Is BRRRR really a good strategy?
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
Is BRRRR really a good strategy?
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Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
3yI like “slow flipping” which is basically a brrrr that you sell after 4-5 years of cashflow and appreciation.
39 Replies
- Investor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes3y
It’s an interesting debate for so many reasons. One is if you hold you get excited about “equity” and “appreciation “ which… only really mean anything if you plan to sell. (Yes, I know you can refi but usually not right away). So that’s ironic. A lot of “buy and hold” people don’t actually hold for forever, and the ones I’ve known who sell off their portfolio they are more excited about that $100k per door then $200 per month.
But man that ROI on a 0% out of pocket via true brrrr is crazy…. Personally I plan to do some of both.
- Contractor · Orofino ID, Hollister CA · Member since 2021 · 139 posts · 71 votes3y
Quote from @Eliott Elias:
You end up putting as much time as you would towards a flip, and instead of making 50k you cash flow a few hundred bucks (that's wiped out after one roof replacement) for "infinite returns" When you could've spent the profits into marketing and scaling. What are y'alls thoughts?
Not sure why you say you only get cash flow. Yes you might only get 40k out on the refinance instead of 50k on the sale. But even if you broke even on the cash flow you will still be gaining appreciation on the property plus debt pay down, depreciation for tax purposes etc.. I really think the small hit in not getting as much as you would on the sale is made up fairly quick with the other advantages. - 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
I mean if you find something really distressed in a really quick turnaround market sure. But that's extremely rare.
In today's world, looking at BRRR opps near me you're basically betting on your ARV being right, construction prices being right, your house not deprecating in the short term, and rent not changing.
You're also hamstrung by a hard money loan at those kind of rates.
I'd say hard pass. Think buy with intent to do some small cosmetic changes but capex is healthy and sell, or hold and rent. For me, personally, buy & very little changes and rent. More cosmetic changes when closer to sell(15-20 years down the line).
- Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes3y
A) The 'few hundred bucks' should be the net CF after putting 2-3% of the property's value into a repair/capex reserve.
B) The EOL for the roof should have been known prior to buying it.
C) The home is acquired at 0% down (I've always come out ahead when it comes to $$ on the refi).
D) The returns are taxed differently. The gains realized when refinancing are income tax-free AND you receive heavily sheltered "passive" returns.I've built new construction specs, new construction rentals, flipped and BRRRR'd. I don't really have a preference, money is money.
If BRRRR doesn't make sense for a particular property at a particular time, then don't do it.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Justin Fox:
A) The 'few hundred bucks' should be the net CF after putting 2-3% of the property's value into a repair/capex reserve.
B) The EOL for the roof should have been known prior to buying it.
C) The home is acquired at 0% down (I've always come out ahead when it comes to $$ on the refi).
D) The returns are taxed differently. The gains realized when refinancing are income tax-free AND you receive heavily sheltered "passive" returns.I've built new construction specs, new construction rentals, flipped and BRRRR'd. I don't really have a preference, money is money.
If BRRRR doesn't make sense for a particular property at a particular time, then don't do it.
refi proceeds are tax defferred not TAX FREE minor point but important one. - Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes3y
Flipping is a taxable event, and taxed at ordinary income rate.
When you fix and rent, the $50k forced appreciation you referred to doesn't disappear as you suggested. You can still access your equity through refinancing and helocs, none of which are federally taxable.
Flipping is a job, does not generate any passive income or any of the long-term benefits of real estate ownership. It's also riskier than fixing and holding.
Imo it only makes sense to flip if you need the income or are reinvesting the profit into a larger asset class. - Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes3y
I like “slow flipping” which is basically a brrrr that you sell after 4-5 years of cashflow and appreciation.
- Rental Property Investor · Oak Harbor, WA · Member since 2022 · 29 posts · 18 votes3y
The answer to that boils down to whether you like passive income or active investing. With the BRRRR strategy, you're reaping the the benefits of equity, appreciation, and cash flow. Fix and flip is a job and you need to constantly be on the hunt for the next deal.
