Is BRRRR overhyped in the current market?

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Is BRRRR overhyped in the current market?

Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes

I get asked about the BRRRR strategy all of the time and honestly don't know if anyone that's done it in my market where the property cash flows afterwards.

It sounds great. Keep using the same money over and over. It just doesn’t seem realistic at this point in time in my market. Am I missing something? Is anyone successfully doing this currently in the Minneapolis market and actually pulling out good cash flow afterwards?

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

My issue with people trying to implement this strategy is they have no money. Buy, Renovate....it is a capital intensive strategy, that those with a few hundred grand liquid can implement. People come to me week in and week out that are broke...Thats simply not a strategy they are adequately funded to implement. No money, but a primary residence with 3% down instead.

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  • William C.
    Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
    7y

    The numbers don’t allow to pay the all 10 loan down to zero in 99% if markets in the US.

    @Greg Smith in my first post that broke down the 2 options, each home was generating about 125/month or 1500 a year. Yes, these were assumptions, but I see many many investors use $100/door as a minimum. For the benefit of the argument let’s double that. So we are “pulling” $3000 a year in cash flow. It’s impossible to put down those 10 loans to own them free and clear.

    The argument was which option is better? The problem I saw in that was the obvious option isn't possible through BRRR.

    I also went on to mention I would do exactly what you are suggesting. I just think it's pretty clear option A is either not likely, or near impossible to reach using BRRR, meanwhile Option B is possible, and the reason why BRRR is so attractive.

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  • Greg Smith
    Rental Property Investor · Louisville, KY · Member since 2017 · 58 posts · 34 votes
    7y
    Originally posted by @William C.:

    The numbers don’t allow to pay the all 10 loan down to zero in 99% if markets in the US.

    @Greg Smith in my first post that broke down the 2 options, each home was generating about 125/month or 1500 a year. Yes, these were assumptions, but I see many many investors use $100/door as a minimum. For the benefit of the argument let’s double that. So we are “pulling” $3000 a year in cash flow. It’s impossible to put down those 10 loans to own them free and clear.

    The argument was which option is better? The problem I saw in that was the obvious option isn't possible through BRRR.

    I also went on to mention I would do exactly what you are suggesting. I just think it's pretty clear option A is either not likely, or near impossible to reach using BRRR, meanwhile Option B is possible, and the reason why BRRR is so attractive.

     I guess I don’t really understand the conversation. So it is a theoretical discussion of which would be better between two extremes?

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  • Jim Macedon
    Round Rock, TX · Member since 2017 · 86 posts · 45 votes
    7y

    Just because something is more possible doesn't make it a good idea.  For me, jumping off a bridge is infinitely more possible than marrying Jennifer Lawrence.  It's not like you HAVE to own ten properties; therefore, you have to put yourself in serious financial jeopardy to do so.

    To answer your question about how do you get to 10 properties free and clear.  Well, I never said you had to have 10 properties.  Maybe for your situation you should have 1 property free and clear.  Or 5.  I don't know.  There are many variables here.  I can tell you my own thinking on it, but it would be just that, my thoughts.  If I got to the point where I could live the same lifestyle I do now and not have to work, then it would be time to start paying down all my debt.  But my lifestyle might not be enough for everyone.  Or on the other side of the coin, another person may love their job and not want to quit it.

    As I said in the original post, I think somewhere between the two extremes is the place to be for most people.  Someone made the following analogy somewhere.  I don't want to take credit for it, but I think it is very illustrative.  Debt is like a gun.  It's neither inherently good nor bad.  It's a tool, but like a gun it is potentially a dangerous tool.  A gun can do good things for you.  You can hunt for food.  You can protect yourself.  But the gun can just as easily hurt you if you are careless with it.  You need to always respect the gun.  Use it according to a certain procedure and set of rules at all times.

    My point wasn't that all debt is bad.  My reaction is to this new school that seems to worship debt.  Hey, it's free money!  Or hey, it's other people's money!  It's good debt!  Arbitrage!  Getting rich in real estate is easy, just go millions of dollars in debt on an income of $50k.  How can you lose?  I did the math and it says this is a good idea.  What, risk?  What's that?  It's not a number I can plug into my formula so it doesn't exist.

    It's like a kid waving a loaded .45 around saying guns are awesome!

    2Reply
  • William C.
    Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
    7y

    @Jim Macedon you lost me.

    You gave 2 supposed "extreme" and we had to chose one. One option, the obvious option is impossible in the near future unless we land on a pile of cash. Option 2, the not so obvious answer is actually possible via the BRRRR method. My point was obv we all want option A, problem is we have limited resources and we need to go down the route of option B, to hopefully one day reach Option A.

    Lastly I don’t see people using debt on this site without a limit and with no regard to the risks. It was much more prevalent before the crash in 2008 but investors, at least the investors I talk with, see on this site, and follow are using debt way more responsibly. I see your point that debt can be dangerous, I see more people using it wisely than unwisely.

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Buying real estate with no down, go flip is an old school. One needs money to have honey.


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  • Jim Goebel
    Real Estate Investor · Des Moines, IA · Member since 2016 · 922 posts · 533 votes
    7y

    @Bruce Runn

    @John Woodrich

    Hey Bruce and John: question for you two - I have advised others my experience has been that LOCs (HELOCs etc) typically are only available for primary residence. I'm in line with what you've generally communicated re: risk tolerance levels and desire to have some good equity in some of your holdings - just wondering how you have achieved the LOC with the investment properties - who is providing that? Commercial lending type of deal?

