Investor · Baton Rouge, LA · Member since 2016 · 17 posts · 6 votes
Background: I am 54 and have my house paid off (guessing around 250k in value). I have a condo with 37k of mortgage left (value about 160k). I have a job making about 60k per year. I have no car note. I rent the condo for 1200 (cash flow about $100 after expenses). I plan to retire in about 8 years (will have an old fashion pension, no problem there). I also have about 150k in stocks that I can sell to use for a purchase but am kind of scared to go all in on my first deal (I only rented the condo after inheriting the house and it wasn't something I really planned). I have another Roth IRA but can't touch it until 59.5 years old.
Problem: How to buy rental properties until retirement? I may be suffering from paralyses by analyses. I have been reading up on BRRRR and like the concept but if I start small, I will be buying cheap houses on piers (I hate those things) and in rough or ugly neighborhoods. If I go bigger and try a duplex/triplex, I might have to borrow some money so it wouldn't be a pure BRRRR. This is where I am stuck. I don't know what to buy. I guess they call that your "buy box"? I liked the idea of BRRRR because it seemed like the way to go if you don't have a lot of time but would like to buy a few properties. I would like to know if I am missing something obvious. Should I get a HELOC, or what would you do? Thanks for reading.
Hi Gerald, it sounds like you want to stay with an LTR strategy, seeing as you already do it. I would recommend filling out that buyer box and searching for a city that has what you are looking for. Or you can work backwards, explore cities and figure out what is normal there and then find your core 4. I recommend looking for a realtor first because they will have the contacts to finish off that core 4
Hi Gerald, it sounds like you want to stay with an LTR strategy, seeing as you already do it. I would recommend filling out that buyer box and searching for a city that has what you are looking for. Or you can work backwards, explore cities and figure out what is normal there and then find your core 4. I recommend looking for a realtor first because they will have the contacts to finish off that core 4
Thanks for your reply. I am working on it now. I would like to invest locally at first and my market has been listed as a good one so, I don't think there is a need to look abroad yet. I did find a duplex I am interested in. It has already been rehabbed but the price is still affordable. I just have to decide whether to use my money and refinance later or to pursue a loan or HELOC. Of course I haven't toured it yet and others may buy it first, so I guess I should contact the agent.
Background: I am 54 and have my house paid off (guessing around 250k in value). I have a condo with 37k of mortgage left (value about 160k). I have a job making about 60k per year. I have no car note. I rent the condo for 1200 (cash flow about $100 after expenses). I plan to retire in about 8 years (will have an old fashion pension, no problem there). I also have about 150k in stocks that I can sell to use for a purchase but am kind of scared to go all in on my first deal (I only rented the condo after inheriting the house and it wasn't something I really planned). I have another Roth IRA but can't touch it until 59.5 years old.
Problem: How to buy rental properties until retirement? I may be suffering from paralyses by analyses. I have been reading up on BRRRR and like the concept but if I start small, I will be buying cheap houses on piers (I hate those things) and in rough or ugly neighborhoods. If I go bigger and try a duplex/triplex, I might have to borrow some money so it wouldn't be a pure BRRRR. This is where I am stuck. I don't know what to buy. I guess they call that your "buy box"? I liked the idea of BRRRR because it seemed like the way to go if you don't have a lot of time but would like to buy a few properties. I would like to know if I am missing something obvious. Should I get a HELOC, or what would you do? Thanks for reading.
You shouldn't have the mindset that a "pure BRRRR" needs to be purchased all cash - lots of advantages and abilities to BRRRR right now with Hard Money and lots of good options out there that don't require overleveraging or too much risk.
PS - check out this recent article I did for BP which covers advantages and disadvantages of using Hard Money vs. Cash for BRRRR investing:
While refinancing is an important part of BRRRR and can make or break many BRRRR method deals, the first two steps, namely buying and rehabbing, are vital to success. Finding deals is one of the most important skills a real estate investor can have, but it’s not always enough. Finding a deal and closing a deal are two different things—making sure you can move fast and execute a close (and beat out potential competitors) is a prerequisite to a successful BRRRR (if someone else is able to purchase the property, your BRRRR investment is dead).
Many BRRRR method investors make property purchases in cash, whether due to not being aware of other options (using a hard money loan) or thinking it’s better financially. In the BRRRR book, Greene generally limits the BRRRR strategy to cash purchases, but hard money loans, or loans that are generally short-term and higher-rate, have also evolved a lot over the last four years.
For one, while the hard money terms example used in the book is 14% interest rates and four origination points, many hard money loans today will have fees that are half of that and significantly lower interest rates. Additionally, the internet continues to democratize access to information, and hard money lenders can be vetted and compared much more efficiently online, such as here on BiggerPockets.
Advantages of using cash for BRRRR
What are some advantages of using cash to purchase and fund renovations for BRRRR projects?
Lower interest cost: Simply, funding your purchases and renovations yourself saves you interest expense—typically a few months’ worth.
More competitive offers: Many sellers prefer cash offers over ones with financing because there is more certainty of closing (financing will typically require lender diligence periods, which causes time, such as waiting for an appraiser to visit the property and produce a report, as well as risks of falling through—that same appraiser finding an issue, etc.).
Less risk: Without interest or looming maturity dates, investors are less stressed if rehabs or the renting process are delayed.
Advantages of using hard money loans for BRRRR
However, with these advantages, there are many benefits of using hard money loans to finance the first two steps of the BRRRR method that outweigh the cons for many real estate investors. These include:
Get started faster: Let’s face it—while reading articles like this and absorbing all the podcasts and books on real estate investing is great, jumping in and actually doing your first deal is critical, and what you learn from experience often dwarfs knowledge from all the research sources by far. By buying and rehabbing with only cash, that means saving up all the funds needed for both—often a minimum of $75,000 to $100,000 at current market prices. Most people, let alone real estate investing beginners, don’t have that kind of money lying around and can only get started on the financial freedom journey by getting a good chunk of these costs financed by a hard money lender (typically up to 85% or 90% for beginners).
Faster portfolio growth: A key advantage of the BRRRR method is to use the smallest amount of capital to build a portfolio as fast as possible. With the power of compounding, doing three deals at a time versus one at a time can mean the difference of hundreds of properties in a portfolio. As such, an investor funding a $120,000 BRRRR buy and rehab in all cash grows the portfolio much slower than an investor who executes three $120,000 projects with $40,000 invested in each (with hard money financing of the remaining $80,000).
Higher leverage on the refinance: Believe it or not, a BRRRR method investor who refinances a hard money loan is looked at more favorably by a lender than someone who bought in all cash. While this may not seem logical, many lenders will give more favorable terms to what is called a rate-term refinance versus a cash-out refinance, the difference typically defined as whether you take home greater than $2,000 at closing of the refinance loan (cash-out) or not (rate-term). Many lenders have seasoning, loan amount, and LTV restrictions that are applied to BRRRR method investors only on cash-out refinances, and these don’t apply if it’s a rate-term refinance.
Additionally, some hard money lenders don’t require appraisals for the purchase of a BRRRR property. This allows a BRRRR method investor to be competitive with cash offers and eliminates one of cash buyers’ main advantages.
