Starting with a blank slate

20 Replies

I want to quickly start out with just a fast background, discovered Poor Dad, Rich Dad end of 2019, immediately hooked and mind set changed + blown of the opportunities in REI. Dived super deep into the research of how, why, when on REI through listening to podcasts, reading blogs, and now discovery this amazing community which I am super grateful to be apart of and hope to give as much back as possibly can be give in return.

With that said, 2020 is here and it's the first month of the year and my wife and I are super excited and pumped to jump all in but with a cautious mindset and approach along the way. So with the cautious side of things I wanted to reach out to the community with a simple question but specifically to the Buy portion of the BRRRR.

When you have all your ducks in line, team set, finances ready to go, assets protected (LLCs structured) and your ready to drop the cash on your first door with the goal of BRRRRing your way to cash flow city — what is the safest, smartest, more strategic way to pull off this very first purchase/buy?

I ask this because I have heard, pay cash, or "loan" your business the money avoiding seasoning and have your money then refinanced, buy via a land trust, etc. Since this will be the very first purchase and the crux to the start of our BRRRR venture we want to make sure we start it on the right foot.

Really appreciate not only all of everyone’s time reading this but any participation that comes of it.

Cheers!

My advice is to start with a different strategy. The BRRRR method will dead end you quickly.

In any case, do you know how much you have to work with in cash?

Do you know what market you will be investing in?  (Please don't say "my own market, because I know it well")

What strategies, other than BRRRR, do you know?

@Scott Kelly I love BRRRR. Even better BRRRRkey where someone else is running the entire project for you. I'd keep it super simple. Pick a market, find a deal finder, learn to analyze the deal quickly, explore your money strategy (I can send a post if you like), get a deal under contract and get to it! Personally, I'd forgo the LLC and other systems right now....get the deal and get moving.

Pm me if you have Q’s

@Joe Villeneuve We’re looking at the Indianapolis, IN and Memphis, TN markets at the moment based on several factors. Great landlord states, price range (35-60k), population growth, job growth, etc.

Other strategies, we're solely looking to buy and hold, cash out refi and repeat with the options for HELOC down the road.

Originally posted by @Scott Kelly :

@Joe Villeneuve We’re looking at the Indianapolis, IN and Memphis, TN markets at the moment based on several factors. Great landlord states, price range (35-60k), population growth, job growth, etc.

Other strategies, we're solely looking to buy and hold, cash out refi and repeat with the options for HELOC down the road.

 So far you haven't mentioned any "other" strategies, other than the typical ones...that are greatly impacted by which way the wind blows (economy) and have a lot of competition to get...because everyone else is trying to do the same thing...for the same deals.  I compare it to a KMART Bluelight Special.  Cups and helmets are required at all times.

You need to think outside the box, and learn how to make deals out of thin air.  You need to focus on how the money moves through deals, and less on the vehicle (property) used.  Learn how money works.  You need to focus on using your seed money and NEVER spending it.  You need to learn how to make your money a verb and not a noun...and be able to attach as many adverbs to those verbs as you can.

Originally posted by @Joshua Mcallister :

@Joe Villeneuve can you give a example of a cash flow deal your talking about.

Ie: are you referring to using hard money and cash?

Pooling funds from investors? Thanks

 Not enough room here to explain the details, but I'll run the summary of an example by you,

Given:                                                                ffffffffffffffffffffffffffffffffffffffff                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
Cash Partner #1 wants to flip his cash at an annual return of 15%.  He doesn't want to wait long for his money to return to him...and the profit with it.
CashPartner #2 wants to Hold property as a rental with a Cash Flow of $????/month, but doesn't want to wait for the rehab to be completed and/or his investment cash not being enough

1 - Use Cash Partner #1 to buy and rehab
2 - Cash Partner #2 replaces CP# 1, and CP #1 gets a much higher return than required.

@Joe Villeneuve Not sure what you mean by BRRRR will dead-end you, can you elaborate? What you describe is exactly what it is... if you have a good deal then you ideally then you've not really spent any money and hopefully even come out a little ahead and it is repeatable in a comparatively rapid pacing. I am new to this so I honestly want to know. By your description of thinking of money as a verb etc. I am just not sure what you're referring to specifically. With the example you have above are you saying a better way is to just forego real estate ground-level work and just become a money lender?

Originally posted by @Aaron Almquist :

@Joe Villeneuve Not sure what you mean by BRRRR will dead-end you, can you elaborate? What you describe is exactly what it is... if you have a good deal then you ideally then you've not really spent any money and hopefully even come out a little ahead and it is repeatable in a comparatively rapid pacing. I am new to this so I honestly want to know. By your description of thinking of money as a verb etc. I am just not sure what you're referring to specifically. With the example you have above are you saying a better way is to just forego real estate ground-level work and just become a money lender?

