I feel like someone needs to push back on the BRRRR strategy a bit. Disclaimer: I use the BRRRR strategy and it is a very powerful investing tool that can create great returns. With that being said, I lost a lot of money on my first couple. Only now after 10+ years of investing, property managing, working as an agent, do I have enough systems in place where I am having some BRRRR's go well. This strategy seems to be the most attractive to new investors. For the most part they are highly intelligent, successful in the industry they work in, and impatient. When they add up the returns of traditional RE investing it feels like it can take more than a lifetime to get to financial freedom and enough units to live on the beach. While that may be true what is not as easy to measure is the amount of risk these projects come with, how much can go wrong, and how you an actually come out of them WORSE OFF. I have done it. BRRRR's are very tough to pull off. Experience seems to matter a lot more than intelligence on a BRRRR. Quotes can be all over the place from a high end large contracting outfit to a low end, uncle Bill, one man band contractor who does not have insurance and can under cut anyone's price by $20,000, until he can't finish the work, and needs another $40,000. This is a very high risk strategy if you do not have all the pieces in place. It is comparable to D class investing with the amount of risk you are taking on. And it may amount to more risk because you can spend $50,000 to find out you are up a creek with the wrong contractor and have to start over. With a D class investment at least you have a finished asset in most cases. On top of all of this if you are borrowing money from a HML and you are over budget, and over time, you are going to continue to pay dearly. When you take into account a complex construction project that even seasoned veterans have trouble estimating, an order of operations that is not always crystal clear at the outset because you don't know what works and what is behind the walls, and the fact that you will be managing a plethora of contractors and subs, the BRRRR has as much that can go wrong as a high risk D class investment. Like I always say with D class investing, they are fantastic returns... if everything goes right. Same comment on the BRRRR... great strategy, if everything goes right

@Matthew Irish-Jones I have been at this for over a decade. The amount of wealth it has created has allowed me to move from single family properties, all the way to 100+ multi family value add deals.. The mistake I see people make is expecting to buy a property that needs big construction rehab, like what you see on HGTV, and that’s all wrong. The goal is to buy it for cheaper than it’s worth with as little work as possible, not buy it and make it worth more. Case in point, I bought a house recently for 130k, it appraised as is for 300k. I sent a carpet install, painter, and had a handyman do some basic with lightbulb and such, then had a cleaning lady wrap it all up. My cost was not even 5k. I then proceeded to refi it a month later for 150k, and rent it out for $1,850. When folks buy pigs and try to turn them into unicorns, that’s when they can get in trouble with BRRR.

@Matthew Irish-Jones Yup when this all came out as a new fangled way to do real estate and the term was coined and the book was published to me it was Holy cow there are going to be some serious sad investors who have no experience trying to do what is described.. no question this works but for those that dont live anywhere near the assets and trust some core 4 team they take huge risks that simply were never talked about ..

What you are looking for, already exists Mathew, its call expected value. You need to have an idea of how likly the thing you are worried about is going to happen and the costs. For example: You have a budget for repairs of $10k and the risk is going over budget. There is a 50% chance you stay on budget, a 40% chance you spend $15k and a 10% change you spend $25k. Multiplying all those together [.5*(10)+.4(15)+.1*(25)] you get $13.7k. So there is $3.7k of "risk" in the rehab. You follow the same concept for all the other risks: We thing the ARV is $230k, but there is a 40% chance it cold be $200 and a 5% chance it could comp out at $250, so your weighted ARV is $219k or $230k with $11k of "risk". The hard part is getting the odds right, which is an entirely different basket of worms, but for the most part, this type of thinking can help quantify the risk of the project by making the investor think about what could go wrong and attempt to quantify them in numbers.

@Matthew Irish-Jones I think what you are saying is right but it is not specific to BRRRR. You can say the same thing about any strategy. People need to do due diligence, have a level of competence and budget for contingencies otherwise things can go wrong.

@Brent Coombs I’m not blaming the strategy, I’m explaining there is a lot of risk in the strategy. You lose money by over spending on a rehab and being upside down on your equity. You can also lose money by using a HML and going over budget and over on time, and having to pay a high interest rate for an extended amount of time. You can also lose by having shoddy work done and having to track back and redo the work after it starts falling apart a year later. Lastly, there is an opportunity cost. If any of the above happen you have to compare your time, effort, and returns to what could have been bought on the open market and been cash flowing from day one. If you do a BRRR that takes 5 months and you end up with 25% left in the deal after 5 months of headaches are you better off than where you would have been had you paid full price for a turn key property.

