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
- Realtor · Columbus, OH · Member since 2022 · 13 posts · 21 votes3y
Quote from @Craig Parsons:
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.This
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes3y
two different jobs
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votesBolded the above. Do you care about negative CF if the property will most likely appreciate and are you in general investing for wealth as opposed to the quick buck? If so, how negative is too negative?
Quote from @Danny Liu:
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 · NY · Member since 2022 · 22 posts · 17 votes3y
Quote from @V.G Jason:
Bolded the above. Do you care about negative CF if the property will most likely appreciate and are you in general investing for wealth as opposed to the quick buck? If so, how negative is too negative?Quote from @Danny Liu:
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.The academic answer:
You can calculate your yearly return on equity as:
Return on Equity = Cash Flow after PITI + Principal Paydown + Appreciation / Total Equity
and theoretically, as long as your negative cash flow is smaller than that number (maybe minus appreciation if you don't want to be exposed to market shifts), you're actually making a positive return on investment yearly.
The practical answer is to only accept negative cashflow when that amount doesn't directly impact your wellbeing and quality of life. I would never want to be making my loved ones live on less because of an investment.
- Investor · NY · Member since 2022 · 22 posts · 17 votes3y
also if the decision is between
1. a 50k profit flip
2. a 40k profit BRRR with 0 monthly cashflow,
2 is almost always the much better choice if you're able to make enough money to cover the maintenance costs of the property throughout the years. You will burn through the extra $10k in a month or two, but the house is going to appreciate and the tenants are going to steadily pay down your loans. After a few years you can make your invested equity liquid again for another deal via HELOC or refinance.
Also, having a lot of properties means you can pick your timing when it comes to refinancing/selling. A lot of house flippers are going to be forced to sell in the upcoming downturn, but plenty of long term investors are just going to sit through and exit when the interest rates & market is more favorable.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Danny Liu:
Quote from @V.G Jason:
Bolded the above. Do you care about negative CF if the property will most likely appreciate and are you in general investing for wealth as opposed to the quick buck? If so, how negative is too negative?Quote from @Danny Liu:
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.The academic answer:
You can calculate your yearly return on equity as:
Return on Equity = Cash Flow after PITI + Principal Paydown + Appreciation / Total Equity
and theoretically, as long as your negative cash flow is smaller than that number (maybe minus appreciation if you don't want to be exposed to market shifts), you're actually making a positive return on investment yearly.
The practical answer is to only accept negative cashflow when that amount doesn't directly impact your wellbeing and quality of life. I would never want to be making my loved ones live on less because of an investment.
I get it, you can call it what you want--ROE or whatever. My question was simply is that something that's more in your wheelhouse as opposed to folks who buy in the MW making $100-$200 a month but below average appreciation, and stay even more leveraged? I'm not asking what you would tell someone else, I'm asking you what you do in particular.
I ask cause I am coming to a similar conclusion.
- Investor · NY · Member since 2022 · 22 posts · 17 votes3y
I'd do negative CF although not now-- I'm going to wait for the market to bottom. There's a crash coming in the multifamily space.
If I pick up the right deal, I'd settle for $1k-$2k negative CF per deal if it's in the right area and appreciates well.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Danny Liu:
I'd do negative CF although not now-- I'm going to wait for the market to bottom. There's a crash coming in the multifamily space.
If I pick up the right deal, I'd settle for $1k-$2k negative CF per deal if it's in the right area and appreciates well.
I think the residential real estate market definitely has more downwards to go. Obviously, the more part varies on which region, but I don't think this will crash to make houses intrinsic. I think it'll become less CF negative, though. I say that because we've gone from 9% to 7% inflation in 6 months, yet house prices have come down.
If they're coming down in past 6 months say 5-7%, while inflation has averaged about 8% increase in the last 6 months then the house value technically has lost value in both facets. One on list, two on the fact inflation has made everything costlier yet houses are outright less expensive. We are bracing for another 1-2 rate hikes, and illiquid assets take longer, so I think we'll see closer to 12-20% decline. And as these declines happen, the rate of debt will increase so the cash flow will still not be intrinsic.
If house prices or rate of debt ever come into a fashion where houses become intrinsic again, you will see investors come out. I think first-time homebuyers are likely going to face liquidity issues for independent reasons due to 2023. So when that time comes of making it intrinsic due to list price or rate of debt, I think first time homebuyers will be far fewer than in 2020-2021. We also continue to face very limited inventory.
- Investor · NY · Member since 2022 · 22 posts · 17 votes3y
Yup, but inflation is more of an effect of cheap debt and not a cause of housing prices in my opinion.
Homeowners probably won't list their homes and overall affordability is going to be low, so single family is probably going to be illiquid-- i agree.
As the cost of debt rises in 2023 it's going to be the syndicates, REITs, and over-leveraged investors (the gurus in YT videos with 'xxxx' doors via no money down, 5x leveraged financing) who are going to be in deep trouble. Will be plenty of opportunities in the foreclosure and pre-foreclosure market for some large multi-family/commercial estate.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Danny Liu:
Yup, but inflation is more of an effect of cheap debt and not a cause of housing prices in my opinion.
Homeowners probably won't list their homes and overall affordability is going to be low, so single family is probably going to be illiquid-- i agree.
As the cost of debt rises in 2023 it's going to be the syndicates, REITs, and over-leveraged investors (the gurus in YT videos with 'xxxx' doors via no money down, 5x leveraged financing) who are going to be in deep trouble. Will be plenty of opportunities in the foreclosure and pre-foreclosure market for some large multi-family/commercial estate.
Agreed, almost entirely. I still think as a SFH investor, if we need it intrinsic you just won't find that in better cities. And better cities are generally a better investment.
- 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Depends on your goals.
Also, flipping is just another job. Owner rental properties may lead semi-passive income
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