@Matthew Metros They will certainly be very similar! At its core, BRRRR is basically a flip, but at the end you keep the property as a rental instead of selling it. This has HUGE advantages. Primarily, you avoid having to pay a huge amount in taxes, because you don't realize the capital gains. The gains are left in the property as equity. Also, if done in the ideal way, you pull your money back out of the deal in the refinance stage (leaving the gains in as equity), and you can continue building a rental portfolio.
The buy part should be exactly the same. You want to find a distressed property that you can fix and create equity in.
The rehab part will likely differ slightly. For a rental, you want to be careful of over-rehabbing. Typically you will just want to fix the property up to a reasonable level. Renters aren't looking for the nicest houses in the neighborhood, so there is a point in the rehab where you are throwing money away if you spend too much. For a flip, you will likely fix the property up to a higher level, because you are marketing to home buyers (who have a different mindset). The home buyers will likely want some of the nicer renovations.
So, ultimately, the processes are very similar. You could even intend to flip a property, but after the rehab decide to BRRRR it, or vice-versa. The main difference is that the level of rehab isn't quite the same between the two.
@Matthew Metros They will certainly be very similar! At its core, BRRRR is basically a flip, but at the end you keep the property as a rental instead of selling it. This has HUGE advantages. Primarily, you avoid having to pay a huge amount in taxes, because you don't realize the capital gains. The gains are left in the property as equity. Also, if done in the ideal way, you pull your money back out of the deal in the refinance stage (leaving the gains in as equity), and you can continue building a rental portfolio.
The buy part should be exactly the same. You want to find a distressed property that you can fix and create equity in.
The rehab part will likely differ slightly. For a rental, you want to be careful of over-rehabbing. Typically you will just want to fix the property up to a reasonable level. Renters aren't looking for the nicest houses in the neighborhood, so there is a point in the rehab where you are throwing money away if you spend too much. For a flip, you will likely fix the property up to a higher level, because you are marketing to home buyers (who have a different mindset). The home buyers will likely want some of the nicer renovations.
So, ultimately, the processes are very similar. You could even intend to flip a property, but after the rehab decide to BRRRR it, or vice-versa. The main difference is that the level of rehab isn't quite the same between the two.
Flipping is a very different business model than Brrrr. Lots of deals will work as a Brrrr that will not work as a flip. When you refi and hold you may not have any cashflow after debt service and one bad tenant or big repair issue can put you in the red fast. Brrrr is also a slow path to wealth creation unless you have a lot of cash to invest. With flipping you pull all your cash out including your profit so you can continue to reinvest taking advantage of the velocity of cash. It's all about ROI over time and compounding of cash.
from my understanding, BRRR is not the slow method. In fact, because you are reclaiming you cash during the refinance period, you find that you are able to grow your portfolio much quicker. Am I missing something?
from my understanding, BRRR is not the slow method. In fact, because you are reclaiming you cash during the refinance period, you find that you are able to grow your portfolio much quicker. Am I missing something?
You can't always refi your cash out immediately. You may face a seasoning requirement depending on the lender and your financials and you can only get 75-80 LTV or LTC usually the lower of the two. Also when you refi you will generally not have any cashflow after debt service so very slow equity build through principle pay down. You will take much longer to compound cash this way. Flipping you get all the cash back to redeploy so you can double, Tripple quadruple etc. You can't do that with Brrrr. Brrrr is a longer term strategy.