The points made here apply equally well to flips with the added point that miscalculating the ARV (or having the market move on you between purchase and sale) can prove ruinous. The key takeaways IMHO are as follows: Taking on RE projects without sufficient capital is a sure fire way to lose money (unless God is on your side for some reason) Picking a RE investment is even harder than picking a stock because you do not have an even relatively efficient market pricing these assets The risk number (like the "easy button" in those commercials) just doesn't exist - the concept of "risk-adjusted return" is often no more than wetting a finger and holding it in the air

There was a time when in the commercials a real estate guru produced, the disciples would sit on boats and brag about how much money they made in their spare time. If you bought the guru's secret system, you would, too. The guru was selling a secret.Then came a new thing, flip shows, where TV did its best to make a life of residential renovation management sound glamorous. The shows were selling residential remodeling and decorating as a way of life, funded by the advertisers who bought heavily into these shows.But the latest addition to the stable of techniques on how to sell real estate is what I call "magic spreadsheets." That's the idea that all a successful real estate investor has to do is find a property with values that lead to the right outcomes when you put them into a complex equation within an online app. This numbers-based approach implies heavily that all you have to do is find the property with the right numbers and you Just Can't Go Wrong. It's A Sure Thing.The people behind this are digital True Believers who understand that all they have to do to sell other True Believers something they already know in their heart's core to be true: that mathematics and computers and data processing can solve anything.In the history of how to sell real estate investing, BRRRR is far and away the latest and greatest investing approach that diverges from reality with the aid of numerology. The way it's sold is telling. Find a contractor you can work with. Find an agent you can work with. Find a property manager you can work with. Find a money guy you can work with. These are people reduced into four elements of the equation. If the numbers on the property work in the calculator app, then you plug the right four people in, hey, the rest of the equation works AND YOU GET RICH QUICK AND EASY.This idea is just incredibly seductive to anyone who gets paid to spend ten hours a day typing on a keyboard in front of two or three monitors in a 6x6x5-foot cubicle.

@Matthew Irish-Jones If someone gets a buys a screwdriver and tries to use it as a hammer, you blame the person. Not the screwdriver. BRRR is one of the best strategies for growing wealth IF done correctly. If done incorrectly, the leverage can work against you and be catastrophic.

Why push the BRRRR so hard

Laura Spaulding

Rental Property Investor · Tampa, FL · Member since 2015 · 52 posts · 31 votes

5y

I couldn't disagree more. If it wasn't for BRRRR I wouldn't of been able to acquire more than one or two homes. You really might only have to borrow HM on the first one, then leap frog the profits from that one to the second and third and so forth. I started by saving money for my first property (No HML) and I have used the refinance money from the first one to buy the second and so forth. I would never have been able to do that if I had not BRRRR'd the property.

1 Reply

Jon KellyPro Member

Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes

5y

There's risk in all forms of real estate investing. Yes, BRRRRs can have a high degree of risk, but your returns can be very high and sometimes infinite (e.g. if you're able to pull out all of the down payment and rehab costs when you refinance).

0 Reply

Andrew SyriosPro Member

Moderator

Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

5y

Because the BRRRR stragety is awesome

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Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

5y

Originally posted by @Account Closed:

Originally posted by @Steve Vaughan:

Giving an age old strategy a new name and making it sound simple and cheap and fast is what gets me.

Very little discussion of seasoning or borrowing costs, appraisal delays, hassles of qualifying, etc.

Many are surprised there is a six month holding period before their refi appraisal doesn't get brought down by their own purchase comp.

Then surprised again that it costs $5k to get the refi. On top of the costs to borrow to buy if they needed to. Let's just call it refi and repeat and leave all mention of seasoning and high costs out of it.

Hey Steve, I'm seeing a lot of people post this, and I'm wondering where you are seeing that. Is it on here on the forum?

In "The Book on Rental Property Investing" by @Brandon Turner, he talks about BRRRR as buy an hold, outlines the risk, hard work, conservative assumptions, focuses on "smaller [rehab] fixes" that might seem big (the one of these I disagree with is the roof replacement). I really didn't get a "get rich quick" vibe. Just my perspective. Of course he is showing numbers that work, to illustrate the strategy, but he's very good about giving pros and cons, as well as disclaimers, throughout.

Just $0.02 from this skeptic. - Ryan

P.S. The most important advice in the book is that "you make money when you buy it". To state the obvious, if this pivotal factor is right, it makes or breaks any strategy. Buyer beware!

Hi Ryan. I just don't hear enough on these forums or on the podcast about seasoning requirements of 6-12 months before it will refi at ARV or costs of getting loans. 2 loans (the buy and refi) will cost at least $8k.

You didn't mention these either. Are they covered in the book?

2 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

5y

Yep, that's my point. Seasoning and costs are extremely important aspects of BRRR, yet it's not memorably pointed out even if written about.

What's important is what we take away from a book or podcast. Those 2 huge factors aren't.

