San Francisco · Member since 2019 · 17 posts · 1 vote
So, after discovering the BRRRR method it all made sense to me that it's just a flip but instead of selling for instant profit you'll refi the property and hold it for long term gains. Great sounds like a deal, however, there's just so many things wrong with this scenario.
How often do these magical deals even show up. Unless you're actively marketing distressed homeowners how can you ever find these deals as a newbie?
I mean you'll literally need to most likely buy at 50% ARV, spend 25% arv to rehab to make it happen. If it's 50 cent on the dollar I'm sure everyone would jump on those deals.
I just don't see it being real. Can someone shed some hope and bring this dream back to life.
Rental Property Investor · W Bloomfield, MI · Member since 2017 · 21 posts · 16 votes
7y
@chi ta It definitely isn't easy to find a deal. But they do exist! There are two primary ways to identify a BRRRR deal:
1. Buy a distressed property. Find something that needs heavy rehab. These properties comes with lots of issues so most people stay away. If you can get comfortable with issues that send most people running (e.g., need roof replacement, foundation issues, etc.) you can compete in a less competitive part of the market. As long as you have a realistic understanding of the total rehab budget needed, than you should be able to get comfortable making an offer. But there is risk in tackling large rehabs which is why not everyone jumps on these deals. (not to say that there isn't any competition...just depends on the area)
2. Buy from a distressed person. If you can provide an all cash offer and close inside of a week, that might be really attractive to someone in need of cash. And that distressed person is willing to accept an offer well below "market value".
3. Buy during distressed market. This is the third bonus one. Lots of great deals in 2008. But obviously you can't control this type of distress, and we definitely aren't in a distressed market at the moment!
I got my first deal by submitting a low ball bid that i assumed would get rejected. The seller was motivated and agreed to a number that was very close to my first offer. Don't be afraid to get rejected when sending low ball offers.
You can also work with wholesalers. Their job is to find really good deals, but often times they don't have the capital to complete the sale. You just have to be careful and make sure you verify everything they tell you (i.e., don't assume their estimated rehab budget or estimated ARV is correct)
It definitely works. People have done it. People are doing it. And people will continue to do it. I found a good BRRRR opportunity and i'm still a novice.
Hope this helps! Best of luck finding your first deal!
Rental Property Investor · W Bloomfield, MI · Member since 2017 · 21 posts · 16 votes
7y
@chi ta It definitely isn't easy to find a deal. But they do exist! There are two primary ways to identify a BRRRR deal:
1. Buy a distressed property. Find something that needs heavy rehab. These properties comes with lots of issues so most people stay away. If you can get comfortable with issues that send most people running (e.g., need roof replacement, foundation issues, etc.) you can compete in a less competitive part of the market. As long as you have a realistic understanding of the total rehab budget needed, than you should be able to get comfortable making an offer. But there is risk in tackling large rehabs which is why not everyone jumps on these deals. (not to say that there isn't any competition...just depends on the area)
2. Buy from a distressed person. If you can provide an all cash offer and close inside of a week, that might be really attractive to someone in need of cash. And that distressed person is willing to accept an offer well below "market value".
3. Buy during distressed market. This is the third bonus one. Lots of great deals in 2008. But obviously you can't control this type of distress, and we definitely aren't in a distressed market at the moment!
I got my first deal by submitting a low ball bid that i assumed would get rejected. The seller was motivated and agreed to a number that was very close to my first offer. Don't be afraid to get rejected when sending low ball offers.
You can also work with wholesalers. Their job is to find really good deals, but often times they don't have the capital to complete the sale. You just have to be careful and make sure you verify everything they tell you (i.e., don't assume their estimated rehab budget or estimated ARV is correct)
It definitely works. People have done it. People are doing it. And people will continue to do it. I found a good BRRRR opportunity and i'm still a novice.
Hope this helps! Best of luck finding your first deal!
I visualized this the same way you are. Then I got David Greenes book and I'm all in. This book will eliminate your confusion. It's in Bigger Pockets book store and called Buy, Rehab, Rent, Refinance, and Repeat. This eliminated my confusion and changed my niche completely.