    We have a HELOC currently which is nice - however I don't want to be giving bad info to others if products like that are out there, but also we may want to explore. My experience on the investment side has been limited to the cash out refi / long term note kind of offering - with some banks requiring/requesting the 5 year balloon and some just re-setting the interest to current market rates.

    Thanks in advance.

    0Reply
  • John Woodrich
    Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Jim Goebel:

    @Bruce Runn

    @John Woodrich

    Hey Bruce and John: question for you two - I have advised others my experience has been that LOCs (HELOCs etc) typically are only available for primary residence. I'm in line with what you've generally communicated re: risk tolerance levels and desire to have some good equity in some of your holdings - just wondering how you have achieved the LOC with the investment properties - who is providing that? Commercial lending type of deal?

    We have a HELOC currently which is nice - however I don't want to be giving bad info to others if products like that are out there, but also we may want to explore. My experience on the investment side has been limited to the cash out refi / long term note kind of offering - with some banks requiring/requesting the 5 year balloon and some just re-setting the interest to current market rates.

    Thanks in advance.

    In most contexts HELOC is a product available for your primary residence. There may be instances that this is not the case but it is why you don't see me write that I have a HELOC, I have a LOC. I am using business LOC products. Not sure which banks offer them but I know many do. My small credit union offers it so I didn't have any problem with it.

    Not sure what people you are advising or what you are advising them about but LOCs are not only for your primary residence.

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    7y

    @Jim Goebel

    I use the terms HELOC and LOC interchangeably as they are essentially the same thing. I have HELOC's/LOC against every one of my properties and the equity in each property is the collateral against the HELOC/LOC just like I have on the HELOC against my personal residence.

    In these cases, the HELOC/LOC is in second position behind the primary loan but my banks have all my financials and know they don't really have any risk due to my equity positions. They are commercial HELOC's/LOC's and yes banks offer them and I can get them for up to 70%-75% LTV based on the banks internal appraisals.

    Hope that helps.

    0Reply
  • Jennifer Joseph
    Rental Property Investor · Akron, OH · Member since 2017 · 22 posts · 12 votes
    7y

    @Ronnie Fielder Hi Ronnie. I am currently doing a portfolio loan. US Bank. No weirdness yet. I'm refinancing 7 SFRs.

    2Reply
  • Jennifer Joseph
    Rental Property Investor · Akron, OH · Member since 2017 · 22 posts · 12 votes
    7y

    @Bruce Runn

    Bruce, how much does it cost you in fees/closing costs to get the 1st position bank loan and then a 2nd position HELOC per property, more or less?

    0Reply
  • Bruce Runn
    Investor · Minneapolis, MN · Member since 2014 · 743 posts · 927 votes
    7y

    @Jennifer Joseph

    The 1st position loans were over a couple years, so whatever my strategy was at that particular time so between 0-1% fee plus normal closing costs like title work/tax stamps/misc closing cost. Sometimes I took a slightly higher rate for 0 fees so it might have been almost nothing HELOC/LOC- 1% fee but they've been used over and over and over to generate $.

    0Reply
  • Ronnie Fielder
    Rental Property Investor · Triangle, VA · Member since 2019 · 29 posts · 18 votes
    7y
    Originally posted by @Jennifer Joseph:

    @Ronnie Fielder Hi Ronnie. I am currently doing a portfolio loan. US Bank. No weirdness yet. I'm refinancing 7 SFRs.

    Jennifer, it seems like you have it figured out. I would love to hear more as you go through your journey, because I would like to attempt the portfolio loan process in the future.

    1Reply
  • Jennifer Joseph
    Rental Property Investor · Akron, OH · Member since 2017 · 22 posts · 12 votes
    7y

    @Ronnie Fielder Thanks Ronnie. I'll make a post when I've completed my portfolio loan. 

    1Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    7y

    BRRRR is overhyped in every market, unless the deal is big enough to warrant the substantial time and effort it takes to actually "get your money back". It's way too much work just to cash flow net 200-400$ a month. That kind of money isn't going to do anything for your real estate investing "business".

    If the cash flow is worth more to you than liquidating the equity position in that property, though, then it might be worthwhile for you. Just don't try to get rich off deals that take 6-12 months to recycle your funds. flip that sucker, take your cash, and go do two deals with it next time.

    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    7y

    @Jennifer Joseph US Bank has great commercial loans. Conservative lending criteria, but excellent product and service level!

    1Reply
  • Account Closed
    Real Estate Broker · Phoenix, AZ · Member since 2018 · 83 posts · 28 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Jordan Moorhead:

    @Jay Hinrichs remote rehabs can get out of control quickly... I've had plenty of issues 

    Yup and when that BP book came out about how easy this was and building your team then when I read the areas and price points they were talking about I was like OH man here comes a train wreck lots of begineers read that and are going to get their tush's handed to them 

    Not even just beginners.  I have an agent friend who has been doing property management and grew up in the industry.  Her and her husband took some cash after consolidating households and bought an out of state property.  They are getting their butts handed to them and it's not pretty.  She is very intelligent and thoughtful, so it happens to even people in the industry.  

    0Reply
  • Jennifer Joseph
    Rental Property Investor · Akron, OH · Member since 2017 · 22 posts · 12 votes
    7y

    Hi again Ronnie, @Ronnie Fielder

    Update:  I finished my portfolio loan last month. Everything was super easy. I used US Bank. They gave me 80% of what I spent on each property (purchase price + repairs), so that I still had some "skin" in the game. Now I have $$$ to go buy some more properties. :)   So, all good.

    0Reply
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