Flipper/Rehabber · Littleton, CO · Member since 2014 · 75 posts · 75 votes
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
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
Conceptually, it's a great idea but you're right that it's very difficult to get all of your money out in practice. Part of the issue may stem from the fact that BP started marketing the idea years ago when the RE market was less hot and it was more viable to get a good enough deal to get all of your money out. I BRRRed a property early this year and ended up leaving a bit of cash in the deal BUT it still worked out much better than if I had just bought a property on market. It's a great concept and I can't really blame them for pushing it as much as they do, it is possible.
I get your point though, if you listen to too many podcasts or read enough books it's easy to start off thinking you can build a large portfolio without any money (good luck). The reality is, real estate investing is a cash intensive venture and it's best paired with a high paying job or lucrative business.
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.
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
6y
I agree. It's definitely not easy to pull 100%. They should set the expectation that getting even 50% of your money back is still a good deal because that will only speed up the time until you're able to make another acquisition. A decent strategy, just marketed as a "quick and easy" route type-of-thing, without diving to deep into the the nitty gritty details of a deal and what all the numbers actually look like in practice. Good post OP
Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
6y
@Scott Lepore pretty much all of the points being made here are very good. As a real estate agent, I tell my clients to forget about what all of the color and all of the noise in real estate. There are two variables (and kind of two more lesser variables) that it reduces down to. And these are the same variables observed in economics.
Every deal is a simple matter of net cash position and future cash-flow. In economics this is condensed into two concepts that are converses of one another. The future value of present money and the present value of future money. Present money is your net cash position in a deal and future money is its cash flow. The secondary variables to consider are risk and the value of your time/energy/peace. But I cannot stress enough the power of understanding interest rates. Which is what PVoFM and FVoPM are.
Rental Property Investor · Dayton, OH · Member since 2019 · 293 posts · 440 votes
6y
@Scott Lepore I think you have the frustration that many others do with Brrrrr! BUT, I completely disagree with 90% of your post. Let me start with what I agree with....
I agree with refinancing being harder to do than some think, but you have to develop relationships first. I can give you the number to 10 banks off top of my head that will do 70-75% LTV no problem which does not count local banks who will do it also, but 80% is fairly tough. But, seasoning is usually the challenge. Most people should underwrite their deals with the refinance being at the 1 year mark to be conservatively. However, realistically my group gets it done 6-8 months no problem. I suggest using a broker who will shop your loans for you to save time.
Where I disagree........it is not rare to find these deals, it just requires harder work! You have to be willing to hustle and grind. You have to be consistent and intentional every single day with your real estate actions! You have to be all in! This does not work for those that want to sit back and search MLS and wait for their realtor or mentor to bring them a deal. You have to get your *** out and find deals. You have to bird-dog, drive for dollars and emerse yourself in the game! If your not finding deals, it's YOUR fault! Don't blame it on a podcast that gave you rounded numbers for ease of explaining. Every single day you have to hustle and grind, answer your phone when others don't, never miss an opportunity and capitalize on others lack of work ethic. Put in the work!
Saying you have to have 290k to do 5 houses is ridiculous! How about you have to have 0! I'm not selling anything here, so don't dare try to beat this statement up, but we have closed 6 properties this years (50 doors) with absolutely 0 out of our pockets and 4 of those properties (30 doors) have already completed their refinance part at 75% LTV and all were 6-8 months. Every cent was pulled out plus cash. And on a 21 unit we stuffed close to 100k in our account after principals were paid out. Rough numbers were 290-295k purchase 90% LTP HML. Gap of 30-32k was covered by private money lender at 10-12%. 30-35k rehab was done and paid for by NOI over 6 months. Property at 6 month mark appraised at 650k. Again, you got to hustle to make relationships with private money lenders.
There is a reason why not everyone makes the NFL, MLB or other professional sports and there’s a reason why “Not every kid gets a trophy”. If it were easy, everyone would do it, but some have to work harder to get there, but understanding your flaws and weaknesses is where to start if someone is a new investor or old investor stuck in a rut. Too often, people fail at something and want to blame that something for the failure instead of holding themselves accountable.
