No success with BRRRRing

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No success with BRRRRing

Katrina B.
Member since 2021 · 25 posts · 13 votes

DALLAS BIGGER POCKETERS - 

New investor here 👋🏽...I'd like to hear experiences from those that have built their portfolios the traditional way - finding a good deal, putting the required 15-20% down and renting it. I've had no success in finding good BRRRRdeals or flips as most experienced investors have gotten first dibs. Although it will take a longer time to build my portfolio this way, I'm fine with going this route for my first few properties.  Dallas market is tough! 

I read a post yesterday where a lady indicated that was her process because of the competition in her city. People on the post frowned upon it because “it would take years” to recoup her down payment. I understand the trend now is BRRRRs and not paying your own money but that may be the only way to get some skin in the game.

Please share your experiences of going this way. How long did it take to build your portfolio and how long did it take to gain profit?

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Julie Sisnroy
Realtor · Papillion, NE · Member since 2013 · 134 posts · 59 votes
5y

I will jump in here as a 14 year part-time, buy and hold, slow and steady investor with a full-time job and a family.  I am by no means an EXPERT In real estate, but I have made some observations over the years. There are 10 different ways to invest in real estate and 100 pros/cons for each and 1,000 opinions on all of it.  At the end of the day it is a balance between low risk/high risk and time/money.  The only true  "bad" investment is one where you lose value, whether that is time or money is up to you.  

I have learned with most investments/projects (or just life in general) you either have time or money, rarely both for most of us. So are you willing to trade time for money? BRRRR/flips/rehabs. Is your time more valuable? Turn-key. Each one of these can be good/bad and what is MOST important is having the right team in place. And the end of the day, YOU decide what numbers work for you. If you are interested in more of the transactional type deal and market at hand (day trader), appreciation may not be a factor. But if you are interested in a long-term strategic approach, A/B nice area, cash flow may not be the best, but you will have appreciation. Can be hard, but not impossible, to find both.

Some people say leasing a car is a waste of money, some saying going out to eat vs. cooking is a waste of money, and some say turnkey is a waste of money, but if it aligns with YOUR lifestyle/family/career/finances/risk-aversion, don't worry about the naysayers. There are a TON of A-type personalities here-it comes with an entrepreneurial mindset, so you won't find a lack of opinions. You just have to sit down and look at your goals and how much participation you want in the REI world. Overall, it is a good place to be.

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  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    5y
    Originally posted by @Courtney M.:

    @Jill F.

    I feel like both taxes and closing costs don't get mentioned enough here. I'm looking at refinancing a property now, I could get about $15k cash out but the closing costs are $5k! So it doesn't seem worth it to me unless I can pull out at least $20k, net of closing costs.

    That's about where our closing costs usually end up as well and I probably wouldn't bother for less than 50k. Since we are doing 20 year loans with 25% down we are at 50% equity on our purchase price in about 7 years and because we rehab each turnover, in seven years we'll have most of the units in a property rehabbed and hopefully we'll have significantly more that the 50% equity due to appreciation and renovations. Our bank will let us use trapped equity for down payments by cross-collateralizing a property where they hold the first-- (which carries its own risk) but for us that has been worthwhile. We will probably start untangling in the next year or two. It's a marathon not a sprint ;)

    5Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y
    Originally posted by @Katrina B.:

    @Joe Norman I’ve heard horror stories about turn-key properties.

    My guess is that you've heard horror stories about turn-key property providers, and IMO you're right to be wary. Thats not to say that there aren't ethical and hardworking operators in that space, but unfortunately there are more than a few sharks as well.

    When I mentioned turn-key properties I meant finding a home in your home market that needs little work to get rent ready. It costs a little more than BRRRR or investing in depressed areas like Baltimore, but its a great way to reduce risk and get your feet wet on your first deal. Good luck!

    3Reply
  • Kevin Hunter
    Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
    5y

    @Katrina B., @Julie Sisnroy is 100% correct.  What you will usually find is over the top advice from a lot of people with a little experience.  The reality is that you need to do what you are comfortable with and at a risk level that you can accept.  If you are having a hard time finding value-add deals there are several things you can do.  1.  expand your search. 2. relax your criteria 3. change your approach 4. do nothing.  Obviously #4 is not an option, so cross that one off.  

    There is nothing wrong with purchasing through a conventional or commercial loan on an investment property and putting 25% down if you are in a position where you can afford it and you are comfortable with the risk (part of the risk here is having that 25% deployed and unreachable).  It is all personal preference and is up to you.  Yes, in a perfect world, everyone would be able to buy properties well under value, rehab them for huge gain, refinance with no closing costs, find a world class tenant who pays top market rent, etc....  often times that is not the case.

    Good luck and let us know what you decide. 

    2Reply
  • Chase Christensen
    Member since 2020 · 1 post · 0 votes
    5y

    @Brian Scott any luck finding any brrrr deals yet?

    0Reply
  • Ali K.
    Rental Property Investor · Minneapolis, MN · Member since 2019 · 42 posts · 13 votes
    5y

    @Jill F. I don’t mean to hijack the discussion but your mention of cross-collateralization made me curious. Could you please share more information about that, and possibly give me the contact information of the lender? You can message me directly. Thanks!

    0Reply
  • Account Closed
    Real Estate Investor · Dallas, TX · Member since 2016 · 38 posts · 17 votes
    5y
    Originally posted by @Jill F.:

    Closing costs on commercial loans to an LLC are not insignificant, re-fi appraisals are always a risk and at this point it hasn't seemed likely to be a big enough benefit to make it worth while. Once we've held things for a bit longer and when we're closer to where we want to be, we'll probably make the effort to look into our re-fi options.

    Hi Jill, your scale after 5 years is super impressive. I am a rookie with 2 SFRs. If you could elaborate on risk of re-fi appraisals I would appreciate it. Best to you. J. 