1 Reply

Tony Kim

Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes

5y

Originally posted by @Jim K.:

Originally posted by @Account Closed:

Originally posted by @Jim K.:

Originally posted by @Account Closed:

The main thing that appeals to me about BRRRR, especially in this market, is that I might get better deal using cash, and buying a property that needs improvement. Then getting my capital back out at a good interest rate and redeploying it.

Disclaimer: I’m a newbie I don’t know crap the above is just my working hypothesis. Feel free to disabuse me of these notions I’m on here to learn.

Everything you mention that appeals to you about BRRRR has to do with numbers, mathematics, and having a conversation with a banker and deal-finding agent, both of whom have very limited actual involvement with the property beyond finding and financing it. There are two parts of BRRRR that have very little to do with mathematics, nothing to do with bankers and agents, and require intimate involvement with the property.

Renovation: with or without the help of a general contractor, actual people have to fix actual problems with an actual structure within an actual budget.

Renting: after the property is renovated, with or without the help of a property manager, tenants have to be placed and the property has to be successfully and profitably run over the long haul.

These two things in the real world bear very little resemblance to crushing it in FarmVille.

@Jim K. What do you think is the best path for someone getting started right now? I'm attracted to the real estate space precisely because it takes more time and hard work and the potential to benefit from my own footwork. If I wanted easy I'd just stay completely in ETFs. I want to diversify. I'm going to need something to do after I FIRE. I'm looking to generate passive income over the long haul, not make a quick buck.

From your response above it seems that finding renters and managing the property long term is inherent to all rental strategies, not just BRRRR. Regarding what you said about renovation, are you saying looking for something turn key or needing only simple fixes is a better approach?

Hi, Ryan. Yes, it would be good to contribute something more useful to this thread than "BRRRR is not for newbies, don't do it!" as pointed out above.

On our first rental deal, we got very lucky. We hit a single. Not a double, not a triple, most certainly not a home run. But a good solid base hit. The more time I spend on this board, the more obvious it is that people who are in this over the long haul have a similar story that goes along with their first deals. It's either a single or a failure that can be turned around with enough work. Nobody nails it the first time and goes on, from strength to strength to strength. You are best off starting small so you can fail small.

Perhaps the biggest problem with BRRRR for beginners is that the possibility for catastrophic failure is really so extreme. You can fail on the buy, on the borrowing, on the renovation, on the landlording, everything. And there is no such thing as having a real talent for any of these things. Skills have to be acquired in each of them. Initial luck can easily become a curse later on. Imagining that paying someone such as a property manager or contractor is going to eliminate or even mitigate the risk is wrongheaded, because managing property managers and contractors require their own skill sets, which also have to be built over time.

I am a huge fan of househacking for beginners. Currently, that's what my wife and I do. I would very much advocate the same strategy in a duplex for everyone looking to get into residential real estate. You get to take a minimal risk on the buy thanks to the advantageous FHA financing available (I didn't). This minimal risk allows you to buy a duplex in relatively good condition (I didn't). A duplex isn't so big that you can't learn the practical basics of single-family home maintenance with it (this is why I don't advocate buying a larger and more complicated quadplex as a first buy). And finally, while you're learning the practical landlording ropes with your duplex, you also get to see how cutting down significantly on your housing expenses, typically the largest expense of any family, fundamentally changes your family finances.

That's how you really get a solid foundation in personal finance and landlording with minimal heartache. You also get to ease your family into this life. Because without their support, the chances of you failing in the long run are astronomically high.

On to the second step, by all means, work towards BRRRR as a strategy. There are two ways to learn how to successfully manage a full-on residential renovation. The first is to start after at least a few years working in the residential construction industry. The second is to fail and fail and fail and fail at it until the failure beats you into basic competency. To be perfectly honest, this also pretty much describes what spending your first few years in the residential construction industry is like, and it takes longer.

Successfully managing a full residential rehab of even moderate complexity is murderously difficult to learn how to do well. I mean, it's just nuts, well beyond anything on the safe side of sanity. You've got to know a lot about a lot and stay on top of a lot of stuff all at once. Most successful general contractors do not get there without working under mentors, as well as sleeping a lot of night in their vehicles in the driveway of the property they're working on. Most construction leads do not become leads without significant formal and informal teaching experience. And thanks to decades of their work being denigrated and dismissed, most successful skilled tradesmen CANNOT STAND smug college graduates and look to undermine them wherever they can. The numbers of quality GCs in the US workforce is shrinking far faster than it's being replaced, if you can even find someone competent who is not overbooked already in today's market. Remember, by the time you get to people you can hire for your first BRRRR, they have failed to find steady, reliable, highly-paid work in new construction, also on established renovation teams for well-respected concerns, and they're not busy on their own projects done on their own dime. Unless you pay top dollar for a boutique rehab (which is typically not what you would want for a BRRRR), you're working with the fourth or fifth string of GCs only.

