Is the BRRRR method scalable?

Question

How scaleable is the BRRRR method (volume wise)? eg. 10 properties per month?

And how many cycles could be done in a year in the same capital? What I mean by a cycle is from the point that you invest the capital until you cash it out with a cash our refi.

Scott E. · Answer

Looks like you're in Los Angeles, which is a similar market to where I live in terms of the recent wild appreciation rates.

In my experience, the BRRRR method is near impossible in these market conditions. Every single "deal" in my market is selling for over market value (meaning more than it would appraise for) and rehabbed properties are selling for over market value (meaning more than they appraise for).

With retail buyers this doesn't matter because they are often willing to pay the difference out of pocket. But as an investor, if you are looking to cash out refi after a rehab at ~80% LTV, you aren't going to have the equity (on paper) to be able to make that happen.

All that being said, I'd be surprised if you could pull off 1 BRRRR in the next year in LA, let alone scaling at multiple per month.

John Brodeur · Answer

@Abdul Lateef, yes my point was that any strategy is scalable.

An example for SFH BRRRR's might be that you start off buying and managing a few a year (up to your capacity). You find the deals, get them under contract, vet an hire the contractors, work with the lender, find the tenants and then self manage.

The above is clearly not scalable because you only have so much time in the day and you are doing all the work yourself.

But let's say in the above example you start sourcing some of the activities to others (hire a property manager to manage the properties, and find tenants). Then you spend more of your time trying to find deals and instead of finding 2 or 3 in the year, you are now able to get 5 or 6 under contract. But now you are hitting another road block of not enough time to make all the follow ups you want for potential properties so you hire a virtual assistant to offload some of those tasks.

Now after a couple of years doing the above you've started to max out the capital you have to deploy (there's only so much cash you have in the bank), so you start networking with other investors, hard money lenders, private money, well off individuals to expand your capital and then suddenly you have enough money to purchase more deals. Now you start to run into the problem of maybe you have expanded to the point of saturation in your local market (too many other investors doing the same, not enough inventory, financial don't work out on as many deals as you have money). So what do you do, you start building out a similar approach and team in another market.

This is just meant to be an example, but it's how many investors like Brandon Turner and David Greene started out with a few properties, and expanded out. Eventually though most of these investors start moving to larger properties because the amount of effort to buy a 4 unit building, is only marginally more than a single family, and a 20 unit building doesn't take 20 times the effort as a SFH. It's just easier to scale into larger buildings when you have the capital and teams in place.

Marcus Auerbach · Answer

3 to 4 cycles because it takes at least 12 weeks for a rehab. It's become tough to find deals with enough spread; after over a decade of BRRRR the last 2 years have been tough, shrinking margings. But on the other hand we have seen very strong equity gains across the portfolio.

Abdul Lateef · Answer

@Andrew Postell Many thanks Andrew for your highly detailed and thoughtful comment, really appreciated

Andrew Postell · Answer

@Abdul Lateef you've got some good responses above.  Marketing conditions, your rehab crews, even your time will all come into play when trying to do the BRRRR method.  My goal is usually to do 2 per year.  Not because I can't scale...but rather because I have a family, job, etc. that affects how much time I can invest into it.  If you are a full time real estate investor, maybe you can do more than I can.  But doing 2 per year means you will be a millionaire.  You don't have to get THAT crazy with it to be successful.  And just for the example, I did 5 BRRRR properties in the past 2 years (and one flip).  Oh, and we NEVER use "On Market" properties.  They all have to be "Off Market" for the BRRRR method to work.  There's always an exception I guess but that's how it is 99% of the time for the past 10 years or so.

BRRRR SKILLS NEEDED

Generally speaking you will need several things to successfully complete a BRRRR here:

• ARV - being      able to calculate the Value on your own (meaning, without the wholesaler      telling you the value) is really important.
• Repairs - You will      likely need to know how to budget the repairs as well.  Getting      a contractor can be extremely frustrating especially if you need to make      an offer without even looking at the property.  How do you calculate      repairs without a contractor?  You may need to lean on other      local real estate investors in the beginning.  Or maybe even      just focus on properties with a very light rehab?
• Lenders - You will      need a lender on your BUY step and on your REFINANCE step.  And I      would HIGHLY recommend to read this article I wrote for Bigger      Pockets on how to find good lenders that you can find HERE. If they are good, they should be      absolutely definitive on rate, terms, costs, etc. Trust me, many lenders      will tell you they can do this...but it's very rare to find. When I first      started BRRRR'ing my properties lenders would tell me "That's      illegal"....it's not, they just didn't know anything about it.
• Finding Properties      - and this is the absolute hardest step of anything right now.  So      network like crazy and find some good resources.  It's going to be      hard...but if it were easy then anyone could do it.

Abdul Lateef · Answer

@John Brodeur Thanks for the answer, what I meant is, is Brrr with single family scaleable if the team and other factors are scalable

John Brodeur · Answer

@Abdul Lateef, Similar to any real estate strategy BRRRR is as scalable as the business, model, team, and systems you put in place. I know a lot of investors focus on scaling the BRRRR strategy by moving from sfh, to small multi, and then large multi.

Abdul Lateef · Answer

@Marcus Auerbach Thanks Marcus!

Abdul Lateef · Answer

@Scott E. Thanks Scott, fyi im not looking to do this in California, mostly in the Midwest

Abdul Lateef · Answer

@Dwayne Poster Thanks Dwayne

Is the BRRRR method scalable?

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