Flipper/Rehabber · Mobile, AL · Member since 2010 · 138 posts · 55 votes
So if I've got $80k cash, should I.... A. find a discounted property (in my market) to repair, get rented, refinanced, and repeat (BRRRR it's cold!)
or B. Find 4 turnkey rentals (open to any U.S. market) for up to $100k each (assuming I'd have to say byebye to the cash for the down payments). Would love to hear thoughts on this.
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
5y
Ask this exact question in google and you’ll find very detailed scenarios of using leverage and using cash. The wealth difference of using leverage is huge. Why not borrow at 3.5% and make 9-13% in the money?
Investor · NJ · Member since 2019 · 80 posts · 71 votes
5y
Hey Brooks. Not sure I am the best person to answer this, but in my opinion the BRRRR path is better. That way you can recycle that 80K over and over to scale your business. My wife and I just bought our first duplex, and it is more or less turnkey (some small repairs to be done). We are glad we did this to get our feet wet and start investing, but for our second investment property we definitely want to add value and refinance so we don't leave so much cash in the deal. Just my two cents. Good luck!
So if I've got $80k cash, should I.... A. find a discounted property (in my market) to repair, get rented, refinanced, and repeat (BRRRR it's cold!)
or B. Find 4 turnkey rentals (open to any U.S. market) for up to $100k each (assuming I'd have to say byebye to the cash for the down payments). Would love to hear thoughts on this.
Thanks!
Hey man, I have had a similar discussion with a friend about this very subject. Since then, the interest rates have gotten even lower. Truth of the matter, you are going to see better appreciation and possibly cash flow with 4 properties. Plus, with the rates as low as they are right now, it's hard to pass on it. So right now where the market currently stands, cash is not king because people can borrow a lot of money for 3% interest. However, if the market starts to turn, and lenders aren't so generous, cash will be king again. But then, do you want all your cash tied up in real estate during a downturn? Perhaps, it's all speculative, right?
Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes
5y
Ask this exact question in google and you’ll find very detailed scenarios of using leverage and using cash. The wealth difference of using leverage is huge. Why not borrow at 3.5% and make 9-13% in the money?
Investor · Kansas City, MO · Member since 2019 · 130 posts · 118 votes
5y
Hey Brooks - have you considered house hacking instead? If that's an option and parts of your home town are appreciating rapidly that's probably a great first option.
I'm a big fan of leverage - that's probably what I'd recommend with current rates regardless of the house sourcing path you take.
Realtor · Columbus, OH · Member since 2016 · 170 posts · 227 votes
5y
Why not finance 2-4 brrr deals leaving some cash on the side for renovations or finance the reno cost as well? Do they have to be turn key. Brrr is always the way to go IMO unless you dont have the time to manage renovations with your full time job.
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
5y
@Brooks Conkle you're profile says that you are a flipper/rehabber so I'm assuming you have experience in that. If so, I would say that makes more sense to use the BRRRR method if you are certain that there is enough meat on the bones to pull your money back out. Obviously getting your ARV and construction costs right are key to doing that. Do you have the time and experience to pull it off? If not, doing 4 turn keys might be the better approach. It all comes down to your experience and time.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
@Brooks Conkle if you can manage it, buying under value and financing after rehab to pull your cash out is the best way to grow your wealth. That is your option A. As far as option B, I am not sure you can buy (4) $100,000 houses with $80K. Odds are good you will need more than 20% per property. I am also not sure that $100K houses are the best investment.
@Brooks Conkle you're profile says that you are a flipper/rehabber so I'm assuming you have experience in that. If so, I would say that makes more sense to use the BRRRR method if you are certain that there is enough meat on the bones to pull your money back out. Obviously getting your ARV and construction costs right are key to doing that. Do you have the time and experience to pull it off? If not, doing 4 turn keys might be the better approach. It all comes down to your experience and time.
Great points. Getting the ARV right is key. And I feel like contractors is a forever game -- just depends if I want to devote the time. Also some risk in nailing rental rates and knowing those. If I bought turnkey, I reduce some of those risks (also reduce amount of built in equity as well...)
Ask this exact question in google and you’ll find very detailed scenarios of using leverage and using cash. The wealth difference of using leverage is huge. Why not borrow at 3.5% and make 9-13% in the money?
Agreed. But in both of my examples, I'm looking to use leverage. Just one takes more energy/time --- buy/fix/rent/refi. Trying to compare the 2 ideas. I'm not sure if there's a clear analysis for this, as it's hard to factor in risk factors, time, etc. Thanks!
@Brooks Conkleif you can manage it, buying under value and financing after rehab to pull your cash out is the best way to grow your wealth. That is your option A. As far as option B, I am not sure you can buy (4) $100,000 houses with $80K. Odds are good you will need more than 20% per property.I am also not sure that $100K houses are the best investment.
if you can manage it - that's definitely one of the variables to take into consideration! Odds are good you will need more than 20% per property. - how much would you suggest?
I am also not sure that $100K houses are the best investment. - in lower Alabama, this is a pretty solid house :)
Why not finance 2-4 brrr deals leaving some cash on the side for renovations or finance the reno cost as well? Do they have to be turn key. Brrr is always the way to go IMO unless you dont have the time to manage renovations with your full time job.
Yep, the time is definitely a key variable in deciding what route to go. Thanks for your thoughts!
@Brooks Conkle you're profile says that you are a flipper/rehabber so I'm assuming you have experience in that. If so, I would say that makes more sense to use the BRRRR method if you are certain that there is enough meat on the bones to pull your money back out. Obviously getting your ARV and construction costs right are key to doing that. Do you have the time and experience to pull it off? If not, doing 4 turn keys might be the better approach. It all comes down to your experience and time.
Great points. Getting the ARV right is key. And I feel like contractors is a forever game -- just depends if I want to devote the time. Also some risk in nailing rental rates and knowing those. If I bought turnkey, I reduce some of those risks (also reduce amount of built in equity as well...)
Brooks, there's no doubt that turn key would be a less risky. There's a lot of moving parts with a BRRRR but if you get the numbers right up front it can be worth it. I would only recommend it if you have experience and are local however.