So successfully finding and working with a GC on your first BRRRR is far more a matter of luck than most people make it out to be, while successfully acting as your own GC on even a moderately complicated single-family renovation for rental purposes is a lot more complicated than most people understand.

What's the solution? Find that GC, cultivate a personal relationship with that GC, treat that GC like gold. Until you have someone like that in your corner, be very careful about doing full-house rehabs with borrowed-money budgets. It might work once, it might work twice, but if it keeps on working and working, you were either born under a very lucky star or you're setting yourself up for a monumental failure.

Jim, your post should be required reading for anyone who is interested in "getting into BRRR". I cringe when I read someone who posts how they're interested in RE and want to get started by BRRR due to its higher returns.

Regarding the importance of finding a good GC.....I can't help but laugh when I think about what goes through a GC's mind when a green investor contacts them and tells them they need someone to rehab an entire property and it's obvious they have no idea what they're talking about. Can't underestimate how important it is to find the right person you can trust and that takes years of cultivating the right relationship. Heck, I don't do BRRR. I'm a buy and hold investor, but I wouldn't even dream of doing so if I didn't have a GC that I trusted and have worked with for many years.

3 Reply

Jason Shackleton

Investor · Ontario · Member since 2015 · 486 posts · 250 votes

5y

@Matthew Irish-Jones People also lose a lot of money flipping, While wholesaling and even find a way to do so with buy and holds. These strategies are all tools. It is up to the strategic investor to know what strategies to use at at the right time. I have never persoanlly even came close to losing money on a BRRRR. Generally being able to pull out enough money to fund the next deal entirely! That being said it can be easy to do so if errors are made. One must buy at the right time, buy the right asset class, bring the property to it's highest and best use, know what they are doing, Likely do the work themselves etc etc.

I think the point you are making is that the BRRRR strategy is not as easy as people make it sound. I will definetly agree with that. In fact it is very challenging and a testing journey. My journey was very tough. Most will likely fail while attempting it, most fail with the majority of things they attempt in life for a variety or reasons. Lost of things can and will go very wrong.

Personally however this strategy made me a millionaire starting from nearly nothing.

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

5y

Originally posted by @Steve Vaughan:

Giving an age old strategy a new name and making it sound simple and cheap and fast is what gets me.

Very little discussion of seasoning or borrowing costs, appraisal delays, hassles of qualifying, etc.

Many are surprised there is a six month holding period before their refi appraisal doesn't get brought down by their own purchase comp.

Then surprised again that it costs $5k to get the refi. On top of the costs to borrow to buy if they needed to. Let's just call it refi and repeat and leave all mention of seasoning and high costs out of it.

Steve as you know I started my out of state investing in 2002 funding BRRR deals for west coast buyers and turn key operators.. we just called it rate and term refi.. but keep in mind in those days we could be all in for 65% of ARV that included buying the property the rehab commission to the sales folks on the west coast profit to the flipper in the market and my points and interest on the loan to put the buyer into title.. The difference was we had them fully qualified for the take out before we made the loan to them and there was no seasoning so there was not this big what IF going on.. we spun our deals in those days an average of 91 days start to finish and most West coast investors would buy 4 at a time.. I loaned them the money to buy and rehab.. take out guys took them out at 75% ARV which we already had the appraisal up front before I made my loan so it was just a 442 reinspect deal closed investor got their 4 props west coast marketer made their commish the flipper in the market made their profit and we got our points and interest that's true rinse and repeat.. End of the day the West coast investor would usually end up with about 5k of refi proceeds in their jeans so X 4 was 20k and 100 a month was the standard for cash flow after all expenses. Now investors cant get the deals cheap enough USUALLY also they are uncertain about their take out loan and you have seasoning .. I think locals can do good with the strategy that has been around for 100 years LOL> but is new in BP land. and you make great points BRRR the way its taught unless they pay cash up front probably cost 10k minimum in fee's to get done. so how much are you really saving .. Plus not sure the absolute risk to an out of area investor is worth it.. If it does not work they can find themselves losing a lot of hard earned cash.

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3 Reply

Rich S.

Central, MN · Member since 2015 · 148 posts · 184 votes

5y

@Steve Vaughan and @Jay Hinrichs and @Jim K. are bringing what folks really need to read in this thread. None of them are saying it is a terrible idea, but they are all making sure you SEE every side of it. BRRR can be a great strategy, but like most other things in real estate, the property and the people screw it up often. If you don't buy it right and don't rehab it right, it doesn't really matter what strategy you are using, it will likely fail. @Shiloh Lundahl lays that out perfectly.

