New investor, in contract for house hack, advise on brrr
Member since 2022 · 1 post · 0 votes
Hey bigger pockets members, my name is Micah and I am new to bigger pockets, I am in contract to purchase a duplex to house hack and save on expenses, what would be the best way to start the brrrr approach, I make about $50-60k at my day job and I am going back to school and will make around 80k when I am finished in about a year, I am only 19, those of you that have brrrred how did you go about saving money for your first project, should I just save in a savings account or are there better ways? I also have considered maxing out my 401k at work for a couple years and using a “loan” from that to help with the brrrr since it is tax free, let me know what you think and any ideas that would help me, thank you so much! glad to be here! also I could purchase a run down brrrr home here for about 40-60k if this helps.
@Micah Louden congrats on buying your first home! That's a big step in the right direction for sure. It sounds wierd but only about 25% of Americans own a home at all. And only about 4% own two homes! It becomes rarified air very quickly when you are in real estate.
Now, the question about cash is ALL of our questions. Cash will always be your biggest limitation to growth. So let me share some basic things first and then we can dive into what you will need.
First, the BRRRR method is designed to help LOWER the cash needed to purchase a home. An "average" investor - one that doesn't know what the BRRRR method is might have to put 15% - 25% down payment on an investment property. That's a lot of money. But the BRRRR method could have 0% down payment if you purchase it right. Now learning how to do the BRRRR method is very hard. But to me having $60,000 for a down payment was IMPOSSIBLE - so I had no choice but to start with the BRRRR method. Over time I have gotten better and better at it.
Secondly, you can't just BRRRR any property you come across. You have to target very specific properties. Usually these properties are off market properties that are in a state of disrepair. Usually. So if you come across one, and the numbers don't quite fit - you should be offering a LOWER amount on the property. It's not your fault that someone is asking too much for a property. You need to make an offer anyway. There have been plenty of properties where I was the only person offering because the price scared everyone else off of the property. Make an offer! Can you buy a BRRRR property with nothing out of pocket? It's hard to do but yes you can. The right expectation is that you will likely need SOME amount out of pocket though. You'll need to know how to calculate the numbers when you are doing this method.
BRRRR SKILLS NEEDED
Generally speaking you will need several things to successfully complete a BRRRR:
Hope all of that makes sense. Thanks!
I am also in Chattanooga TN. While I'm not the best person to answer this as i'm a newer investor, my understanding is that withdrawing from your retirement has to be paid back within 60 days for it to be tax free. Otherwise, it is taxable. Don't take my word for it, however, and contact your institution.
Try to get FHA 203K loan in which you can add rehab costs as well. check with your lender if they originate these loans. the closing costs will be more than the regualr conventioanl loan but you dont have to comeup with the renovation costs.
@Micah Louden congrats on your first property. I'm a little confused - are you talking about the current property, or a future property?
The best way to do a BRRRR typically is either with cash/rehab loan and buying a property significantly undervalued that needs a lot of work.
I've been able to do it a few times in my market where I self-fund the renovations, and then cash-out refinance after I add significant value to the property.
@Micah Louden congrats on buying your first home! That's a big step in the right direction for sure. It sounds wierd but only about 25% of Americans own a home at all. And only about 4% own two homes! It becomes rarified air very quickly when you are in real estate.
Now, the question about cash is ALL of our questions. Cash will always be your biggest limitation to growth. So let me share some basic things first and then we can dive into what you will need.
First, the BRRRR method is designed to help LOWER the cash needed to purchase a home. An "average" investor - one that doesn't know what the BRRRR method is might have to put 15% - 25% down payment on an investment property. That's a lot of money. But the BRRRR method could have 0% down payment if you purchase it right. Now learning how to do the BRRRR method is very hard. But to me having $60,000 for a down payment was IMPOSSIBLE - so I had no choice but to start with the BRRRR method. Over time I have gotten better and better at it.
Secondly, you can't just BRRRR any property you come across. You have to target very specific properties. Usually these properties are off market properties that are in a state of disrepair. Usually. So if you come across one, and the numbers don't quite fit - you should be offering a LOWER amount on the property. It's not your fault that someone is asking too much for a property. You need to make an offer anyway. There have been plenty of properties where I was the only person offering because the price scared everyone else off of the property. Make an offer! Can you buy a BRRRR property with nothing out of pocket? It's hard to do but yes you can. The right expectation is that you will likely need SOME amount out of pocket though. You'll need to know how to calculate the numbers when you are doing this method.
BRRRR SKILLS NEEDED
Generally speaking you will need several things to successfully complete a BRRRR:
Hope all of that makes sense. Thanks!