Word to the wise on BRRR

[Brian Teeter]

Do your homework and be realistic about your abilities and knowledge. I see way too many new investors falling into a trap these days of seeing dollar signs on paper and thinking "this is easy." 

Each real estate cycle brings out a new wave of operators trying to capitalize on market conditions. Right now, it's the 1 or 2 man shops overpromising on BRRRR deals, especially when it comes to renovation budgets. The issue isn't that they're overspending. It's that the budget they've promised was never enough to begin with. The homes often need far more work to be sustainable, and by the time the investor figures that out, the seller is long gone. Lately, we've been bailing out investors who bought from the wrong operators. Good properties, solid markets, but no one to manage the plan. It's almost always the one or two-man shops pushing the "best deals." Of course they are, when all they have to sell are numbers, and those numbers usually don't hold up.

Just yesterday, we took over a property that had been sitting vacant and ransacked in a tough area. The rehab was supposedly completed a year ago—but it wasn’t. Now the owner is left footing the bill to secure the home and finish the work that should’ve been done from the start. And the bigger issue? Even if the renovation had been done right, the location itself wasn’t positioned for long-term success. Just because there are comps doesn’t mean it’s a solid investment, it just means someone else was also willing to buy there. In many cases, these small operators are the ones setting the comps in the very neighborhoods where they do business. That’s not a market, it’s a trap.  And I see this over and over these days with distressed investors.  

My advise: Whatever market you are in, do your homework and find a well established, verifiable team to help you... At least on your first few deals.