BRRR is so popular because folks see it as a path to get started that has a "splash" but also a long road cash flow in the same model.... the "splash" is I can pull money ALL my money out to do another deal and the cash flow is even with pulling on the money out I make money each month. The new age is "I want it and I want it now" not.... i'll buy this or invest that to get return in 20 years.... it that is all it was about, people will just invest in the markets the old fashioned way, or god forbid, just SAVE money instead of spending it.

Any effective REI strategy involves strategic partnerships, money and work. I could invent a new QRGBF strategy tomorrow, but without those three things, it is just a bunch of letters. Build a plan, vet it with people you can trust, find a low risk entry and put it in action- you still might lose, but you will most definitely learn- one way or another- you'll find your real estate path or you'll find a different path.

1 Reply

Eric Bilderback

Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes

5y

@Account Closed

Thats awesome man. I really like Set for Life because it is so simple and so true. I'm glad to hear you are on your way.

I have been a landlord for close to twenty years now and I have never been sued. Buy nice places that good people will want to live in and then screen their butts off. If you do that I can's see how a guy will not be successful.

2 Reply

JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

5y

My thoughts, in no particular order:

1. BRRRRR (I actually think it should have another R for Reserves, and thus be Buy, rent, rehab, reserve, refinance, repeat) doesn't mean that you will always get all of your money back. It depends on the deal. If you cannot afford to leave money behind you cannot pursue this strategy.

2. BRRRRR is best done when you are starting from an all-cash position. If you borrowed the money in the first place, you are now paying some of those costs twice and that has to be factored into the equation on whether or not it makes any sense. Otherwise, you just buy something with leverage in the first place and that's that.

3. BRRRRR works best when you can balance the risk against other performing assets. I think I had 4 or 5 fully cash-owned properties before I did one.

4. BRRRRR should always have an exit strategy and a risk containment strategy. IE what if rents fall below your payment costs. What can the property sell for on the open market quickly. ETC.

5. BRRRRR works best on longer timelines. Trying to cash-out refi 6 months in often doesn't leave you enough time to judge how well this asset is going to perform. I think I had the first property I did it with for 3 years before I did it.

6. As a side note - there are no absolutes in real estate. Anyone that tells you otherwise either thinks too much of their own opinion or is just plain misinformed.

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Skyline Properties

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6 Reply

Evan Polaski

Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes

5y

@Matthew Irish-Jones, I generally agree, specifically if I hear someone that says: I would never do flips, but I want to BRRRR. Well a BRRRR is a flip, with less room for error (only about 75% of your ARV available in refi proceeds) and the numbers need to work as a turnkey rental too.

And then you get into the fact that BRRRRs, by nature, are almost always older properties with more CAPEX coming. Often times this CAPEX is not handled in the rehab, but it doesn't mean it is not there.

And lastly, the issue with a BRRRR is you are a landlord at the end of it. So, you are buying yourself a job. It may be a high paying barely part-time job, especially when you only have one or two, but it is a job that involves work.

4 Reply

Joe Cassandra

Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes

5y

I just completed 4 BRRRRs...

My perspective:

Results:

- Got all cash (and some) out of 3

- Had 9% of money left in last deal ( I knew from the get go I wouldn't get all money back)

All SFHs in hot areas of ATL. b-c class.

----------------

What I learned:

1) Part of your math you need to include the rent you rec'd during the 6 month timeframe.

2) YOU NEED TO BUY GOOD DEALS. I'm buying houses at 65-75% - repairs with a good rent-to-cost ratios

3) Yes, you will get your money back, but your cashflow per month may be lower than what you hoped (that's what I found with ours. For us, we don't take cashflow out each month to spend, we just leave it so we'd rather have all our cash back at refi and let the house run for 2-4 years without touching any cashflow)

4) You must know your repairs well (we get ours within 5-10% once done...and we're still relatively new.)

5) Find a good bank who can do it at 75% LTV (80% LTV if you don't get cash out).

6) Watch out for BS closing costs on the refi. I just got screwed on two of the houses. In return, I got 30-year amort. instead of 20, but fees weren't worth it.

7) We got some help as we got appraisals as markets are as hot as ever (not huge jumps from our initial numbers, but a good 5%)

--------------

I think BRRRR is awesome.

Just be realistic that "You can get all your cash back", but don't expect "I'll get all my cash, and then some so I get infinite returns, AND have a ton of cashflow each month."

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

5y

Originally posted by @Rich S.:

@Steve Vaughan and @Jay Hinrichs and @Jim K. are bringing what folks really need to read in this thread. None of them are saying it is a terrible idea, but they are all making sure you SEE every side of it. BRRR can be a great strategy, but like most other things in real estate, the property and the people screw it up often. If you don't buy it right and don't rehab it right, it doesn't really matter what strategy you are using, it will likely fail. @Shiloh Lundahl lays that out perfectly.

