Chronic over thinker- Thoughts on taking a less than perfect deal to get started?
New to Real Estate · Denver, CO · Member since 2017 · 11 posts · 3 votes
Like the title mentions, I am a chronic over thinker and know that I could spend the next 2 years learning every possible approach to BRRRR, the details, the risks, etc. I am a pretty resourceful thinker but I cannot help that whenever my brain hears "5 things you MUST know before your first BRRRR deal" I can't help but read the content, research each of those topics, etc. Ultimately, I know I just need to get started and over time my goal can become to improve my strategy with every deal.
I don't want to live on the sidelines lol.
With that being said- Any advice/thoughts on taking a less profitable deal (ie- leaving money in the deal after refinancing to get started)? If so, how can I use my willingness to be less profitable to my advantage?
In this current environment, the majority of deals fall under "less than perfect".... Set your parameters for any possible deal, and go through with it IF you are comfortable with the numbers. Do your due diligence and trust your numbers. Don't live on the sidelines, but don't get in the game just to say you got in.
BRRR's have been harder with the low inventory and higher demand so it is more common to leave money in the deal. If you run the numbers and are OK with it I'd go for it. Everyone has a different criteria for deals. Just be thorough with each step of BRRR especially the rehab part
@Josh Humbert We have money trapped in every property we own. That's why it's called investing. You need 2 of 3 things to get into real estate - rehab skills, money, or a deal.
When I started I had some rehab skills, basic wood working tools, and money. I knew nobody in the industry. I found a local agent and found a distressed deal that would cash-flow. I could predict list prices for other remodeled houses (+/- $5k). Market research is so important. You could have all three skills and still buy wrong. Buy right or don't buy property. The BRRRR strategy is challenging because the numbers are tighter. It wasn't much easier in 2018. Rents were lower. DOM was longer but that's about it. Aim for a single or double base hit. That's what it takes to scale and find the homerun deals you're probably reading about in the forums.
In this current environment, the majority of deals fall under "less than perfect".... Set your parameters for any possible deal, and go through with it IF you are comfortable with the numbers. Do your due diligence and trust your numbers. Don't live on the sidelines, but don't get in the game just to say you got in.
Being in this mindframe will never land you a deal. It is good to know all your risks, but you must balance it with action taking. I have never closed on a perfect deal. I believe in constant base hits, and a few home runs every season.
Hey Josh,
It is hard to accept but there is no such thing as the perfect deal.
There is something that at some point will go south, either financing or rehab work.
But you can minimize these with experience and jumping in.
The more you think about it the less action you will take because you always will find the "BUT.."
Focus on the big picture. Nothing in life is perfect. Find something where the numbers work and go for it. Find a realtor who is used to working with investors and listen to what they say. Decision is still yours, but don't nitpick .... big picture.
yes, it's OK to not have a home run BRRRR and leave some money in the deal.
however, as others have said BRRRR is incredibly difficult right now.
you need to find a property - usually off market - that you can significantly increase the ARV of via a rehab. 30 or even 50% doesn't usually cut it - you usually need to buy at 50% or less of ARV. and that's step 1. and on the cash-out - higher interest rates have made it much tougher to cash flow. so, say you finished your BRRRR and got most of your cash out but were breaking even. would this be worth it? it takes 6-12 months to get through the whole cycle.
so....
can you tell us a little bit more about... your goals? any work you've done to get ready? do you have funds or a lender lined up to buy? have you researched any contractors? are you looking in the Denver metro? etc.
Hey @Josh Humbert! Lots of good advice in here already, and I would definitely echo the sentiment that a perfect BRRRR is very difficult to come by, and is one of those unicorns in REI that everyone seeks out. BRRRR does not necessarily mean that you pull all your money out, but people have come to understand it that way and if your deal doesn't do that then you think it's a bad deal, that's not the case. Look at the big picture and the deal as an investment. 10 years from now you won't be worried that you left 20k in the deal, you'll be saying "Wow, I bought that house with only 20k invested". This is especially true here in the Denver market, where properties are expensive, rehabs are expensive, and lending is expensive, I have to work with investors every day and educate them on the market they are working in, and at the end of the day, if you end up with only 20k invested in the deal, that is a lot better than the $100k+ that you would have had to put down for a traditional purchase.
