Investor · Blackwood, NJ · Member since 2015 · 62 posts · 12 votes
What do you choose?
A+ rentals - Homes that achieve a solid 10-15% cash on cash return that need little to no work to rent out.
BRRRR - Properties that need a rehab to rent. Ability to have a better deal but requires more time and effort.
Does this decision differ from those who invest full time to those who don't? Has anyone made the strategy transition between A+ rentals to BRRRR or vise versa?
This post caught my eye as I feel like I'm struggling with this decision right now. I'm brand new to this REI game and the first (and only) property I bought was definitely A class. I completely lucked into the deal by being in the right place at the right time and talking to the person sitting next to me on an airplane who happened to be a RE agent...
So fast forward to today and I want to purchase my second property and I'm having a really hard time finding a good deal. I thought after the first purchase I would just stick to that same strategy (basically turn key) as it was "easy." But of course nothing is "easy" ;)
So now I've been searching for fixer uppers that I can force appreciation and still rent to stay within the 1% rule. I realize this will be a lot more work but I think the ROI is better doing the BRRRR strategy.
This post caught my eye as I feel like I'm struggling with this decision right now. I'm brand new to this REI game and the first (and only) property I bought was definitely A class. I completely lucked into the deal by being in the right place at the right time and talking to the person sitting next to me on an airplane who happened to be a RE agent...
So fast forward to today and I want to purchase my second property and I'm having a really hard time finding a good deal. I thought after the first purchase I would just stick to that same strategy (basically turn key) as it was "easy." But of course nothing is "easy" ;)
So now I've been searching for fixer uppers that I can force appreciation and still rent to stay within the 1% rule. I realize this will be a lot more work but I think the ROI is better doing the BRRRR strategy.
The BRRRR strat should always outperform a A+ turnkey purchase, but you also have to consider the opportunity costs of your effort and time. I don't have a ton of time so I am content with buying solid turnkeys.
I don't think this is a matter of A class properties vs B class. This is more a matter of a turn key vs a fixer. You can have a fixer that will be an A class property when renovated and you can have a B class that needs no work.
Maybe I'm crazy but I RARELY find A+ deals with no rehab AND get better than about 12%.
My BRRRR properties though are averaging around 17% or so. Some well under, some well over. I've bought several that I thought were no/low rehab that ended up being more involved, thus my plan to have repair reserves has worked out quite well in the past.
@Joe ConklinIt does seem unlikely to find a true A+ that needs no work and nets 15% but if you do, jump on it. I'm assuming you are financing it and thus you are just skipping some of the steps of BRRRR. If you are going turnkey, it's not so much a time and effort difference, just depends on the deals themselves. Usually in A neighborhoods you can get homes quite cheap if they are ugly and your rehab is leveraging the value of the house so you get more than what you put in.
Okay, thanks for the feedback. I should have listed A+ properties as 8-12% as it is more realistic. I feel better about going turnkey now, however I want to develop the skill that comes along with rehabbing on a future deal.
Interesting that this hits home for me with my next deal I'm trying to get. It's a good rental in an area that I have lived in since 2003. I've been trying to get something in this area and now see properties coming for sale. Spilt between what is ready-2-rent and some that really need rehab-2-rent. I've always focused on getting something with little to no work but now with this twist it's a location that will be a constant rental. Sellers never did anything with the property and it should be updated to command more rent.
A+ is more about the area and the characteristics of the tenants than the way you buy it (i.e. TK vs. buying it yourself and fixing). You can buy a D class property and fix it up or you can buy a D class property from a TK provider but ether way its a D class property.