Why push the BRRRR so hard

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Why push the BRRRR so hard

Matthew Irish-JonesBusiness Member
Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes

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

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Levi T.Pro Member
Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
5y

@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.

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  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    5y
    Originally posted by @Matthew Irish-Jones:

    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

    Great question- "Why push the BRRRR so Hard" I can't disagree with anything in your post accept the question suggests that there may be alternatives to BRRRR. I was looking for that in your response. (Please note: I've not read the thread, just your original post)

    My opinion- The key to BRRRR starts with the B(uy). Has the property been purchased at the right price to make the process work? Yes, one must consider Murphy's law with regard to the (R)enovation itself & surprises behind the walls which you can't control. But an investor can control the (B)uy part of the equation, along with the analysis to support the After Repair Value (ARV) part of the process to support the (R)efinance. With experience, one learns how to control the (R)enovation part of the process, such as you've learned over 10+years.

    So my answer to your original post - BRRRR should be pushed hard.

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  • Scott Ashworth
    Rental Property Investor · Cary, NC · Member since 2019 · 55 posts · 57 votes
    5y

    My best BRRRRs this year have been off-market deals. Especially in this current Seller's market.

    My most recent BRRRR left just under $10,000 in the deal with ARV of $400,000 and 20% equity. It is not impossible right now, but off-market is almost a must.

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  • Thomas Lo
    Investor · Irvine, CA · Member since 2016 · 25 posts · 9 votes
    5y
    Originally posted by @Patti Robertson:

    @Thomas Lo 65% of ARV - repairs.

    Hi Patti,

    thank you!  That "- repairs" is why I'm looking for cosmetic rehab deals.

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Matthew Irish-Jones on BiggerPockets, you could call BRRRR a "sacred cow", which means an idea immune to question or criticism. The concept is repeated continuously and the implication is that it is the right or even only way to invest in real estate.

    I have purchased most of properties close to rent ready. I have driven from closing and checked in new tenants. Even when I have rehab, it is usually paint, appliances, flooring and other minor items. We can get the place turned and rented in under 30 days. The reason we do this is two fold:

    1. No lost rent or carrying costs. I always have rent in the bank before the first payment is due.

    2. Very little time invested. I have a full time job, so no time to manage rehab projects.

    This works better for me and my situation. Personally, I think the only wrong strategy in real estate is not doing deals.

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  • Matthew Irish-JonesBusiness Member
    OP
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Joe Splitrock amen to that.  I can see from the amount of responses this is a sacred cow indeed. 

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    5y

    I've completed many BRRRR's and have been very successful forcing the equity into the property. I think the concept of putting money in your pocket at the closing, no money left in and a great cash flowing property is overblown. To hit the trifecta you'll need a smoking deal. I usually have all my money out in the first 12-18 months. In theory , no money stuck and good cash flow. If you take all the equity out you will have negative cash flow. Let's be happy with no money left in and a healthy cash flowing property.

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    5y

    While it's harder in this market for sure, you don't have to do a gut to get a BRRRR deal. There won't be many (if any) that need nothing or very little, but we've done plenty of BRRRR deals with only $10-20,000 in rehab.

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  • Trent Otts
    Mesa, AZ · Member since 2020 · 3 posts · 1 vote
    5y
    Originally posted by @Account Closed:

    I'm reading "The Book on Rental Property" and I really like it. I've been pursuing FIRE for some time through ETFs a la the "Simple Path to Wealth" approach. I think the book is very intellectually honest and clearly outlines the hard work and risk it takes to be successful with the strategies, including BRRR.

    I agree, I think the same can be said of the BRRRR book by David Greene and many of the podcasts. Sure they answer complaints from nay-sayers who see it as too good to be true, but they don't act like it's a get-rich-quick scheme either. They generally say, "it's simple, but not easy." And the book goes much further in explaining the risks and the importance of a good and trustworthy team as well as accurate numbers. They don't pretend that BRRR-able properties are easy to find either.

    I think the criticism here is just a knee-jerk reaction to what is simply the surface-level presentation which no investor should still have at the front of their mind when it's time to put their money on the line.

    That said, maybe I'm being too charitable.

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    5y

    @Mary M. but it makes sense. Most accredited investors would rather be private.

    Money talks but wealth whispers.

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  • David Ginn
    Real Estate Consultant · Houston, TX · Member since 2020 · 206 posts · 944 votes
    5y

    I agree with you 100 percent look at my guidance. That would be my answer to that one.

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