As for your analysis paralysis, maybe instead of jumping into a BRRRR for your first deal (Im assuming it's your first deal), which has so many moving pieces and items that you have to address, maybe start with something more simple for your first one just to get your feet wet and then grow to the BRRRR. Start with a house hack here in Denver, where you can get in with 3-5% down, rent out a portion of the home, and lower your living expenses. Maybe buy something with some rehab needed but not a full rehab, and get to understand how it is working with contractors on your own property. This will give you the training wheels to understand how to manage and operate an investment property, with very low risk. At the end of the day, there is no replacement for actually jumping in, but the fewer variables and the lower risk you can have, the more likely you are to act on it, and the better off you'll be.
@Josh Humbert We have money trapped in every property we own. That's why it's called investing. You need 2 of 3 things to get into real estate - rehab skills, money, or a deal.
When I started I had some rehab skills, basic wood working tools, and money. I knew nobody in the industry. I found a local agent and found a distressed deal that would cash-flow. I could predict list prices for other remodeled houses (+/- $5k). Market research is so important. You could have all three skills and still buy wrong. Buy right or don't buy property. The BRRRR strategy is challenging because the numbers are tighter. It wasn't much easier in 2018. Rents were lower. DOM was longer but that's about it. Aim for a single or double base hit. That's what it takes to scale and find the homerun deals you're probably reading about in the forums.
Hey Jaron- really appreciate the advice. Especially on going for a single/double. Ultimately, I think I'll be happy with my first deal as long as I don't totally lose my *** and strike out lol.
BRRR's have been harder with the low inventory and higher demand so it is more common to leave money in the deal. If you run the numbers and are OK with it I'd go for it. Everyone has a different criteria for deals. Just be thorough with each step of BRRR especially the rehab part
Really appreciate the advice!
Being in this mindframe will never land you a deal. It is good to know all your risks, but you must balance it with action taking. I have never closed on a perfect deal. I believe in constant base hits, and a few home runs every season.
100%. I know if I can get over the mental block I will succeed. The only thing stopping me right now is my mindset. Really appreciate the feedback- it's exactly what I'm trying to work through asap.
Hey Josh,
It is hard to accept but there is no such thing as the perfect deal.
There is something that at some point will go south, either financing or rehab work.
But you can minimize these with experience and jumping in.
The more you think about it the less action you will take because you always will find the "BUT.."
Reading these comments it's pretty clear I just gotta my dues and learn through experience! Lol. I come from a wildly risk-averse family so trying to unwire my brain is the biggest challenge but I'm going to do it!
Focus on the big picture. Nothing in life is perfect. Find something where the numbers work and go for it. Find a realtor who is used to working with investors and listen to what they say. Decision is still yours, but don't nitpick .... big picture.
Thanks, Theresa. For the first deal- would you recommend just relying directly on realtors to source it?
Hey @Josh Humbert! Lots of good advice in here already, and I would definitely echo the sentiment that a perfect BRRRR is very difficult to come by, and is one of those unicorns in REI that everyone seeks out. BRRRR does not necessarily mean that you pull all your money out, but people have come to understand it that way and if your deal doesn't do that then you think it's a bad deal, that's not the case. Look at the big picture and the deal as an investment. 10 years from now you won't be worried that you left 20k in the deal, you'll be saying "Wow, I bought that house with only 20k invested". This is especially true here in the Denver market, where properties are expensive, rehabs are expensive, and lending is expensive, I have to work with investors every day and educate them on the market they are working in, and at the end of the day, if you end up with only 20k invested in the deal, that is a lot better than the $100k+ that you would have had to put down for a traditional purchase.
As for your analysis paralysis, maybe instead of jumping into a BRRRR for your first deal (Im assuming it's your first deal), which has so many moving pieces and items that you have to address, maybe start with something more simple for your first one just to get your feet wet and then grow to the BRRRR. Start with a house hack here in Denver, where you can get in with 3-5% down, rent out a portion of the home, and lower your living expenses. Maybe buy something with some rehab needed but not a full rehab, and get to understand how it is working with contractors on your own property. This will give you the training wheels to understand how to manage and operate an investment property, with very low risk. At the end of the day, there is no replacement for actually jumping in, but the fewer variables and the lower risk you can have, the more likely you are to act on it, and the better off you'll be.
