Let's be realistic with the BRRRR thing

Scott Lepore · 2020-09-24T14:15:14-07:00

Okay, I'm tired of hearing how easy it is to BRRRR. And the numbers people (eh hem, Brandon) are not realistic IMHO. One example Brandon gives is $200k purchase, $40K fix, $10k soft costs, $350K ARV. First off, finding a 200k purchase that only needs 40k to be worth 350k is not common. I'm not saying they are out there but it is extremely rare to find such a deal. again, IMHO. If you have a wholesale business set up and can get great deals yourself, then this is more likely. Second, 10K is soft costs is just not accurate. Let's look at the numbers here: 5K points, 6k interest, insurance, title insurance, closing costs 5k. So 16k, not 10k. Now refinancing. Anyone who can get 80% on the new value has a great bank and I want their number. More realistically in this day and age is 65%. Now lets look at those numbers in a more realistic light: $200k purchase, $40k rehab, $16k soft costs, $320k ARV (a 120k spread on a 300k house is great). 65% of 320K is 208K loan. You are all in at 266k. You need to come up with 58k. If you want to do 5 houses in a year, that's 290k you need out of pocket. And lets not forget seasoning. Another PITA issue to deal with. So Brandon, it is not as easy as you make it out to be and unless you are getting absolutely screaming, killer deals, it doesn't work without bringing a good chunk of money to the table. I have done it and so I am not saying it cant be done and I am not a bitter "I can't do it so you're wrong" person. It is just very hard and those deals are extremely rare. Would love to hear others take on this and experiences

Blake Dailey

Investor · Ogden, UT · Member since 2018 · 295 posts · 208 votes

6y

I think the availability of good deals is up to your ability to find good deals, and even more so to recognize good deals. You can absolutely find the spreads, even now. Maybe not in every market, but the principles apply everywhere so you can go can find a market that works.

I have a bank that does 80% LTV commercial loans with no seasoning for my refinances. It's a local credit union who does portfolio loans, so they have more flexibility and less strict standards. And I am not the only one that I know who gets loans like these, and this is not the only bank. But I also found this bank by calling every bank in the county and knowing the questions to ask. So again it goes into putting in the work upfront. With that being said, plan on 75% LTV because that is found more often.

And the soft costs can be that low if you pay cash, which you can do if the deal works and you know you will get it back upon refinance.

BRRRR still works. David Greene says it in his book and I know Brandon Turner has mentioned it in his book: the key to BRRRR all starts with finding a good deal. You have to buy at a value where the numbers work. And yes there are still areas where the numbers work, but with how competitive the market is right now it will take work. They generally don't exist directly on the MLS, and if they are then they are hiding. So, one has to find AND recognize good deals and have the knowledge/connections to execute.

7 Reply

James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

6y

@Scott Lepore where I agree very strongly with you is that it is not as it is promoted most often, as it seems to be under emphasized the difficulty level it can be due to the exact recipe that must be followed.

That said, I very much disagree with the statement many make that it's near to impossible, I find 98% of the time those saying such or believing such are trying to do it with an incorrect formula/recipe. If I try to bake CC cookies with a bag of bolt's, yeah it's not gonna come out right, GIGO, the correct recipe must be followed.

The first major point, a person must buy right. So many try MLS purchases, or wholesaler buy's, these almost never work. Next is the paramount factor of the property having problems where equity can be built. So often persons are trying to buy a place, rent and then get 100% cash out, no no no no! Or thinking paint and yard work, again NO. The entire recipe requires CONSIDERABLE equity development in the property, a minimum 30% and more like 50% or better because that equity growth must cover the cost of renovations, down payment on new finance AND all costs associated to hit 100% cashout. So thing brings us back to the first point, picture a state of a property where you can build 50% equity.... yeah it's a hot mess.

And then reno, you can do everything else right just to have contractor profit margins eat all the equitable gains, this is where it strongly enforces that a person needs to have a very good mastery of renovation and optimally is a contractor themselves or has a GC partner.

