First Rental Property Investment: Conventional Strategy vs BRRRR

11 Replies

Hey everyone!

I'm looking to do my first rental property investment within the next few months. I'm planning on house hacking a duplex. 

For a first time investor, would you guys recommend going with the BRRR strategy right off the bat? Or trying to find a decent turn-key property that I could just get in and rent out. On paper, BRRRR looks vastly superior to simply acquiring properties with a down payment, but I'm thinking it might be better to go with the conventional way of doing things for my first property or two, so I can get some experience and grow my confidence.


What do you think?

Cheers!

-Aaron

It's a very subjective question, subject mainly to how handy and comfortable you are with doing your own rehabbing. The more of your own rehabbing you can do, the better off you will be with BRRRR than turnkey because labor is really expensive right now so your work can build a lot of equity and cashflow. In this market, at least near Cleveland for sure and probably most other places, turnkey properties are sold in bidding wars with people who don't intend/are unable to do rehabbing, and owner-occupants are usually willing to pay a lot when they want the house, so turnkeys are not usually selling at a good price for investing.

Turnkeys usually have their own problems when the deal makes sense, which is usually the property is under-rented or has a bad tenant.  Personally I'd rather rehab a house than try to fix a bad tenant issue or overpay for something that could be hiding shoddy work under it's recently-flipped veneer.

@Daniel K. Good point. I'm really not that handy, but I have some family members that are and are willing to help me do some rehabbing. It would probably benefit me in the long run. My only concern would be holding costs for the amount of time it would take as I'd really only be available on weekends. Probably would beat getting into a bidding war with someone which would ultimately effect my bottom line.

Is it also possible to get a conventional loan on a somewhat distressed property, fix it up with my own money, then refinance it to get my rehab money back from the equity I've built? Kind of like finance, rehab, rent refinance?

@Aaron Macken Good point about the timing.  It's true if your rehab takes too long or too much money anyway, you can end up better off with a turnkey purchase despite steeper competition.  If you figure what people are overpaying for turnkey and it's a smaller cost than your own rehabbing/vacancy you're probably better off trying to score a turnkey. 

For the second question, no, that's what private money lending is for. Lenders for that will usually want you to have some experience unless you decide not to deal with them and just source cash from private individuals instead. The closing cost for conventional loans are at about 3%. The bank for the conventional mortgage would also require another appraisal after your rehab to account for the increased equity, then take 3% again if you did cash out. You use the PML money to buy with low closing cost, then cash out equity to pay off the PML money ASAP to get a lower rate conventional mortgage for the long term.

@Daniel K. Thanks for the response. Makes sense that a private money lender would want you to have some experience under your belt before considering you, and I don't many individuals with money to loan.

I'm guessing my best bet to start off would to find a stinky home under market value, use my own money to rehab then rent it out. Maybe repeat that process one more time to show that I have some experience under my belt. After that I could look to acquire financing from private money lenders and go full speed ahead with the BRRRR strat.

@Aaron Macken @Beata Domagala

BRRRR is hands down the best way to get the highest returns and potentially use little to none of your own money. Many times after my clients refinance a BRRRR, they put money in their pocket and have an infinite return!

That said, you need to be realistic. BRRRR will require more of your time. It will require a greater skill set. You will need to manage a project and have a general understanding of the work entailed.

Buying turnkey requires practically no talent but if you're killing it at your day job, who cares? Bottom line, if you want to accelerate your real estate portfolio and are willing to learn by doing, BRRRR can be very rewarding. Check out my BRRRR profile pics and DM me if you have any further questions

Originally posted by @Aaron Macken :

Hey everyone!

I'm looking to do my first rental property investment within the next few months. I'm planning on house hacking a duplex. 

For a first time investor, would you guys recommend going with the BRRR strategy right off the bat? Or trying to find a decent turn-key property that I could just get in and rent out. On paper, BRRRR looks vastly superior to simply acquiring properties with a down payment, but I'm thinking it might be better to go with the conventional way of doing things for my first property or two, so I can get some experience and grow my confidence.


What do you think?

Cheers!

-Aaron

 -

If you have the opportunity to pull off a BRRRR and think you can be successful at it you'll make more money. That's the rub though. Can you pull it off? BRRRR is about you and your ability to do the following.

  • Raise / acquire funds
  • Market to distressed sellers
  • Estimate rehab costs
  • Estimate the ARV of properties in your target market
  • Manage contractors
  • Hit timelines & manage large projects / employees