Focus on the big picture. Nothing in life is perfect. Find something where the numbers work and go for it. Find a realtor who is used to working with investors and listen to what they say. Decision is still yours, but don't nitpick .... big picture.
Thanks, Theresa. For the first deal- would you recommend just relying directly on realtors to source it?
For all of my rentals, I've worked with realtors. Both of them (different cities) have investment properties of their own. One is also a PM. Give them your parameters (max price, number of beds and baths, location, type of building-eg single family home). You can pull the numbers off the listing and run them yourself, but they should be able to identify ones that should work well as rentals.
Focus on the big picture. Nothing in life is perfect. Find something where the numbers work and go for it. Find a realtor who is used to working with investors and listen to what they say. Decision is still yours, but don't nitpick .... big picture.
Thanks, Theresa. For the first deal- would you recommend just relying directly on realtors to source it?
For all of my rentals, I've worked with realtors. Both of them (different cities) have investment properties of their own. One is also a PM. Give them your parameters (max price, number of beds and baths, location, type of building-eg single family home). You can pull the numbers off the listing and run them yourself, but they should be able to identify ones that should work well as rentals.
Awesome- really appreciate you responding. Any advice on how to be a good partner to an agent so they take me seriously and are excited to work with me? (clear expectations, responsiveness, etc)
Hey @Josh Humbert! Lots of good advice in here already, and I would definitely echo the sentiment that a perfect BRRRR is very difficult to come by, and is one of those unicorns in REI that everyone seeks out. BRRRR does not necessarily mean that you pull all your money out, but people have come to understand it that way and if your deal doesn't do that then you think it's a bad deal, that's not the case. Look at the big picture and the deal as an investment. 10 years from now you won't be worried that you left 20k in the deal, you'll be saying "Wow, I bought that house with only 20k invested". This is especially true here in the Denver market, where properties are expensive, rehabs are expensive, and lending is expensive, I have to work with investors every day and educate them on the market they are working in, and at the end of the day, if you end up with only 20k invested in the deal, that is a lot better than the $100k+ that you would have had to put down for a traditional purchase.
As for your analysis paralysis, maybe instead of jumping into a BRRRR for your first deal (Im assuming it's your first deal), which has so many moving pieces and items that you have to address, maybe start with something more simple for your first one just to get your feet wet and then grow to the BRRRR. Start with a house hack here in Denver, where you can get in with 3-5% down, rent out a portion of the home, and lower your living expenses. Maybe buy something with some rehab needed but not a full rehab, and get to understand how it is working with contractors on your own property. This will give you the training wheels to understand how to manage and operate an investment property, with very low risk. At the end of the day, there is no replacement for actually jumping in, but the fewer variables and the lower risk you can have, the more likely you are to act on it, and the better off you'll be.
Hey Josh! House Hack opportunities are available all the time here in the metro area. House Hacks are analyzed slightly differently and provide so many other benefits that it's not all about the cash flow on day one that you are concerned with. Ill shoot you a DM and we can discuss it some more!
Hey @Josh Humbert! Lots of good advice in here already, and I would definitely echo the sentiment that a perfect BRRRR is very difficult to come by, and is one of those unicorns in REI that everyone seeks out. BRRRR does not necessarily mean that you pull all your money out, but people have come to understand it that way and if your deal doesn't do that then you think it's a bad deal, that's not the case. Look at the big picture and the deal as an investment. 10 years from now you won't be worried that you left 20k in the deal, you'll be saying "Wow, I bought that house with only 20k invested". This is especially true here in the Denver market, where properties are expensive, rehabs are expensive, and lending is expensive, I have to work with investors every day and educate them on the market they are working in, and at the end of the day, if you end up with only 20k invested in the deal, that is a lot better than the $100k+ that you would have had to put down for a traditional purchase.
As for your analysis paralysis, maybe instead of jumping into a BRRRR for your first deal (Im assuming it's your first deal), which has so many moving pieces and items that you have to address, maybe start with something more simple for your first one just to get your feet wet and then grow to the BRRRR. Start with a house hack here in Denver, where you can get in with 3-5% down, rent out a portion of the home, and lower your living expenses. Maybe buy something with some rehab needed but not a full rehab, and get to understand how it is working with contractors on your own property. This will give you the training wheels to understand how to manage and operate an investment property, with very low risk. At the end of the day, there is no replacement for actually jumping in, but the fewer variables and the lower risk you can have, the more likely you are to act on it, and the better off you'll be.