Here is the thing it is A strategy, as in just 1, there is dozens upon dozens of strategies out there and most people royally suck at most of them which is a-ok because you only have to be good at 1, and make sure your doing that 1. Just because people don't have the tools or skills to proficiently do the strategy does not mean the strategy itself is flawed, it's a mis-match of operator and action. @Brandon Turner has never said how easy it is or how it is for everyone, not that I have ever heard, it's always been to the power and potential of the strategy and that is spot on. What I read here is a lot of people lashing out because it isn't easy for them, or it has not worked for them, or not working how they would like it to, well maybe ask WHY is it not working vs blaming the strategy, are you correctly deploying it? Are you using the correct ingredients, or trying to bake cc cookies with a bag of bolts?

3 Reply

Paul DeSilvaPro Member

Investor · New York, NY · Member since 2017 · 148 posts · 252 votes

6y

@Scott Lepore This strategy is an awesome tool and most tools have limited functions. You hit things with a hammer, you turn screws with a screwdriver etc. Just like hard money is a tool or a 203k loan a 1099 ..... so on a so forth. That being said I am wrapping up my second BRRRR and on both I have recouped my original investment and had enough money left in the Cash-out-refi to put down payments on other properties. So it's all about your market, willingness to hunt for and complete the right deal, and your relationship with lenders. IMHO the BRRRR is one of my favorite tools in my toolbox.

0 Reply

Paul DeSilvaPro Member

Investor · New York, NY · Member since 2017 · 148 posts · 252 votes

6y

@Scott Lepore if you would like to see here are the details on my first BRRRR I learned a ton throughout this process and made a lot of mistakes but I would do it all over again, we currently have this property listed for sale at 259k (our market is red hot being just 2 hrs outside on NYC) when we sell, we will pay off our loan and get into another property.

https://www.biggerpockets.com/topics/593230

1 Reply

Angelina Essuman

New to Real Estate · Dallas, TX · Member since 2020 · 25 posts · 15 votes

6y

@Ryan Blake I'm looking to purchase my first BRRRR property and I have my hard money lender already, but i'm looking for my long term lender for when I need to do the refinance and making a list of banks. What questions do you ask when you shop around for the lender to refinance?

1 Reply

Ryan BlakePro Member

Lender · TX · Member since 2018 · 936 posts · 713 votes

6y

@Angelina Essuman That is a great question. I wish I had a better written out response for that but here is my stab at it.

Do you lend directly to an LLC?

Some lenders will lend directly to an entity if you add in a personal guarantee. Others will not lend to an entity at all. See what is possible.

Do you allow transfer of deed from a personal name to and LLC?

You will want to make sure you can hold your rentals in an LLC. Liability protection is key!

Do you offer refi/consolidation of loans?

This isn't key until you have 5+ rentals. Then you will want to start thinking about packaging loans in to bundles that will be held with one commercial note. I am not a long term lender but I believe Fannie Mae limits the number of loans an individual can have to 10 (this would include a primary residence). This is just for conventional government backed loans. There is no limit to private mortgages.

I know there are tons more great questions to ask and I hope that some more qualified long-term lenders can come along and offer their advice.

... Hint Hint @Andrew Postell

[email protected]214-420-7324

3 Reply

Eric Sullivan

Developer · Salem, MA · Member since 2018 · 83 posts · 68 votes

6y

I love seeing posts when you guys tell me you get properties for a 100k. In the Boston area a parking spot costs a couple hundred grand haha.

In terms of executing brrr I would say that you also have to consider where we are in a market cycle. I am not going to reiterate a lot of other great comments by other people in this thread but the strategy has to change as the market cycle progresses. As well geographic location. We have people from all over the place on BP. So while maybe somewhere in Idaho you can execute these left and right, but in someone else's area where they live it may not be possible or more infrequent.

1 Reply

Vic Liang

Rental Property Investor · Portland, OR · Member since 2016 · 54 posts · 36 votes

6y

Originally posted by @Account Closed:

@Scott Lepore

Realism doesn’t sell memberships/ coaching... or book speaking gigs that will feed the client pipeline... or build 1M followers on a social media platform (inc podcasts) that can be used to leverage sponsorships and further leveraged into building a private investment fund from fanboy/girls.