BRRR is so popular because folks see it as a path to get started that has a "splash" but also a long road cash flow in the same model.... the "splash" is I can pull money ALL my money out to do another deal and the cash flow is even with pulling on the money out I make money each month. The new age is "I want it and I want it now" not.... i'll buy this or invest that to get return in 20 years.... it that is all it was about, people will just invest in the markets the old fashioned way, or god forbid, just SAVE money instead of spending it.

Any effective REI strategy involves strategic partnerships, money and work. I could invent a new QRGBF strategy tomorrow, but without those three things, it is just a bunch of letters. Build a plan, vet it with people you can trust, find a low risk entry and put it in action- you still might lose, but you will most definitely learn- one way or another- you'll find your real estate path or you'll find a different path.

Just like Fox news we want to be fair and balanced

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3 Reply

Cody L.

Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes

5y

BRRR is like everything else: If you know what you're doing you can make a killing. If you don't, you won't.

I've BRRR'd my way into a nice portfolio. So I'd have a hard time not suggesting it to someone as a strategy. Just don't go into it thinking it's free/easy money.

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Andrew Tripp

Investor · Chicago, IL · Member since 2020 · 50 posts · 32 votes

5y

It is an active strategy, so it is going to require a lot of time no matter how good your team is. That is something you do need to value as an investor because of the opportunity costs of not being able to chase something else. It does seem to be a good way to learn the nuts and bolts of real estate without a ton of money at risk.

One macro thing I would note, we've had a crazy long upcycle where values have only gone up for what seems like 10 years now. That is not always the case. I saw some people get straight wiped out in 2008. And not newbies, but experienced people with alot of equity and decent reserves. If you can mix it with longer, solid cash flowing buy and holds (using some OPM on the equity side) along the way, then you would have a decent hedge.

2 Reply

Tom O.

Chicago · Member since 2018 · 216 posts · 165 votes

5y

Yes, you are so right. Every idiot I meet hasn't done a deal; doesn't own anything and is living in an apartment but they want to do a BRRR. They think they can just buy something, hire a GC and viola it will be perfect in three months they can sell it for some really high price.

I grew up in construction. My dad was an architect. We built four houses with my dad being the GC while I grew up and worked on those houses. I worked in a lumber yard in high school and my doctor brother worked for electricians.

And I don't want to touch a BRRRR especially in such a heavily regulated City like Chicago.

And these young fools are like: I'm going to do a BRRR and make $40k.

I always say: BRRR is just a tactic. The GOAL is to make money in RE. That's why I like turnkey. I know what I'm getting. I can handle "light rehabs." Kitchens. Bathrooms. Floors. Roofs. Tuckpointing. But I'm not going to do a "gut rehab" anytime soon.

I feel like Mickey O'Rourke in Body Double when I say to them: "You don't even know half of what might go wrong and cost you money. Do you have any idea what a 2 X 4 costs right now? Have you ever submitted plans to the Chicago Buildings Dept. to get your building permit approved? Do you have any idea how long that takes?"

I tell them I wouldn't do it and I own 4 buildings and have rehabbed 4 apartments.

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Ed B.

Real Estate Investor · Sacramento, CA · Member since 2010 · 298 posts · 103 votes

5y

Redeploying it? Whatever happened to the tried and true word "reinvesting?"

Originally posted by @Account Closed:

The main thing that appeals to me about BRRRR, especially in this market, is that I might get better deal using cash, and buying a property that needs improvement. Then getting my capital back out at a good interest rate and redeploying it.

Disclaimer: I’m a newbie I don’t know crap the above is just my working hypothesis. Feel free to disabuse me of these notions I’m on here to learn.

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Jim K.

Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes

5y

Originally posted by @Tom O.:

Yes, you are so right. Every idiot I meet hasn't done a deal; doesn't own anything and is living in an apartment but they want to do a BRRR. They think they can just buy something, hire a GC and viola it will be perfect in three months they can sell it for some really high price.

I grew up in construction. My dad was an architect. We built four houses with my dad being the GC while I grew up and worked on those houses. I worked in a lumber yard in high school and my doctor brother worked for electricians.

And I don't want to touch a BRRRR especially in such a heavily regulated City like Chicago.

And these young fools are like: I'm going to do a BRRR and make $40k.

I always say: BRRR is just a tactic. The GOAL is to make money in RE. That's why I like turnkey. I know what I'm getting. I can handle "light rehabs." Kitchens. Bathrooms. Floors. Roofs. Tuckpointing. But I'm not going to do a "gut rehab" anytime soon.