Hey Josh! House Hack opportunities are available all the time here in the metro area. House Hacks are analyzed slightly differently and provide so many other benefits that it's not all about the cash flow on day one that you are concerned with. Ill shoot you a DM and we can discuss it some more!
Rock on- let's do it! Appreciate you reaching out
Like the title mentions, I am a chronic over thinker and know that I could spend the next 2 years learning every possible approach to BRRRR, the details, the risks, etc. I am a pretty resourceful thinker but I cannot help that whenever my brain hears "5 things you MUST know before your first BRRRR deal" I can't help but read the content, research each of those topics, etc. Ultimately, I know I just need to get started and over time my goal can become to improve my strategy with every deal.
I don't want to live on the sidelines lol.
With that being said- Any advice/thoughts on taking a less profitable deal (ie- leaving money in the deal after refinancing to get started)? If so, how can I use my willingness to be less profitable to my advantage?
First, a round of applause and pat on the back Josh, seriously, you deserve it and I want to recognize your achievement in taking a serious analysis of yourself, identifying your hold-backs and being brutally honest with self that it is an issue of self, and pressing to break through that.
It takes courage and character.
Next, I think your on the right track. You understand the value in getting going is so much more important than the immediate cash returns on #1. Viewing it as a investment to get in-the-game.
My thoughts, focus on the first one being in a great area of future appreciation potential, keep it small as possible, and as ugly as possible. This will give you layers of protection of investment, mitigate risk potential, and lend to maximum learning experience.
Being in the right location means no matter how over budget you may run, all you have to do is let time dig you out of any potential hole, right. And being smaller, keeps potential costs smaller. And by being as ugly as possible, lends sweat equity which gives chance to create equity and maximum learning potential. The best performing rentals are those that were renovated for rental. But it's not for everyone, reno, only way to really know is give it a crack, right.
Your on the right track. Be strategic on your placement, go ahead and geek on all the factors for where. From there, get in small and ugly. Townhome sand SFH's, no condos, stay miles away from condo's until have some good knowledge built up. Keep it simple, worst home in a great area.
The hardest deal is always #1. And your best is, ideally, always the next one, lol. A self-competitive attitude goes a long way in this biz, working to out-do what you did yesterday. Just keep in mind to KEEP MOVING, movement is life.
@Josh Humbert
Hey Josh, thought i’d leave my opinion on this in case it helps. I’m pretty new to real estate as well, after graduating college I spent two years researching and saving money before buying my first deal.
I finally bought my first property in September of 2021, it was a duplex in a good area that needed significant work. I’m certainly no expert at real estate, and i’ve learned a ton over this process. We’ve made a lot of mistakes throughout the process, and have gotten lucky with a few things that have made up for those mistakes.
Overall though, even if some seasoned investors might look at my final numbers and maybe think there were better deals, I don’t regret it all. I payed almost $100K for my college education, and I know a lot of people pay thousands for different real estate academy’s. I try to look at it this way, even if I end up losing money in the short term in this deal, it was the best education in real estate I could have gotten.
Not saying you shouldn’t try to get the best deal possible, but for me the lessons learned were worth jumping in and potentially missing the better deal. Would love to talk more if you ever want to reach out, but I would say jump in and don’t try to wait around for the perfect deal!
I think all of us tend to get so hung up on the details that we fail to even get started. Plus, with the invention of biggerpockets we get to hear about all of the other investors making 20% CoC returns with their rentals or whatever! LOL! Seriously, I have clients coming to me all of the time and end up spinning their wheels for months waiting for that perfect deal. When, in reality, they could have just bought that deal that would earn them $100/door cashflow and already be down the road investing. The truth is you cannot build on anything unless you have a starting point. Even if it is a bad deal. So, what! With this market and normal appreciation even if you bought a house at market price and just waited a year you will almost certainly not lose money. Here in Indiana, I am easily seeing where my landlord investors are getting an easy $40,000 per year just in normal appreciation. Yes, your results may vary but this is nothing to even brag about. It is just normal.