Distilling a business plan into an insta-post doesn’t lend itself to the dirty details, but when repeated enough, with enough brand partnerships, and enough up & coming hgtv superstars able to paint a 100 year old door without cleaning or priming it but make it look pretty for an insta-story, it will complete the above progression in some cases. Not many, but some.

The value of BP is found in the membership.

This is SPOT ON! I mean look at the new "Newbies" podcast. It's literally BP Podcast light. They've hosted nothing BUT past guests who are doing 200/deals a year because they've set up the system. Where's all the newbies? Lure them in with a podcast called newbies podcast and then get inundated with professionals doing hundreds of deals, and then they just buy into any syndication deals the big guys are doing.

2 Reply

Nate Sanow

Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes

6y

@Scott Lepore

Good points made about the market cycle we are in. Brrrr’s aren’t necessarily ever easy... But one can then say the same about flipping, wholesaling, or regular non Brrrrr buy n holds; everything is saturated to a certain extent with high demand and low cost of entry with money being cheap.

IMO some of this is also location specific. In Oklahoma City, Tulsa, and in general in Oklahoma (and yes probably similar markets) Brrrr opportunities are still plentiful. Like any other deal, they are competitive, requiring expedited decision making for acquisition, etc.

Just my $0.02.

1 Reply

Kyle Nelson

Polson, MT · Member since 2017 · 115 posts · 105 votes

6y

I would agree it’s not easy (who said it was?!) but I did my first and walked away with a solid $50k+ in profit that I then 1031’d into two houses. I was hoping to get all my money out and maybe make $20k selling two years later. I thought I overpaid for the house based on books etc and numbers people throw around. I found the strategy worked better than expected.

1 Reply

Henry Lazerow

Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes

6y

I just closed a BRRR for the full cash out. Your market is key. This was on chicago north side where our ARV prices are pretty high and often have several hundred thousand dollar differance from as-is prices. If it's a cheaper area where your rehab expenses are a larger percent of the property value it won't work (as often at least unless you find a crazy deal).

P.S. I found my deal from the MLS. 99.9% of the wholesale deals I get sent are junk and higher priced then I can get by checking mls every day finding under rented deals to rehab and raise rents.

2 Reply

Account Closed

Flipper/Rehabber · New York, NY · Member since 2019 · 340 posts · 122 votes

6y

@Daniel Haberkost and people forget why those free podcasts and sites are available in the first place. It’s meant to attract viewers for their own marketing business and affiliate programs not to be genuinely helpful. If they used realistic numbers it wouldn’t sound so great :)

2 Reply

Todd Atkinson

Rental Property Investor · Phoenix, AZ · Member since 2020 · 47 posts · 18 votes

6y

@Nick C. - you hit the nail on the head...you have to look at the broader trends as well as the deal financials...well said

0 Reply

Varinder KumarPro Member

Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes

6y

@Scott Lepore

Its like the 70% rule...almost unrealistic

0 Reply

Steve Vaughan

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

6y

Originally posted by @Matt Groth:

Agree with the above....not simple. However, it's the concept people should understand. What if, instead of 6 months, it is a few years? Through loan paydown, and appreciation, the same thing can happen. They probably do over simplify it too much, but knowing how things work is the important part.

Yep, it's a concept as old as the hills. Buying something below worth and adding value is the foundation of hard asset investing.

Over the years I think I've got back close to every dollar invested but it took 10 years in most cases.

it's the skipping of important aspects like seasoning and financing costs and conveying the idea that you too can do 5 of these a year that bothers me.

If financing conventionally at the best rates and terms, the most one can do per year would be 2. My best direct conventional lender tells me they need 12 months seasoning for cash out, 6 for rate/term at appraised value.

The concept works as Matt states, just not as simply, easily, cheaply or with the velocity as presented.

4 Reply

Joseph Tineo

Real Estate Agent · Birmingham, AL · Member since 2017 · 12 posts · 7 votes

6y

@Scott Lepore

The best way to make it happen is to be an investor/wholesaler/agent.

If a property fits the 70% rule and makes a good BRRRR, I'm buying it. If I don't buy it, I will assign it. If I can't assign it, I'm listing it on the market. Every deal I get, goes through that funnel. You ultimately, need to be in the business Full Time. Part timers miss out on A LOT of deals. While they are at work, I'm working to find deals. If you are making less than 100k a year, I would consider becoming an agent and jumping all in.