Let me end with this. Change your strategy. BE CONSISTENT! drive for dollars every day! Get yourself lost in the city every day somewhere you have not been! Be relentless! Be a real estate savage! If **** ain’t working for you, kick yourself in the *** and change what your doing! Accept that if your not finding deals, IT’s YOUR FAULT AND NOBODY ELSES! The only person that can create change for you is yourself. How many properties did you write down and research in the last two days that had deferred maintenance or were vacant? When was the last time you talked to a wholesaler and said “THIS IS MY FORMULA, as LONG AS YOU BRING Me A DEAL THAT FITS THIS FORMULA, I WILL CLOSE NO QUESTIONS WITH YOU”? When was the last time you found a 18-21 year old aspiring real estate person and offered them commission on every single deal they bring you and offered them the opportunity to learn for free from a real estate professional like yourself?
Reading books, listening to podcasts and then griping about what you hear is one strategy! But , I prefer to hustle and grind and make **** happen instead of looking for someone to agree with me so that I can justify why I’m not able to perfect a strategy! If you want it, go get it!
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
@Scott Lepore I am sorry but I agree with @Todd Pultz here. I the majority of my portfolio (150 units) are BRRRR properties. I only buy properties that I will be able to get my money back and be able to keep the property. Let me restate that, most of the time, I am able to get all of my money out of the property. Sometimes I may need to leave 10k into a property but defiantly not 20k or 30k or 50k.
Here are the average numbers of the single family properties that I have purchased within the past 2 years:
Purchase 80k
Rehab 20k
ARV 130k
Loan 100k
If I go over in budget, or if I can’t pull out all of my money, then I will create a 2nd note on the property and I will leverage it up to 80% and I will pay 8% - 10% on the second position note to a private investor who would like to lend on one of our deals to learn from us. I still cash flow about $200 a month on the property, I have created about 30k in equity and I have gotten all my money back out of the property.
We recently started using the same strategy with multi family and mobile home parks.
I have detailed on BiggerPockets about a 6-plex we bought in January for 315k. We rehabbed it for around 40k and increased the rents. It appraised at 725k. And we got a loan for just over 500k and were able to pay off the hard money lender, the private money lender, and pull out 175k at the time of the refinance in June.
In July we bought a mobile home park for 355k, added a unit to the park, increased rents, and filled vacant units. Total out of pocket expense was around 15k. It just appraised at 645k. We will be able to pay off the hard money lender, the private money lender and get about 20k back out of the refinance in October.
Most of the people on this thread are explaining that the BRRRR method isn't working for them to get all of their money out of properties. Rather than stating that it doesn't work as it should, I think they may be better off by asking "why isn't it working for me," and then finding out who it is working for, and finally asking "how can I learn how to make it work for me."
It reminds me of the quote (I’ll paraphrase because I don’t remember the exact quote) “You’re telling me all of the ways it won’t work. We only need to find one way to make it work.”
Rental Property Investor · Delray Beach, FL · Member since 2014 · 224 posts · 169 votes
6y
The biggest issue with the saturation of "BRRR" all over real estate investing is that it probably drives out more first-time investors than it brings in. It's better for clicks than it is to actually create new investors. Just empirically from reading BP the last few years, most first-time investors seem to equate "BRRR" with buying a "free house". These deals are out there, but they are generally aberrations in competitive markets and most likely will be jumped on by more experienced investors before a first-timer would have a chance. The problem is then that all the "BRRR" articles and podcasts they've consumed have embedded the idea in their heads that spending any money on a rental property is bad, and thus they should continue waiting for that "free" house they keep hearing so much about everyone else getting. They keep waiting until they eventually grow disenfranchised or lose interest. Story as old as time.
I guess the opposite side of this is that you could argue "BRRR" is good for experienced investors because it's pushing more first-time investors away from the "good" deals that do require some capital investment, which are generally more plentiful than the true 100% cashout "BRRR" deal.