Again, I see my clients' properties earning 40k in value by that investor doing nothing. Nada, zip, zero! No work, no sweat equity, nothing. Just the normal cost of living increases. I mean, in some parts of the world a $40,000 yearly income is what some school teachers would be happy to live off of. Sometimes we need to take a step back and realize we live in one of the absolute best times to be alive and to be an investor. I see other investors who are seeing 60k to 120k on their flips in profit. Brandon Turner talks about it all of the time: You need a boots on the ground agent who knows how to help you if you are new to this game. Once you get a few deals under your belt you will not even need an agent really. But the smart investors I work with end up coming back to me because they know that can depend on my trusted resources like a GC, PM, etc.
You just have to get started. Even the "bad" deals I have done were not all that bad. In fact, they were very important learning lessons I needed in my journey. The good, the bad, I take it all and hopefully grow from it. This is what makes us better. Believe me, you lose 5k or 10k on a deal you are NOT going to let it happen again. But it can and will! You win some and lose some. In the end, hopefully, you come out ahead overall.
Remind yourself of the opportunity cost of NOT buying the property yesterday! Secure the asset today so you aren't kicking yourself tomorrow! Also - find a GREAT investor friendly real estate agent in your target market, they should be able to help you get off the sidelines as well as share market insights and off market properties.
Like the title mentions, I am a chronic over thinker and know that I could spend the next 2 years learning every possible approach to BRRRR, the details, the risks, etc. I am a pretty resourceful thinker but I cannot help that whenever my brain hears "5 things you MUST know before your first BRRRR deal" I can't help but read the content, research each of those topics, etc. Ultimately, I know I just need to get started and over time my goal can become to improve my strategy with every deal.
I don't want to live on the sidelines lol.
With that being said- Any advice/thoughts on taking a less profitable deal (ie- leaving money in the deal after refinancing to get started)? If so, how can I use my willingness to be less profitable to my advantage?
Josh,
I'm a pretty seasoned investor with over 150 doors. Right now I'm finishing rehab on a couple of homes I was going to rent. They are going on the sales block instead. Why? Simply stated, they have increased in value so much that I can get a better return by simply putting the money in a CD.
I'm also selling all my maintenance intensive properties, primarily for the same reason. Receive top-dollar now and reinvest if and when values drop. Save money on constant service calls in the meantime.
That being said, I just advised my youngest son in his acquisition of his first rental. Return is lower then we'd like, but we view it as free College tuition as a Real Estate major.
Go for it. Don't go crazy and use all your cash, but dive in. The only regret I have in my real estate history are the properties I didn't buy.
Gary
@Josh Humbert Hi Josh, if you can get into the basic MLS through a realtors website and pick a few locations you're interested in you can search it daily to look for the "better" deals. This takes time and commitment. This way you're not just wearing down your realtor or waiting on a search you've set up that may be a few days old before it gets to you and another investor gets to your deal first.
None of my deals have been perfect, some better than others, some with more headaches, some less. The only thing I wish is that when I first started investing 24 years ago and the going got tough I had stuck it out and not quit because today I’d be financially free instead of just starting over 3 years ago. I’ve learned a lot since then and do things differently now as I’m more experienced and educated but I’d likely also have an additional 50 properties or more by now.
So just find a deal and get going! You won’t regret it!
@Josh Humbert I’m also an over thinker and I ended up jumping into a less than ideal deal. I’m house hacking a duplex and it’s currently not cash flowing (yet) and there were SOO many unexpected issues. It will turn into a great deal once I do all of the forced appreciation I think it needs and am waiting for my appealed property taxes to be accepted. Once those two things happened I should be able to cash flow around 200-300 a month. Pulling from my own experience. If you’re going to pull the trigger on something less than ideal, at least try your best not to make assumptions about anything. Be as curious you naturally are about prior research but in the details of the deal and process of the improvements after you close.
That said, after I pulled the trigger on mine I realized how much more profitable it would have been to either have been more conservative with my numbers or to have waited longer and have found another deal. Waiting isn’t a bad thing and TRUST ME, the anxiety within analysis paralysis is nothing compared to the stress, anxiety, regret and anger of getting into a less than ideal situation and feeling stuck in your first deal.