On the flip side, if you're cash flowing only a couple hundred on a BRRRR it's a no for me dawg. Ideally you get the best of both worlds.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Eliott Elias:
You end up putting as much time as you would towards a flip, and instead of making 50k you cash flow a few hundred bucks (that's wiped out after one roof replacement) for "infinite returns" When you could've spent the profits into marketing and scaling. What are y'alls thoughts?
I'm always into flips, the thing is to buy flips, we need to buy in stable market conditions. But for rental, I can buy anytime, although I prefer STR all over now.
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes3y
Quote from @V.G Jason:
Quote from @Account Closed:
I like “slow flipping” which is basically a brrrr that you sell after 4-5 years of cashflow and appreciation.
Short term buy & hold?
Includes a big renovation
bRrrr
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Account Closed:
Quote from @V.G Jason:
Quote from @Account Closed:
I like “slow flipping” which is basically a brrrr that you sell after 4-5 years of cashflow and appreciation.
Short term buy & hold?
Includes a big renovation
bRrrr
You do the big reno right after buying, or right before selling? I'm trying to understand the reason to do it right after buying, I get the refinance part and forced appreciation. But your tenants are going to wear it down and you'll likely have to re-do some of it before you actually do sell. Why not do it pre-selling?
- Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes3y
Quote from @V.G Jason:
Quote from @Account Closed:
Quote from @V.G Jason:
Quote from @Account Closed:
I like “slow flipping” which is basically a brrrr that you sell after 4-5 years of cashflow and appreciation.
Short term buy & hold?
Includes a big renovation
bRrrr
You do the big reno right after buying, or right before selling? I'm trying to understand the reason to do it right after buying, I get the refinance part and forced appreciation. But your tenants are going to wear it down and you'll likely have to re-do some of it before you actually do sell. Why not do it pre-selling?
The condition its initially purchased in would not be rentable
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes3y
I feel like most of these answers are a bit short sighted so I'll throw my two cents in. The goal is to stack assets and bank on inflation/appreciation. If you get to $3M in assets that appreciate at a modest 3% per year that's $90k per year in passive equity you earn every year. In my market that's 10 houses. You could get there in 1 year if you're buying right and doing the BRRR method to recycle your liquid cash. Now sure…you can make $90k doing 2-3 flips per year also…but that's not passive and it's at a much higher risk.
Most people flip for a while to get cash and then transition to being more passive. The BRRRR is the shortcut to getting there in essence.
- Lender · Member since 2022 · 338 posts · 374 votes3y
I think it really depends on the details of the property and your ultimate goal - if you analyze a property as a flip and would like to make an immediate profit, that makes sense. If you find a deal with great cash flow and/or a property in an appreciation market, you could make a large profit further down the line.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
Proper BRRR the cashflow has a good margin for repairs. I do $100 a unit a month so a 4 unit should have $400 a month reserved for repairs over time. In 2022 market its pretty much impossible to work like this so yes flips are often the best or just do 10-25 down buy/holds.
- Real Estate Investor · La Verne, CA · Member since 2008 · 16 posts · 14 votes3y
I have 2 STRs and am going to BRRRR like a madman in 2023 and here is why...
- The $50k from a flip is chewed into by cap gains tax.