I feel like Mickey O'Rourke in Body Double when I say to them: "You don't even know half of what might go wrong and cost you money. Do you have any idea what a 2 X 4 costs right now? Have you ever submitted plans to the Chicago Buildings Dept. to get your building permit approved? Do you have any idea how long that takes?"

I tell them I wouldn't do it and I own 4 buildings and have rehabbed 4 apartments.

My favorite BRRRR poster to date in the forums was this one guy whose profile pic was literally him in a cap and gown on graduation day. His plan was to get out of grad school and immediately run MULTIPLE renovations at once, oversee three, four superstar GCs all busily and profitably working to make him rich at the same time. Of course, the poster had zero actual experience with renovation.

Personally, I blame Publisher's Clearing House for doing this to our culture. They run those commercials with the big checks and that damned song, people going crazy with unearned success, "Miracles can happen, can happen to you..."

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Jonathan KlemmBusiness Member

Moderator

Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes

5y

@Tom O. - I am on board with you, except my number one goal is time freedom which obviously comes from money - but still a different goal.

I personally like Chicago, but totally agree that BRRRR deals are very hard to come by. I think way too many new investors overemphasize the numbers instead of just getting started. From my perspective, if you find a house hack that ends up lowering your total living expenses and gets you into the real estate game - it's a win.

Construction is probably the most difficult thing surrounding real estate in my opinion so having a background like yours definitely gives you a competitive advantage.

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Daniel Peretz

Member since 2021 · 1 post · 0 votes

5y

@Jack Orthman beautifully put my friend, thank you for your input.

0 Reply

Francis Louis Vogel Jr

Banker · Saint Clair Shores, MI · Member since 2011 · 131 posts · 53 votes

5y

Great post with informative answers.

Thanks

0 Reply

Anthony Angotti

Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes

5y

Originally posted by @Ryan Talmadge:

I was just talking about this with my wife today. People are getting sold a bunch of lies and it's not to down the community in anyway, but the way this stuff is peddled is crazy.

Yeah man.... you can totally "Make tons of cash tomorrow without using any of your own money and then get paid after the job is complete!". As someone who fell for it and sucked on the nipple I can say first hand that it couldn't be further from the case.

This takes work... has potential for serious fines and in some cases jail time.... potentially to have your property pooped on because uncle jims contracting didn't pull permits. Dude idk it's kind of sad....

To make a long story short... what kids need to do is save up and build a team over the course of 6 months... 2 of each that you can trust and save some bread... maybe 50-100k then JV a deal with a seasoned vet you can find at a local REIA after you vet them... 60/40 the profit in exchange for education and move on.....

This ain't a video game kids!

I agree. It's because so many people are interested in real estate investing and sites like this and gurus sell the sizzle on the surface. BP is good about digging deeper once they draw you in, but BRRRR is great because people don't have money to get started so they buy a dream. And buy products selling that dream.

Buying real estate with no and low money down is great if you have money already. Potentially disastrous to your future finances if you don't.

Ultimately getting wealthy with real estate is still a get rich slow game. There's no short cut. There's no cheat code (except house hacking, that my friends is the one and only cheat code).

In today's market it's too hot to BRRRR consistently unless you are putting a ton of your own energy and work in to execute it. BRRRR deals are simply too hard to find unless you're finding them on your own. Which is why you SHOULD be familiar with it. It's a very powerful strategy, however it should be just that A strategy. Not THE strategy. One tool in your tool belt that you can apply when the situation demands, but if it's the only thing you are going to do you're going to be spinning you wheels for a long time unless you take much of the finding places into your own hands. Then as OP mentions, there's a whole new group of hurdles for newbies to overcome. I would say that you shouldn't even do BRRRR until you've done a flip at least or done a more traditional rental purchase.

2 Reply

Albert Weaver

Tacoma, WA · Member since 2010 · 4 posts · 5 votes

5y

I've always believe that is was a wasted of time for newbies to worry about BRRRR when they don't even own a house yet. I thought I was the only one who believed this. I hear too many people saying they want to get into real estate and want to know now to begin BRRRR'ing, but I'm always saying not to worry about the strategy. Just get your finances in order, buy your first house with the plan to turn it into a rental in a couple years. Then buy another primary when you can.

I love the BRRRR strategy, but it's not the easiest way for newbies to get into real estate.

3 Reply

JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

5y

Originally posted by @Account Closed:

I was always been against BRRRR from the minute I learned about the system. The profits are too low and the risks are too high for the small return. According to Murphy's Law, "If It Can Happen It Will Happen" and the poop will eventually hit the fan. Rather than risking your money and spending hundreds or thousand of hours of your time trying to build a portfolio where you own a bunch of hungry dinosaurs you have to feed and clothe for a few hundred dollars a month you would be better off cleaning tables in a fast food restaurant for a few years with your spare time, save more cash to get into even some small multi-units, earn 500% to 1,000% more on your money with multi-units and save yourself from the grief of having to pay $6,000 to $12,000 to clean, paint and -re-rent a single family home that has minimal returns.