Note this is coming from an Accredited investors POV who used to do turnkey rentals.
I personally would not do Remote BRRR as there is just a lot of risk with 1) risk of embezzlement with contractors 2) change orders and 3) bank doing bait and switch doing a lower appraisal and/or LTV on the refinance.
This is especially true for high paid professional or those with a net worth of over $300,000.
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
I think as real estate prices go up it is harder to find properties suitable for this strategy, the BRRRR. And even in a market that is underperforming and you can find properties like those, in the end these are properties that most people do not want, properties that will not appreciate in a normal market.
The generalised appreciation trend from 2013 has been basically driven by artificially low interest rates.
I would like to make another point: this BRRRR thing is marketed as something quite simple, actually a way to work less, or spend more time with family etc and it is really the opposite, it is complicated, it is capital intensive, it is labor intensive and requires a lot of supervision. Therefore, it is very risky.
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
On a typical workday, we look at ~50 deals, locally & in other markets. That includes SFRs, Multi's & commercial. When I say look I mean very quickly analyze them on paper to determine if we can purchase at a discount (or if a client can purchase at a discount), renovate then either sell the property for a profit or hold & refinance the property. The only time we use the term BRRRR is on this forum but it's the same thing & it's what investors have been doing since the Mayflower. What Brandon is teaching is realistic but it takes diligence & establishing & using systems to quickly evaluate opportunities, no matter the price point. It also means having your lenders on the backside of the deal lined up at the beginning of the deal & constantly monitoring changes in lending and having backup plans in place if the BRRRR plan needs to change. In short for our experience it works but as with all strategies the devil is in the details.
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
On a typical workday, we look at ~50 deals, locally & in other markets. That includes SFRs, Multi's & commercial. When I say look I mean very quickly analyze them on paper to determine if we can purchase at a discount (or if a client can purchase at a discount), renovate then either sell the property for a profit or hold & refinance the property. The only time we use the term BRRRR is on this forum but it's the same thing & it's what investors have been doing since the Mayflower. What Brandon is teaching is realistic but it takes diligence & establishing & using systems to quickly evaluate opportunities, no matter the price point. It also means having your lenders on the backside of the deal lined up at the beginning of the deal & constantly monitoring changes in lending and having backup plans in place if the BRRRR plan needs to change. In short for our experience it works but as with all strategies the devil is in the details.
Crystal, here is the reality and why its been a coined term here on BP.. prior to 08 meltdown .. buy low fix up and refi was the go to method there was no clever name for it.. just as described buy as is rehab and refinance.. this is what we did as HML prior to 08 I personally did a few thousand of them for clients.. And in those days it worked better since there was NO seasoning at the majority of the lenders plus you could take a little cash out as well on top of my loan you were refinancing me out of..
So what happened as we all know at least those of us that were active in the early 2000's in the fix and flip and turn key space..
INVESTOR LOANS FROZE you could not get one to save your life for about 2 to 3 years.. 08 to 2011.. so TK and other promotors turned to cash only or really started to market to IRA transactions this spawned a bunch of new IRA set up folks to help them with real estate purchases.
Once investor loans started to work there way back into the system.. BP was hitting its stride and all of a sudden a few years ago they coined this term BRRR which is cute.. and accurate and wrote a book about it.. you know building a dream team etc etc.. but as you said not a new concept in the least its just old news rehashed for those that started in the industry post 2010 ish..
Although its harder now with seasoning requirements and tougher underwriting and we do see some folks have a good day were they get all their cash out.. but others it does not work as well for given banks or appraisal issues..
IN my high volume BRRRR lending days our average loan was refinanced out in 91 days.. And many turn key buyers bought 4 props at once with as little as 5k total out of pocket and then got 5 to 8k cash back per file.. so they got their 5k back plus 30 to 35k in refi proceeds that were intended for reserves.. ( I think most of that money went to buy a jet ski LOL).. So your absoluly correct nothing new to see here and the model is far tougher in the SFR space than in the past.. in the MFR is were I see it really work well.
Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
6y
Thankful for @Todd Pultz on this post. Tellin' like it is brother! We're all going to have obstacles, and this post sounds like a lot of people that ran into an obstacle (or several) and just threw there hands up and walked away or threw a hissy fit because its not as easy as it was advertised. I think all of us need to realize that the first time you do this (what I'm experiencing now), its going to be a learning experience and its not going to be perfect. I'm just getting started and have had my share of obstacles so far, and am still working through them. I will say BP makes it sound easier than I initially thought, but the truth is that if it was that easy, everyone would do it.
Speaking from experience (or lack thereof) as somebody who is going through his first BRRRR right now, it's definitely much harder than expected. From hearing podcasts and reading books and whatnot, the impression was that there is literally just money laying around in the form of private money lenders saying "take my money and do things with it." That was not the case. Basically Hard and Private money lenders (especially in this climate) do not want to lend to someone with experience. So having cash was my first obstacle. Instead of throwing in the towel, my wife and I buckled down on expenses and within a year we had enough that would do a BRRRR just using our own cash.
So now its finding the deal. The whole time I was saving up money, I set a goal that everyday I would go on Facebook and put posts in groups saying I was a cash buyer looking for property. This led to me finding an awesome agent, as well as several dozen wholesalers. I was upfront and told them that I don't have the funds to purchase now, but would like to start getting on their lists so I could start analyzing deals they were bringing in. Deal Flow box checked and I'm gaining experience in analyzing deals. This way, when a property came up, and I had my funds, I could immediately pull the trigger.
That happened a few weeks ago. I saw the deal, called the wholesaler, told him I wanted it, done deal. At this stage, I'm working through the rehab, which has been a learning experience as well. At the end, since I'm not borrowing money, I'll likely take out a HELOC for the next house and snowball things that way. If I was borrowing money for the deal, I'd use delayed financing so I can pull money back out as soon as the rehab is done. I've already spoke with lenders that would do this and include the rehab. I found them as a result of hustle and constant networking while I was building up my funds.
I guess what I'm trying to say is that its very possible to BRRRR and get all your money out and then some. Even if you leave money in the deal, as long as it's below 20% of ARV, what's the big problem? Essentially you got a property for less than typical money down, and created a few bucks in equity. And to reiterate a former post, its just hustle and hard work, and not letting an obstacle/objection stop you, but finding a solution to it. If you're not solutions-focused, you're going to have a hard time with any aspect of RE, and you should probably just stick to stocks or MLS purchases.
I would humbly suggest that you and many other folks are equating BRRRR with "no money or very little money left in the deal". It gets pitched that way a lot, in fact. I think there are some great replies to your original thread. But very simply: Buy, Rehab, Rent, Refinance, Repeat says NOTHING about how easy it is or how much money you get back out on that refinance. I have done quite a few BRRRR deals where I get NO MONEY back at refinance. What's the big deal? I refinance for better terms, longer terms, etc. I have actually never truly understood the desire to get every dime back that was originally put into the property.
An example of a BRRR from this year:
Bought at 100k from a wholesaler, put in about 22k into rehab, rented shortly after, and 6 months later paid off my private investor (no points, they were at 6% and I borrowed 115k).
Refi 118k to 4% 30-yr, got maybe 1k back out and I left about 4k in the deal.
So now I have ~4k left in a property (appraisal is around 160k) that is secured for 30 years and brings in ~1150 per month, plus PITI is 781 per month.
I will do many of these if I can! And whether I left 4k in this deal or 15k really doesn't matter to me either way.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
With all due respect the last R, "Repeat," assumes that money is being taken out of the refinance in order to consummate the next purchase. Otherwise, there is no "method" to this method. Correct that it does not necessarily mean that the investor takes out every penny invested.
With all due respect the last R, "Repeat," assumes that money is being taken out of the refinance in order to consummate the next purchase. Otherwise, there is no "method" to this method. Correct that it does not necessarily mean that the investor takes out every penny invested.
I disagree. But I also haven't read the book on this topic so I'm open to the idea.
