Reasons why you WOULD NOT use the BRRRR everytime?

Question

After learning about the brrrr strategy and its benefits are there any of you that use that every single time? I'd imagine it would help you build up your portfolio quicker by taking your or part of your cash out. What are the reasons why you dont use the BRRRR method excusively?

JD Martin · Answer

As opposed to what? Keeping all of your cash in the property? Getting a traditional loan? Something else?

We don't cash everything out. The properties that have all the equity left behind are a hedge against economic troubles. Roughly, our business could survive about a 65% vacancy rate and not require any outside funding to keep it solvent. That's apocalypse type figures, to be sure, but it also helps one sleep at night (that and a lot of liquidity). To be sure, equity sitting in a house is dead equity - it's not making any money - but not all of your money always needs to be making money, because making money always entails risk, and a certain portion of your total net worth should always be easily accessible, easy liquidity, and instantly valued - ie, $10k in your checking account is worth $10k today.

I like a mix of ~ 50/50, wherein 50% of properties are leveraged @75% or so, the other half are free and clear. For us, it allows controlled growth but also lets the business survive on its own without any additional cash inputs. If everything you own is leveraged, even at 75%, you better have a thick cash cushion.

Steve K. · Answer

@Lee Cruz

I had successfully tried fix and flip, and even a more speculative major remodel (triple the sqft), and then new spec home building and hadn't been dreaming of being a landlord. Then I was reacquainted with a 35-yr old who had, in 5 years, acquired 30 rentals on the BRRRR method (although I didn't meet him on BP and didn't know that acronym yet.) When I built a spreadsheet projection to model/replicate what he'd accomplished, I think he turned $80k cash into $3 million of equity in 5 years....and I got really excited. Even that REI likes to do 5-10 BRRRR's per year, builds a handful of spec homes (likes new construction duplexes), some fix/flilp for quick sale and is even wholesaling 30 deals per year.

Fix/flip gets you faster cash (but taxed immediately), while BRRRR grows more slowly over years.

Contrasted with a friend who used $225,000 cash to buy one rental duplex and likes the conservative (no debt) cash flow, the leveraged view allows you to grow exponentially, if as @Jd Martin says, you don't have a recession in the midst of growing your nest egg.

Mrs. K is more risk averse; would like to have the rentals paid off. I ask "why would I invest cash in a 4.5% APR, when my BRRRR strategy makes 20%"? (but not risk free).

So....I'm still using multiple strategies. It's difficult to separate out how much of the profit is yield on my cash investment, and how much is $ per hour for my time. Some days, a completely passive income sounds attractive, as @Dale Carlson says.

John Leavelle · Answer

Howdy @Lee Cruz

There are as many reasons to not use the BRRRR strategy exclusively as there are variations of the strategy itself.

Example:  I am fairly new to REI.  The BRRRR strategy is currently the only one I use.  I have acquired 3 properties so far.  I have been fortunate that I have a Private Lender to finance my acquisitions.  However, he can only support a limited number of deals.  I also have a limited amount of personal funds to use.  It's a 9 to 12 month turnaround between properties.  If I want to increase the number and frequency of new projects I need to come up with more cash.  Therefore, I have started looking into Wholesaling to increase the REI income.

Of course I could also look for Hard Money Lenders or other options.

The bottom line is it is wise to develop as many tools as you can to have in your tool belt that will allow you the most flexibility when it comes to exit strategies.

James Wise · Answer

Supply & demand. The fallacy of trying to use this strategy on every property is one simply will not find that many undervalued properties.

Dale Carlson · Answer

For me, it would be a time issue.  I feel like i have to be intimately involved in the Renovate portion.  So its almost like a part time job.  I feel burned out quickly.  So after a couple Reno's, i go with a turnkey, just to keep my sanity.  Once I have enough reserves, I could see myself turning over the reigns of the reno to a trusted person.

Chris T. · Answer

@Lee Cruz

If I get my property sold before I get a tenant in.  Or I can't get financing to cash out.

As great as BRRRR is, there're a lot of moving parts. If you're not familiar with the process, make sure you look into it more.

Ryan Murdock · Answer

In a pinch if an investor needed more cash than a refi would allow a quick sale of a rehabbed property may provide that.

Reasons why you WOULD NOT use the BRRRR everytime?

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