Typical dead ends using the BRRRR strategy is how many loans you can get. Once you reach your limit you're done with the strategy and you're now searching/learning how to continue on.

Also, BRRRR doesn't get you your money back. Your money is still in the property, and takes the form of bricks, siding, floors, etc... You're using it as collateral for a new loan...the refi loan. If it was your own money being used again, you wouldn't be charged for its use (interest on the loan).

The idea of money being a verb is it must be in motion all the time.  You want it to go "through" the deal...not live in the deal.  It should go in the front door, and come out the back (quickly) with "friends".  

I'm not saying become a lender.  That is an option, but that still is a "one use/return" on your cash.   You want to "use" your seed money, not "spend" it.  Spending it gets you one cost and one use.  Using it gets you one cost but multiple uses.  If your seed money comes from a loan, and you only get one use out of it, the cost of it matters.  However, if you have one cost but multiple uses out of it, the initial cost is immaterial since it gets spread over many uses.  The more uses you get out of it, the lower the cost per use.

Before you ask, an example would be a loan that isn't collateralized by the property you are using it for.  I refer to this as a "cash like substance". 

@Joe Villeneuve just to follow up with the comment about it being a dead end, I come to realize a lot of people seem to think that way because of after buying the magic number of 10 properties traditionally it seems like a dead end but at that point shouldn't you be looking at portfolio/commercial loans to keep pushing ahead? Are the terms and rates that drastic (in general) that it makes the process of BRRRR feel like a dead end?

I appreciate the insight and outlook of a different approach simply put, by using your money as a lender/loan vs locked up in equity in a buy hold. Would the strategy of executing a promissory note in the beginning to your business for your first purchase be a viable method/strategy?

Hmm, after the "limit" on mortgages there are portfolio lenders, correct? The rates are higher, so harder to make it a deal, but still doable and is essentially a step in the method once you've reached that point. I'm still not really understanding what you're suggesting as an alternative. A loan that isn't secured by assets is just a normal loan that is secured by your credit, income and DTI. Are you saying to simply get a conventional loan... and do what with it? And if you never left a dime in any property that would be over-leveraged and not a great position to be in heading into a recession, esp for a newbie like me. I apologize, but I'm just not getting any picture of your better method, but I would like to understand if you've got one!

@Joe Villeneuve (forgot to tag first time, sorry for double post) 

Hmm, after the "limit" on mortgages there are portfolio lenders, correct? The rates are higher, so harder to make it a deal, but still doable and is essentially a step in the method once you've reached that point. I'm still not really understanding what you're suggesting as an alternative. A loan that isn't secured by assets is just a normal loan that is secured by your credit, income and DTI. Are you saying to simply get a conventional loan... and do what with it? And if you never left a dime in any property that would be over-leveraged and not a great position to be in heading into a recession, esp for a newbie like me. I apologize, but I'm just not getting any picture of your better method, but I would like to understand if you've got one!

Originally posted by @Scott Kelly :

@Joe Villeneuve just to follow up with the comment about it being a dead end, I come to realize a lot of people seem to think that way because of after buying the magic number of 10 properties traditionally it seems like a dead end but at that point shouldn't you be looking at portfolio/commercial loans to keep pushing ahead? Are the terms and rates that drastic (in general) that it makes the process of BRRRR feel like a dead end?

I appreciate the insight and outlook of a different approach simply put, by using your money as a lender/loan vs locked up in equity in a buy hold. Would the strategy of executing a promissory note in the beginning to your business for your first purchase be a viable method/strategy?

First, don't look at it as "10 properties", look at it as a total dollar amount that can be used for a larger property or properties.

Second, I don't like portfolio loans.  They handcuff you if you want to sell one of your properties off from the rest.

 

Originally posted by @Aaron Almquist :

@Joe Villeneuve (forgot to tag first time, sorry for double post) 

Hmm, after the "limit" on mortgages there are portfolio lenders, correct? The rates are higher, so harder to make it a deal, but still doable and is essentially a step in the method once you've reached that point. I'm still not really understanding what you're suggesting as an alternative. A loan that isn't secured by assets is just a normal loan that is secured by your credit, income and DTI. Are you saying to simply get a conventional loan... and do what with it? And if you never left a dime in any property that would be over-leveraged and not a great position to be in heading into a recession, esp for a newbie like me. I apologize, but I'm just not getting any picture of your better method, but I would like to understand if you've got one!

PM me and I might be able to explain it better

 

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