- If you qualify as a real estate professional (LTR) or meet the material participation rules for an STR, you can do a cost seg & take bonus depreciation (begins sunsetting in 2023 @ 80%, but still awesome). In the STR case, those losses are "active" which means those losses can offset either passive or active income. (DISCLAIMER - I am not a CPA, and certainly not YOUR CPA, so check with yours)
- Ownership of real estate is where real wealth comes from (I define wealth as "when your income from assets exceeds your expenses"). Imagine you did 10 properties with the 50k from your example. Flips: $500k gross, ~300k after tax? - BRRRR - You own 10 properties. Each property gives you (conservatively) $100/month = $1k/month. Each property appreciates ~3%/year and your equity spread grows more than that because your tenants are paying down your principle. Each property gives you bonus depreciation that will lower your taxable income (from potentially other sources) to zero and you would not lose that $200k in tax you lost in the flips. Could you do more with that $300k in your pocket than having it in real estate? You would probably come to the realization at some point that you needed to buy some property with that $300k for all the reasons we know and love, so then you are back to the original value of BRRRRing - buying & holding real estate.
Hope this helps frame the benefits of BRRRR! If you need 50k *now* (well, 30k-ish after tax), a flip looks very attractive. But stepping out and seeing the big picture over time changes everything.
- Investor · NY · Member since 2022 · 22 posts · 17 votes3y
For someone like me who has no skills in construction whatsoever (I can barely put together my own furniture), BRRRRs are much better than flips because:
1. I'm paying a premium for construction no matter what.
2. The full guts are overbid by construction companies and other hard money loans.
I also need to shield my W2 and LLC income from taxes so I'm happy to accumulate properties that appreciate well and rent quick, even if they come at negative cash flow. I hire local property managers, so I try to group my BRRRRs the best I can.
However, my friend in NJ is well equipped to run flips by himself (12+ years of experience as a plumber+electrician, ran his own construction company, gets materials at a discount). He only pays 1-2 subcontractors per flip, and his costs are absurdly low. He does this full time and has been working with his private money lender for 5 years now. Flips 100% make more money for him.
One strategy isn't better than another -- it's just up to your expertise, resources, risk tolerance, and available time. - Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3yThis is assuming the market will still appreciate. If I refinance based off of current appraisals (which are still coming in high) and market tanks you will be under water.
Quote from @Account Closed:
I feel like most of these answers are a bit short sighted so I'll throw my two cents in. The goal is to stack assets and bank on inflation/appreciation. If you get to $3M in assets that appreciate at a modest 3% per year that's $90k per year in passive equity you earn every year. In my market that's 10 houses. You could get there in 1 year if you're buying right and doing the BRRR method to recycle your liquid cash. Now sure…you can make $90k doing 2-3 flips per year also…but that's not passive and it's at a much higher risk.
Most people flip for a while to get cash and then transition to being more passive. The BRRRR is the shortcut to getting there in essence.
- Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes3yI’ll always bet that the market will appreciate over the span of 30 years. And for all of human history, I would be right.
Quote from @Eliott Elias:
This is assuming the market will still appreciate. If I refinance based off of current appraisals (which are still coming in high) and market tanks you will be under water.Quote from @Account Closed:
I feel like most of these answers are a bit short sighted so I'll throw my two cents in. The goal is to stack assets and bank on inflation/appreciation. If you get to $3M in assets that appreciate at a modest 3% per year that's $90k per year in passive equity you earn every year. In my market that's 10 houses. You could get there in 1 year if you're buying right and doing the BRRR method to recycle your liquid cash. Now sure…you can make $90k doing 2-3 flips per year also…but that's not passive and it's at a much higher risk.
Most people flip for a while to get cash and then transition to being more passive. The BRRRR is the shortcut to getting there in essence.
- 3yJulio GonzalezPro MemberSpecialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
@Eliott Elias While it's harder to cash flow month to month right now with higher interest rates, it is still possible. One strategy that has a lot of potential tax benefits is a cost segregation study. It allows you to accelerate the depreciation on your property which reduces your taxable income, saving you money and allowing you to use those funds that you were going to pay taxes with and instead reinvest those funds to compound your money. Is your property an STR? Or do you have real estate professional status?
- Member since 2022 · 8 posts · 2 votes3y
It can be highly beneficial to buy and flip but I do have a new system that I believe is the future of flipping. You can now flip without buying the property. Think about how much time and capital is tied up to buy the property before you ever spend a dime on renos?
- Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes3y
Quote from @Eliott Elias:
This is assuming the market will still appreciate. If I refinance based off of current appraisals (which are still coming in high) and market tanks you will be under water.Quote from @Account Closed:
I feel like most of these answers are a bit short sighted so I'll throw my two cents in. The goal is to stack assets and bank on inflation/appreciation. If you get to $3M in assets that appreciate at a modest 3% per year that's $90k per year in passive equity you earn every year. In my market that's 10 houses. You could get there in 1 year if you're buying right and doing the BRRR method to recycle your liquid cash. Now sure…you can make $90k doing 2-3 flips per year also…but that's not passive and it's at a much higher risk.
Most people flip for a while to get cash and then transition to being more passive. The BRRRR is the shortcut to getting there in essence.
The key here is to buy under market value.
If you buy and complete the rehab at a max 85% ARV, you should be fine. Ideally you want to be better than that but I'm generally in the 75-85% ARV after everything is said and done.
It leaves A LOT less than 20% in the property - because you're not buying at market prices. That's the essence of investing - buying under market prices.
Now I like the BRRRR strategy but it's not all it's cracked up to be:
- BRRRR only works on select properties - they have to work as LTRs. Are you going to rehab and renovate a 600k 5bed/4 bath house and rent it out for a profit? Likely no. So they have to be affordable from the get
- You have to know a LOT of information (this is not a newbie strategy) - comps, rent rates, how to buy, rehab estimates, a good network of people etc
For me it looks like this - initial purchase price 75-110k, rehab 15-45k, cash-out refi (or similar financing) at a loan of 110-140k, then rent for 1100-1500
So anything over 175k ARV is a no-go for a BRRRR unless you can buy SUPER cheap (basically impossible) because you can't have a mortgage balance of over 140k when it's all said and done. Rents don't support the payments on higher mortgage balances
For me - unless I'm making 20%+ on a flip I prefer a LTR - depreciation/maintenance tax purposes, long term appreciation and monthly cashflow, and the ROI can be great if executed correctly (especially if you calculate full ROI in tax benefits, monthly income and conservative appreciation and loan paydown)
- 3yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
BRRRR is always a good strategy. Any market, any time. If you don't think BRRRR works, it's becuase you've not held any property for long enough to understand the power of infinite returns coupled with appreciation and tax benefits. BRRRR, along with personal residence house hacks, is by far the best way for newbies to get started. Heck, even VERY expereinced investors do the exact same thing with huge apartment complexes, it's just that the way they build equity is a little different, but the steps are the same.
Also, keep in mind that even if you leave a little money in a BRRRR, it's still very likely a successful deal. Just because you didn't walk away with a check at closing, you didn't lose. I purposely leave money in a BRRRR sometimes, depending on the timing and the property.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Lots of great comments here. I like buy and hold but I did see a flip done by a realtor recently here in the Bay Area. He bought it for $600,000, rehabbed it and sold it for $789,000 with multiple offers in September, which was great for him since most sellers aren't getting multiple offers (there are a few exceptions) with the inflated prices of the past 3 years.
I did a renovation in California recently where I was on site at least once a week, but I got a tenant in, trying to get roommates in to get full market rent. I'm looking at buying turnkey in the Midwest (Ohio and Indiana) or Memphis for $120,000 to $200,000. Michigan is a possibility but I'm apprehensive about the Detroit area (outside of downtown) which is supposedly coming back, at least that's what the turnkey company told me. I know that I would get the equity if I did a BRRRR for under $100,000 but renovation is a pain and trying to do one out of state doesn't sound appealing to me at all. I know the Indianapolis area well since I used to live there so if I did a BRRRR it would mostly like there - I have a property manager, roofing company, painters, etc. I'm in the analysis paralysis stage with turnkey vs. BRRRR.
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