    0Reply
  • Account Closed
    Real Estate Investor · Dallas, TX · Member since 2016 · 38 posts · 17 votes
    5y
    Originally posted by @Ali K.:

    @Jill F. I don’t mean to hijack the discussion but your mention of cross-collateralization made me curious. Could you please share more information about that, and possibly give me the contact information of the lender? You can message me directly. Thanks!

    Coincidentally this Feb 3rd podcast on Bigger Pockets addressed this financing wrinkle / technique / "one weird trick". 

    https://www.biggerpockets.com/...

    It was new to me also, definitely a good one to know about ... I have a feeling its only an option in loose money environments like we find ourselves in now, but time will tell. 

    1Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    5y
    Originally posted by @Ali K.:

    @Jill F. I don’t mean to hijack the discussion but your mention of cross-collateralization made me curious. Could you please share more information about that, and possibly give me the contact information of the lender? You can message me directly. Thanks!

    Hi Ali, Our lender is Wayne Savings Community Bank, commercial lending division, I'll DM you the loan officer name sincce I don't know if youre supposed to do that publicly. Wayne is a regional bank portfolio lender that does a lot of multi-family loans in NE Ohio.  In our case, they let us use the equity above the 25% level as collateral on a loan for another property where they hold the first mortgage. We got the property re-appraised and then they put a second on the excess equity as collateral on the new purchase as a part of the closing. It is in some ways riskier than a straight re-fi but since we are small and still growing they require us to personally guarantee everything anyway 6 ways to Sunday anyways and it was cheaper and faster to make the new deal work this way We still have our original loan on the first property which has it's first interest reset on 4/22.

    1Reply
  • Christine Groffie
    Member since 2019 · 13 posts · 7 votes
    5y

    Or you could save your time and energy and invest in multifamily passively :) 

    0Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    5y
    Originally posted by @Account Closed:
    Originally posted by @Jill F.:

    Closing costs on commercial loans to an LLC are not insignificant, re-fi appraisals are always a risk and at this point it hasn't seemed likely to be a big enough benefit to make it worth while. Once we've held things for a bit longer and when we're closer to where we want to be, we'll probably make the effort to look into our re-fi options.

    Hi Jill, your scale after 5 years is super impressive. I am a rookie with 2 SFRs. If you could elaborate on risk of re-fi appraisals I would appreciate it. Best to you. J. 

    Hi Jose, I just meant by risk that you spend all that money and it doesn't appraise high enough to make the costs worthwhile. By the time you know, the costs are sunk. It costs about 3k for our last commercial apprasial and then there are bank fees on top of that.

    0Reply
  • Account Closed
    Real Estate Investor · Dallas, TX · Member since 2016 · 38 posts · 17 votes
    5y
    Originally posted by @Jill F.:
    Originally posted by @Account Closed:
    Originally posted by @Jill F.:

    Closing costs on commercial loans to an LLC are not insignificant, re-fi appraisals are always a risk and at this point it hasn't seemed likely to be a big enough benefit to make it worth while. Once we've held things for a bit longer and when we're closer to where we want to be, we'll probably make the effort to look into our re-fi options.

    Hi Jill, your scale after 5 years is super impressive. I am a rookie with 2 SFRs. If you could elaborate on risk of re-fi appraisals I would appreciate it. Best to you. J. 

    Hi Jose, I just meant by risk that you spend all that money and it doesn't appraise high enough to make the costs worthwhile. By the time you know, the costs are sunk. It costs about 3k for our last commercial apprasial and then there are bank fees on top of that.

     Understood, thanks for the follow up!

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    @Katrina Bledsoe

    I invest in the DFW area and picked up 10 SFRs in 5 years. To be honest, it's very hard to find good deals that make sense. I've BRRRRd a few and bought several with the traditional 20% down. The ones I've done BRRRRs on, I've left money in the deals. No way could I pull all my $ back out. But I consider myself a newbie still, so maybe I'm not doing it right. The problem out here is demand. So many Californians and out of state people moving here paying retail prices. We can't make $ off paying retail rates and renting them out. At least I can't! I can barely find the 1% rule out here. And even that isn't great because property taxes eat up all the profits. My best deals are rehabbing old beat up houses. It's a hassle to do, but your ROI will be much better than paying retail price then throwing a tenant in there. Good luck and feel free to reach out if you need any help.

    5Reply
  • Katrina B.
    OP
    Member since 2021 · 25 posts · 13 votes
    5y

    @John Morgan Thanks John! I will PM you. I have more questions. LOL

    0Reply
  • Manda Gouvion
    New to Real Estate · Keller, TX · Member since 2021 · 55 posts · 31 votes
    5y

    @Courtney M. Did you apply for your loans before or after you purchased the property?

    @Andrew Bang Could you send me that list of wholesalers too?

    @Kevin Hunter Can you purchase a rental property with a conventional loan without an LLC? How would you suggest organizing the finances?

    0Reply
  • Sanjay Murugesan
    Member since 2021 · 9 posts · 1 vote
    5y
    Originally posted by @Andrew Bang:

    Katrina, DFW is a great place for the BRRRR strategy! I work with a number of investors that are focusing in DFW. There are still deals in Dallas, and if you venture over to Grand Prairie, Arlington, and Fort Worth, even more deals because of the lower price points. There are alot of wholesalers in Dallas that put out multiple properties a week, sometimes each day. Connect with them, get on their lists and start looking at the properties and running your numbers to see if they work. If you need help finding them, send me a message and I can send you a list of the wholesalers I've worked with that have properties with value.

    can you please send me the list of wholesalers that you recommend from your experience? I am new to real estate investing and looking for some contacts. Thanks!

    0Reply
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