For example, in the event you have access to hard money or private money partners, you could always go borrow the money to cover purchase price and rehab costs, then rent and refinance only to pay off that original private money partner, get NO MONEY back out of the deal, and repeat this indefinitely. You don't need cash to "consummate" the next purchase if you use this method.
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
On a typical workday, we look at ~50 deals, locally & in other markets. That includes SFRs, Multi's & commercial. When I say look I mean very quickly analyze them on paper to determine if we can purchase at a discount (or if a client can purchase at a discount), renovate then either sell the property for a profit or hold & refinance the property. The only time we use the term BRRRR is on this forum but it's the same thing & it's what investors have been doing since the Mayflower. What Brandon is teaching is realistic but it takes diligence & establishing & using systems to quickly evaluate opportunities, no matter the price point. It also means having your lenders on the backside of the deal lined up at the beginning of the deal & constantly monitoring changes in lending and having backup plans in place if the BRRRR plan needs to change. In short for our experience it works but as with all strategies the devil is in the details.
Crystal, here is the reality and why its been a coined term here on BP.. prior to 08 meltdown .. buy low fix up and refi was the go to method there was no clever name for it.. just as described buy as is rehab and refinance.. this is what we did as HML prior to 08 I personally did a few thousand of them for clients.. And in those days it worked better since there was NO seasoning at the majority of the lenders plus you could take a little cash out as well on top of my loan you were refinancing me out of..
So what happened as we all know at least those of us that were active in the early 2000's in the fix and flip and turn key space..
INVESTOR LOANS FROZE you could not get one to save your life for about 2 to 3 years.. 08 to 2011.. so TK and other promotors turned to cash only or really started to market to IRA transactions this spawned a bunch of new IRA set up folks to help them with real estate purchases.
Once investor loans started to work there way back into the system.. BP was hitting its stride and all of a sudden a few years ago they coined this term BRRR which is cute.. and accurate and wrote a book about it.. you know building a dream team etc etc.. but as you said not a new concept in the least its just old news rehashed for those that started in the industry post 2010 ish..
Although its harder now with seasoning requirements and tougher underwriting and we do see some folks have a good day were they get all their cash out.. but others it does not work as well for given banks or appraisal issues..
IN my high volume BRRRR lending days our average loan was refinanced out in 91 days.. And many turn key buyers bought 4 props at once with as little as 5k total out of pocket and then got 5 to 8k cash back per file.. so they got their 5k back plus 30 to 35k in refi proceeds that were intended for reserves.. ( I think most of that money went to buy a jet ski LOL).. So your absoluly correct nothing new to see here and the model is far tougher in the SFR space than in the past.. in the MFR is were I see it really work well.
Thanks for the feedback on the history of the term BRRRR on BP.
With all due respect the last R, "Repeat," assumes that money is being taken out of the refinance in order to consummate the next purchase. Otherwise, there is no "method" to this method. Correct that it does not necessarily mean that the investor takes out every penny invested.
I disagree. But I also haven't read the book on this topic so I'm open to the idea.
For example, in the event you have access to hard money or private money partners, you could always go borrow the money to cover purchase price and rehab costs, then rent and refinance only to pay off that original private money partner, get NO MONEY back out of the deal, and repeat this indefinitely. You don't need cash to "consummate" the next purchase if you use this method.
Keep in mind since you need 6 months seasoning in MOST cases HML is going to run you 7 to 10k per deal extra..
in my day when I funded as a HML 20 plus of these a month.. the mid west promotors rehabbers etc.. could
buy rehab and take a PROFIT all for 65% of ARV then I made the loan at 65% then they refinanced at 75% and pulled a bit of cash.
now the risk is you run way long on the HML or your refi gets stalled or like what happened in 08 it went bonkers and refi's STOPPED completely.. not saying thats in the cards now.. but it happened.