YOU HAVE TO LEARN TO DO THE MATH and stop listening to wannabe so-called experts who did one real estate deal and figured out they could make more money by selling their story than they really can with their real estate investing.

I see too many amateurs risking their money when they don't have real estate experience, no business skills, nor trade skills. They can't do the math, don't have enough cash to weather a storm and they have a mind-set where they focus more on profits than they do on risks.

There is so much more profit when dealing with even small multi-units vs. single family homes and if you can't understand that then you should not be investing in real estate. The only exception to investing in multi-units is when you can get single-family homes for a steal, or when they appreciate in value, significantly, but you will never get rich from collecting rents when single-family homes don't appreciate. In fact, if they don't appreciate the chances of making any profit are slim when property taxes, insurance and maintenance costs increase every year and when you get hit with a bill for a new roof, new pipes, or you have to pay $6,000 to 20,000 because a tenant destroyed the house, or as the house ages you need to do install new kitchens, bathrooms, floors, etc..

Owning single-family homes for rentals is exactly the same as owning your personal home where we homeowners are constantly spending money on the home. I purchases a 3-bedroom home for myself in 1974 for $49,000 and still own the home today. Since I purchase the home, I remodeled the kitchens and bathrooms 3 times. I installed new windows 2 times, changed the heating and air conditioning 2 times, changed all the flooring 3 times and spent more than $400,000 on the house since I owned it.

Single-family rentals are no different than your home when it comes to costs. Rental homes need new roofs, plumbing, windows, flooring and every so many years the kitchens and bathrooms need to be remodeled. The difference with multi-unit properties is the time and cost. We can gut an apartment to the 2 x 4's and install new kitchens and bathrooms, plaster, paint, complete the rehab in 4 weeks and the cost is about $20,000. You can't do that with a home. So, do the math and multiply the cost and time difference and the money you save by the number of units you would like to own.

I agree with some of this but not all of it.

1. For a SFH that's not in any kind of appreciation area (I define appreciation as inflation+), yes you better have some real strong cash flow that covers capital expenses as well as operations.

2. There's no such thing as "mfh is more profitable than sfh" as a blanket statement in the US. It depends on a lot of factors. There are some massive corporate entities that specialize in buying nothing but SFHs and they don't do it because it's unprofitable. Like everything in real estate, the answer is "it depends". SFH is more profitable on a per-unit basis where I am than MFH, and is the reason most MFH here is owned by corporations; they can accept a lower profit margin because of economy of scale and disbursed risk. Other areas the opposite is true.

3. You must like remodeling, and expensively. I've owned my house for 28 years and I haven't spent anywhere near $400k on my property. I've replaced one heating system, one water heater, one roof, flooring in every room (twice in the kitchen). Same windows as original (if you had to replace windows twice you must have bought some cheapo windows the first time), but even if I replaced all the windows everything above doesn't add up to $50k and some of it was done pretty recently, and my personal home is 2200 sf. Even if I doubled that I'm only at $100k.

4. A lot of the stuff you list as needing redone on SFH needs the same rehab on MFH over time. Kitchens may be smaller but they still have the same number of appliances and faucets. Bathrooms still have toilets, tubs and sinks. And some of the additional costs level out - you may have more roofs to take care of with a SFH but you don't have to reseal or repave a parking lot, nor pay the costs for plowing that parking lot or mowing the common areas. You have only one roof but it's the size of several SFH roofs. Every apartment has a water heater. ETC. The main advantage of MFH is not savings but scalability - it's a lot easier to buy 25 units at a time buying an apartment building than it is to find 25 good SFH, and that cannot be argued with. So for someone who wants to scale, MFH is almost guaranteed the way to go, but not the only way to go.

5. I agree that too many want-to-be investors don't have enough money or experience to make this work the way they think it's going to work. The one thing that cannot be overstated is that owning real estate is not a get-rich-quick or easy scheme. It's not even completely passive. If someone is looking for an investment where they set it once and forget it and they just roll in the dollars on the beach RE is not likely it. But if you are willing to do some legwork, spend time learning the business and take some reasonable risks it can make a lot of money.

SFH investing has been ridiculously profitable for me. It has for a lot of other people. Yes, there are pitfalls and a lot of people are steered wrong thinking they're going to just wake up in a Scrooge McDuck room, but it's not an either-or proposition.

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Why push the BRRRR so hard

Why push the BRRRR so hard

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