I would recommend looking up Thach Nguyen on Instagram and following his stuff.

There are always deals out there. You might need to expand outside your market.

3 Reply

Joe P.

Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes

6y

I think I'd argue this applies to any type of real estate transaction in today's market.

You have money rushing in from nearly every source, with a RE market being propped up heavily by the government. Instead of mortgage entities writing bad loans that led to 2008, you have the government artificially propping up the mortgage market. Everyone is in. When that happens, I get ultra-leery of deals that come across my desk. The concern isn't so much that the federally backed mortgages are cheap, its that its creating a white-hot real estate market. Appreciation in the middle of a pandemic is insanity, but here we are.

A deal is a deal if you make money when you buy, and that really is step one of BRRRR...it should be called E-BRRRR, because you need to properly evaluate a deal to ensure it can be BRRRR'd.

I don't know when or if we will pay the piper for what's happening in the market. But smart buys are good in both bad and good markets, on the whole, so make sure that's what you do.

2 Reply

Matt Groth

Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes

6y

Buy and hold is get rich slowly, but I cant wait more than 6 months to refi! I need to scale NOW!

Originally posted by @Steve Vaughan:

Originally posted by @Matt Groth:

Agree with the above....not simple. However, it's the concept people should understand. What if, instead of 6 months, it is a few years? Through loan paydown, and appreciation, the same thing can happen. They probably do over simplify it too much, but knowing how things work is the important part.

Yep, it's a concept as old as the hills. Buying something below worth and adding value is the foundation of hard asset investing.

Over the years I think I've got back close to every dollar invested but it took 10 years in most cases.

it's the skipping of important aspects like seasoning and financing costs and conveying the idea that you too can do 5 of these a year that bothers me.

If financing conventionally at the best rates and terms, the most one can do per year would be 2. My best direct conventional lender tells me they need 12 months seasoning for cash out, 6 for rate/term at appraised value.

The concept works as Matt states, just not as simply, easily, cheaply or with the velocity as presented.

3 Reply

Robi Schreckhise

Real Estate Broker · Charlotte, NC · Member since 2017 · 88 posts · 44 votes

6y

@Ray Danishyar I heard a great quote that goes along with your statement about stuff that’s free. “If you aren’t paying for a product, you are the product”

3 Reply

Tom Shallcross

Rental Property Investor · Chicago · Member since 2018 · 612 posts · 1k+ votes

6y

@Henry Lazerow brings up a great point that's highly overlooked. BRRRR gets more abundant when your submarket has a large spread between as-is and finished demand/pricing. If that difference is 300k (as-is) and 650k (finished) you can do 150k rehabs all day long. If your market is 200k (as-is) and 400k (finished) that same 150k rehab obviously doesn't work. I

That's why there are homes that are literally worth nothing, If they need 100k of work and they'll never appraise out at >100k, you just can't touch them.

I strongly agree with the fact that BRRRR is capital intensive and this aspect is not talked about enough. It can be your capital, HML, private investors, JVs, whatever, but you def need capital to scale. It's very doable, but if you think "I have 50k I'll keep recycling it", you'll be going pretty slow if you don't find other funds (which may be fine if you want to do 1-2 deals/yr).

As for financing, multiple banks in Chicago, which is one of the tougher places to be a landlord and thus lenders usually carry pretty strict requirements, are doing 75% LTV and after making multiple calls I've found a few that avoid seasoning. That's just a hunting exercise to keep going until you find a few that will do it.

2 Reply

Jon K.

Rental Property Investor · Perry Hall, MD · Member since 2016 · 587 posts · 598 votes

6y

Originally posted by @Blake Dailey:

I think the availability of good deals is up to your ability to find good deals, and even more so to recognize good deals. You can absolutely find the spreads, even now. Maybe not in every market, but the principles apply everywhere so you can go can find a market that works.