60% of the investor I talk to on an ongoing basis are cherry-picking their favorite advice from the last 5 years, combining it all to create a unicorn deal that exists only in their mind and nowhere else. That deal has something like:
-12-14%% cash on cash
-$0 in the deal
-Using an "out of state BRRR" for "value add", although they don't have a team in the market they are targeting currently
-High appreciation potential from an area with high growth
Really think investing in RE is just like anything else. Make moves, then improve your process each time. It's better to get out on the court and work on your basic dribbling and jump shot than focusing on doing what the pros are doing on day one.
Investor · Seattle, WA · Member since 2020 · 106 posts · 89 votes
6y
No investing method is foolproof. BRRRR real estate investments do come with drawbacks, probably the greatest of which is that your investment is relying on a future value. If the property appraisal during the refinance process comes back lower than expected, you may not be able to refinance for the full desired amount.
in my day when I funded as a HML 20 plus of these a month.. the mid west promotors rehabbers etc.. could
buy rehab and take a PROFIT all for 65% of ARV then I made the loan at 65% then they refinanced at 75% and pulled a bit of cash.
now the risk is you run way long on the HML or your refi gets stalled or like what happened in 08 it went bonkers and refi's STOPPED completely.. not saying thats in the cards now.. but it happened.
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I sincerely appreciate the wisdom you share here. There are risks without a doubt! Seasoning could be a problem, and so could market shifts, etc. In my scenarios I have relied on affordable private lenders at 6-7% interest only with some buffer time on the loan terms, such as a 13-month term to account for potential hiccups. This is extremely affordable especially compared to traditional HML.
The other way I've done this is with seller-financing. That has been a great way to handle the initial finance, then I just put my own money in for the rehab, and the refinance didn't come until years later when rates were too good to pass up. Still a BRRR in my mind....
Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
6y
@Scott Lepore
Wow. Sounds to me like a lot of people on here think everything should be so easy. The BRRRR strategy is just that, a strategy. They literally preface in every show with, this may not work in your market, but there are markets out there it will. They just spent almost a whole episode on this.
I moved to a sub market because it has more multifamily and BRRRR potential than where I was living. If REI is your passion and truly your road to financial freedom, you will find the deals and the way.
Edmonds, WA · Member since 2019 · 61 posts · 46 votes
6y
@Scott Lepore I think its like anything in life. When you have what you believe the best way to do something, you're going to paint it in the best light possible. Now, listening to Brandon and David and reading their stuff, they do emphasize a lot that not every deal will be a home run and that base hits are what wins a game.
That said, I would love have 290k a year or more out of my own pocket to invest, and I plan on getting there. Part of it is you have to take their other advice to heart too. Make your 5 to 10 year game plan and work backwards. We set a goal to get 1 BRRRR done this year (we started in July) with 30k. We're now starting on our 2nd one. By the time we refinance both deals that 30k will be about 40k to 45k. Maybe that means we can do 3 next year, or if we can get them done quick enough, up to 6. I think the main take away is giving you an idea of where you can go and how you can compound your investment if you have a minimum goal for what your profit will be from a cash out refi. Mine is $2,500 a BRRRR for now, and will probably be higher after I get more experience and gain efficiencies.
I do agree that there are factors they don't tend to mention, like if you go hard money and include the rehab into the loan, most lenders have you pay for the rehab or part of the rehab out of pocket, then reimburse you. Also, if you're not finding the deals yourself, having a deal finder. We got lucky and found an awesome wholesaler where we're investing.
Anyways, thats my 2 cents. In all, when you hear about BRRRR, you do tend to hear best case scenario. But thats the same as listening to flippers talk about how they made 100k+ on a deal and everyone expects it to be that profitable when in reality you have markets where 20k is average and other markets where 50k might be average. Its all in educating yourself and doing your due diligence.
BRRRR works best in a rising market where there's still distressed inventory lingering around. Once the prices plateau and there's little to no inventory left it becomes very difficult to buy at a big enough discount. Buying at a big discount should be the foundation for any RE strategy, too many people settle these days for crap deals just to "get in the game".
How do you determine some location is an appropriate rising market for BRRRR? What criteria would you use? X% growth in the past year that didn't exist before? New industries of some type moving in? etc? Can you provide a couple of examples?