Just saw @Robby Hogle post. He just nailed it for you. Thats why I'm excited because I'm liquid and able to compete with flippers with this approach. If you do your homework and purchase "as is" you'll have very little competition. Recommend you read the book and learn from the best meaning David Greene and Brandon Turner. This approach is new to me and very exciting.
Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
7y
I’ll also add, while $0 cash investment is the goal, I don’t mind if I find a property that I put some money into as well. As long as it cash flows and it’s an overall good investment, I’m still forcing a huge amount of appreciation with the Reno. Plus, I’m not planning on doing 10 BRRRRs a year. One or two is fine by me.
It might not be ‘by the book BRRRR', but it's working just fine for me.
San Francisco · Member since 2019 · 17 posts · 1 vote
7y
@Benjamin Garrett Correct, however during the refi portion onto a conventional loan, would the property need to be seasoned first? Since you just purchased the property will lenders just let you refi immediately like that?
Rental Property Investor · W Bloomfield, MI · Member since 2017 · 21 posts · 16 votes
7y
@Chi Ta if you buy all cash or with private money, you can refi anytime you want. No restrictions
The situation you are referencing occurs when you use traditional bank financing to purchase the property and then want to refi post rehab. I believe you need to wait at least 6 months between bank financings, but I could be off on the time period
Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
7y
BRRRR beats FLIP all the time.
Flippers have to get properties at huge discounts to make a quick flip viable, then if they make money they get taxed up the ying yang.
Borrowed money is not taxed!
95% of the investors are flippers are looking at just 5% of the available deals.
As a BRRRR investor you can outbid them on that cosmetic flip because you are going to hold longer, fix up , rent out, and refi and hold for 2-10 years. Much better place to be in.
Rental Property Investor · W Bloomfield, MI · Member since 2017 · 21 posts · 16 votes
7y
@Chi Ta hard money is a type of private money. No restrictions.
Most of the restrictions come from the government via Fannie Mae, Freddie Mac and Ginnie Mae. Each of these organizations buy mortgages that have been written by banks. But in order for these government organizations to be willing to buy these mortgages there are specific rules and criteria that need to be met (e.g., seasoning period, debt to income ratio, etc.)
Any other money is considered private money and the restrictions are only what that individual or company decides to impose
@Chi Ta if you buy all cash or with private money, you can refi anytime you want. No restrictions
The situation you are referencing occurs when you use traditional bank financing to purchase the property and then want to refi post rehab. I believe you need to wait at least 6 months between bank financings, but I could be off on the time period
On Conventional, Sometimes you can do a rate and term refi sooner and not take cash out, but this only makes sense if you have a much higher interest rate.
Developer · Philadelphia, PA · Member since 2018 · 21 posts · 7 votes
7y
@Chi Ta in a little over 2 years, I've taken a small amount of cash and built a 3 million dollar portfolio of 25 rentals using BRRRR. Don't forget, not only is it just like flipping in terms of the money, it's better in many ways. For example:
1. you don’t pay taxes on your cash out unlike the flips because it’s borrowed (so discipline to re-invest is a must)
2. You take advantage of appreciation
3. You build equity by paying off the mortgage if you hold long term.
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Chi Ta here are two real life, slightly different deals that could be BRRR if you wanted to. One of these deals I did myself, the other I know the investor who did it. Both happened in the last 6 months or sooner.
Deal number 1: buy duplex (1 bed, bath units) for 20k. Spend 26k rehabbing both. Up rents from 275 a side when bought to 550 a side post rehab. New appraisal: 75k. Refinance in 6 months at 75LTV and pull out all your money plus some.
Deal 2: buy house for 38k. Appraises at 55k as it sits. Refinance all your money out in 6 month if you choose. This may not be wise as cash flow is limited then, but you have no money in the deal. If you rehab, appraisal is probably 75-80k.
These deal types are out there but they’re hard to find. Both these deals were off market and took lots of networking and connections to make happen.