I have a bank that does 80% LTV commercial loans with no seasoning for my refinances. It's a local credit union who does portfolio loans, so they have more flexibility and less strict standards. And I am not the only one that I know who gets loans like these, and this is not the only bank. But I also found this bank by calling every bank in the county and knowing the questions to ask. So again it goes into putting in the work upfront. With that being said, plan on 75% LTV because that is found more often.

And the soft costs can be that low if you pay cash, which you can do if the deal works and you know you will get it back upon refinance.

BRRRR still works. David Greene says it in his book and I know Brandon Turner has mentioned it in his book: the key to BRRRR all starts with finding a good deal. You have to buy at a value where the numbers work. And yes there are still areas where the numbers work, but with how competitive the market is right now it will take work. They generally don't exist directly on the MLS, and if they are then they are hiding. So, one has to find AND recognize good deals and have the knowledge/connections to execute.

This is the correct answer. These deals exist and it takes skill that can be learned to get them. Maybe it's harder than it used to be, but it can be done. I recently got an assignment from a wholesaler in a very competitive market. ARV is 175k, needed about 30k of rehab. They got it under contract for 70k. The same wholesaler brought me another similar deal two weeks later.

1 Reply

Juan Correia

Rental Property Investor · Portugal · Member since 2018 · 61 posts · 26 votes

6y

@Scott Lepore

Totally agree and share your point.

I've done BRRRR here in Portugal, were it still is a not so common practice. Two major issues:

1- getting enough equity in the property to be able to refinance and still have a nice chunk of money for the next deal

2- finding a bank that will refinance with the ARV you think it's adequate

The bank does it's own evaluation so it's not that common that you get a ARV lower than market average price.

Also, here, you need to wait 2y to be able to fully refinance the property after the initial loan.

0 Reply

Bruce Runn

Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes

6y

@Scott Lepore

I get 75% financing all day long against a healthy ARV via my bank's construction loans. But, it does take cash up front to make it work. My goal on a BRRR is not to get all my money out as I often keep properties and it puts me in for a very low down payment, good equity with a high cash flow. If I sell them off after renting them and getting past the year and a day seasoning for long term capital gains, I can pocket the money or roll it into the next one. I also never pull all my money out of deals as I want equity in my ownership as my goal is to maximize cash flow-

I agree that finding those deals has gotten much harder as the price of everything has gone up including renovation costs. As a GC who does larger scale reno's, there's not a lot of competition when places are in a great location and need a big renovation so there are niches that still work. The reality is there isn't a lot of hands on GC/investors with the cash to make it work. These types of deals are out of reach for most people except experienced GC's. The people listening to the podcasts/reading the books are aspirational and want to figure out how to get in and as you point out, it's not a cake walk. I'm doing one right now that we bought at $115, are putting over $350 in reno with an ARV of $650. We typically put over $200.0 in work so we aren't in the cheap/cheerful BRRR's. I'd rather do less of them and make more on each one.

1 Reply

Bryan Danger

Specialist · Portland, OR · Member since 2019 · 81 posts · 88 votes

6y

Well... i'm certainly not saying you're wrong, but if you just shifted one critical aspect of the deal?
We've employed the strategy for years before ever reading that it had an acronym... but we also weren't yet members of a forum that seemed to promote going from 0 to 100 overnight. To be clear, we still haven't ever gotten 100% back out of any of our BRRRRs, but thats only because the money was easier better to take out of another property, often the one that the initial investment/refi helped us buy.

Rather than trying to live up to the pace set by some podcast or poster on a forum do what feels right/good to you and save yourself the comparisons. If you have an investment thats doing its job, celebrate it... and if you need to wait a few years before pulling money out. Why rush it when you just made a giant leap forward in your own personal goals and live/work balance? Stop comparing and simply celebrate your success (and when the time is right, do it again)!

2 Reply

Lori Livers

Investor · League City, TX · Member since 2015 · 4 posts · 4 votes

6y

I have never got all my money back out of a deal - I thought I was the only one who just never could find THAT deal. But - I do manage to get much of my money back out so I'm happy with that. For me, the monthly cash flow is the short gain and the equity is the long game gain.

2 Reply

Let's be realistic with the BRRRR thing

Let's be realistic with the BRRRR thing

Most Popular Reply

78 Replies