I am a SAHM 28 while my husband is 33 a computer engineer. We have a nice piece of money that we have gathered about 20k and would like for it to go towards our first investment property. We are in the process right now of gathering as much information as possible on BRRRR and trying to determine if its the right path for us vs fix and flip. when reading a researching about real estate investing many people make it seem so straightforward , black and white, clean and easy. My questions is what are the cons of this business, specifically brrrr? I would feel more comfortable knowing the downside and the cons than to hear all the good that comes with investing using BRRRRR.Any advice or guidance would be appreciated, we are located in Michigan.
Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
5y
@Leanna Abu Had to spell out that acronym SAHM ;). Being a IT engineer myself, I thought it was some kind of computer engineer term but I digress.
Having done a few BRRRR's, I'd say you will need to find a market that works for them. In the major cities, these are harder to come by as price values are so high, pulling out all your equity is near impossible from a refinance. That being said, they are a great entry point for investors to utilize capital and equity repeatedly.
The cons? BRRRR's can hold risk like any investment. They can be tricky for the inexperienced investor. Here are some :
Underestimating rehab costs = forced to invest more capital
Overvaluing the ARV (After Repaired Value) = forced to leave in capital at refi
Overbuying = forced to leave in capital at refi
Underestimating rehab time = rising holding cost as time increases (if borrowed from say a hard money loan)
Underestimating financing costs = forced to invest more capital
Underestimating time to lease or seasoning period = No rental income allowing refi to take place. 6 months needed from banks to prove value.
Underestimating the new tax valuation of ARV = Unaccounted expenses or less cashflow
With all this being said, it simply means do your due diligence. Educate. Run the Numbers. Don't Overbuy. Plan for extra expenses and reserves each month.
Or partner with experience to mitigate some of the risk.