you to refinance out, you can repeat the process every 3 to 6 months. So if you did go 100k all in on a buy, and rehab, you should be able to bring the value of the distressed property for over 100k, therefore allowing you to pull out all of your money out, if not more.

In David Greene's book BRRRR, he gave an example of a person who is buying a SFH home with conventional loans every year for 10 years versus someone who waited till the 2nd year to save and BRRRR and was buying multiple homes a year every year for 10 years. The difference between 10 SFHs versus 20 or 30 in 10 years.

I also read in John Schuab's book, Building Wealth One House at a Time, he says that it is as easy as buying a SFH every year for 10 percent below market value, for 10 percent down, for 10 years. Simple as that.

Just wanted to pick your brain and others. I know some people love BRRRR and others don't believe in it. I definitely want to absorb the pros and cons before starting a strategy.

 PM me.  Too many details to try to set straight here.  It comes down to a simple math problem...and logic.

@Joshua Sun I think this is a good question because of the information you're getting in response... but it's going to come down to the specific deals you find and analyze. What markets are you looking in? Finding a $50K house to BRRRR, and putting $50K down on a $200K house are just, very very different deals. $50K houses to BRRRR, and rent-ready $200K houses, are going to be in radically different neighborhoods.

@Joe Villeneuve in a true BRRR you buy with cash, at least that what the books stated. Is that not the case?

Ex. You have 100k

Buy house for 50k, spend 50k for rehab. ARV is 150k. Since you bought in cash, equity is equal to ARV which is $150k

Then when you cash out refinance you get your investment back and do the whole process again.

Which is why the technical BRRRR is to pay with cash. If you do down payments and loans, then it's a modified BRRRR and won't yield the same results.

Someone correct me if I'm wrong, i just finished 2 books on BRRRR and that's how i understood it.

Originally posted by @Jason Capalad :

@Joe Villeneuve in a true BRRR you buy with cash, at least that what the books stated. Is that not the case?

Ex. You have 100k

Buy house for 50k, spend 50k for rehab. ARV is 150k. Since you bought in cash, equity is equal to ARV which is $150k

Then when you cash out refinance you get your investment back and do the whole process again.

Which is why the technical BRRRR is to pay with cash. If you do down payments and loans, then it's a modified BRRRR and won't yield the same results.

Someone correct me if I'm wrong, i just finished 2 books on BRRRR and that's how i understood it.

 You are buying equity when you buy all cash.  What you are doing is transfering your cash from one location to another.  When you refinance, you are NOT getting your cash out.  Your cash is still in the property and being used as collateral on the money you are buying from the bank.  If it was your money you are getting out (like withdrawing from a bank account), why are you paying for it (interest charge)?

If you were to buy the property and finance the purchase and the rehab, and the cost was $80k, and after you were done you had a property worth 100K, in the end it means you have a property worth $100k, with $80k in debt, and $20k in equity.

If you were to pay that same $80k in cash, then refinanced $80k in a refi loan based on the new $100k in PV, you would have the same end result....a $100k property, an $80k loan, and $20l in equity.

I understood it as you are getting all your capital back since the rent is paying for the loan and interest from the refinance. Now i am getting confused, books stated to buy first BRRRR with cash.

really comes down to how much money you have. With todays market I am seeing more and more people get less out on end of the brrrr. BRRRRing makes a lot of sense if you are putting in sweat equity and saving on the rehab. With real estate and in life. I always keep my eyes open for what ever great deal comes along, if its a flip/made up rental or something I can BRRRR. A lot of people do not get started because they only put there eggs in one basket.