Apple Vs BRRRR - The Showdown

Apple Vs BRRRR - The Showdown

Jake ThorntonPro Member
Camas, WA · Member since 2019 · 44 posts · 36 votes

"In the RED CORNER, Apple stock. In the BLUE CORNER, the BRRRR Strategy. Two investment ideas go into the ring, one comes out. LET'S GET READY TO BRRRRUMBLE!"

So I'm a new investor. I have a couple of Airbnb's in Souther California, but next year I plan to launch full scale into a BRRRR strategy after reading the book by @David Greene, and joining the wonderful community here on BP. I've been gobbling up as much as I can, and attended the great free webinar by @J Scott and @Tarl Yarber yesterday, which was awesome! Thanks guys!

So I as I prepare to take massive action on this strategy next year, I was talking with a friend of mine the other day about it, and he grimaced, and said it sounded dangerous. I talked to him about the idea, whereby you could buy a house say for $50,000 cash, and put $25,000 into it, rent it out, refinance it at the new forced equity value of $100,000 at 25% down, and pull out all your cash and do it again. And again. And again.

To which he replied that he’d bought $50,000 of Apple stock in 2014, and that had now doubled in value, so how was this better than that? I tried to convince him that it was, but I couldn’t quickly punch the numbers to show him.

But today I sat down and did just that. And this is what I found.

All these calculations show an identical BRRRR, bought for $50,000 cash, with $25,000 rehab costs, and refi'd for $100,000. I guestimate that after everything is paid every month (Rent, Management, CapEx and Maintenance) that the property cash flows $500. Of course in real world scenarios any of these numbers could be up or down in either direction, but I'm just using this is a rough base for this equation. I buy three of these houses per year using this technique.

So in year one I buy a property in the first month, and have it rehabbed and rented to a tenant by the start of the third, and refinance it by the end of the fourth.

The cash flow on this first house is $5000 for that first year. (10 months at $500).

The second cash flows $3000 that first year (6 months at $500)

And the third brings me $1000 (2 months at $500)

I keep these for the following four years and combined they cash flow (including this first year) $81,000.

I then repeat this every year for the next four years. Three properties each year, same numbers.

House 4 by year 5 has cash flowed $23,000

House 5 by year 5 has cash flowed $21,000

House 6 by year 5 has cash flowed $19,000

House 7 by year 5 has cash flowed $17,000

House 8 by year 5 has cash flowed $15,000

House 9 by year 5 has cash flowed $13,000

House 10 by year 5 has cash flowed $11,000

House 11 by year 5 has cash flowed $9,000

House 12 by year 5 has cash flowed $7,000

House 13 by year 5 has cash flowed $5,000

House 14 by year 5 has cash flowed $3,000

House 15 by year 5 has cash flowed $1,000

The total cash flow by the end of year five is $225,000.

We’ve already outperformed my friend’s Apple stock. Whoopeee. Math is fun!

"BRRRR has one-two punched Apple, and he's out cold!"

BUT WAIT! THERE’S MORE!

Because the balance on the mortgages on all of these properties has been paid down.

At a 4.5% 30 year loan (again actual numbers may be different, but for the sake of example) of $75,000.

House 1 balance by end of year 5 = $68,368.44

House 2 balance by end of year 5 = $68,858.37

House 3 balance by end of year 5 = $69,341.01

House 4 balance by end of year 5 = $69,816.49

House 5 balance by end of year 5 = $70,284.9

House 6 balance by end of year 5 = 70,746.34

House 7 balance by end of year 5 = $71,200.94

House 8 balance by end of year 5 = $71,648.77

House 9 balance by end of year 5 = $72,089.95

House 10 balance by end of year 5 = $72,524.58

House 11 balance by end of year 5 = $72,952.74

House 12 balance by end of year 5 = $73,374.55

House 13 balance by end of year 5 = $73,790.08

House 14 balance by end of year 5 = $74,199.44

House 15 balance by end of year 5 = $74,602.72

AND the house has gone up in value! At an estimated 2% increase the new home values look like this:

Home 1 value by end of year 5 = $108,243

Home 2 value by end of year 5 = $108,243

Home 3 value by end of year 5 = $108,243

Home 4 value by end of year 5 = $106,120

Home 5 value by end of year 5 = $106,120

Home 6 value by end of year 5 = $106,120

Home 7 value by end of year 5 = $104,040

Home 8 value by end of year 5 = $104,040

Home 9 value by end of year 5 = $104,040

Home 10 value by end of year 5 = $102,000

Home 11 value by end of year 5 = $102,000

Home 12 value by end of year 5 = $102,000

Home 13 value by end of year 5 = $100,000 (No appreciation yet)

Home 14 value by end of year 5 = $100,000

Home 15 value by end of year 5 = $100,000

So the total equity we have now in these houses equals TOTAL HOME VALUE FOR ALL 15 HOUSES ($1,561,212) minus the TOTAL BALANCE ON MORTGAGES ($1,073,799)

$1,561,212 minus $1,073,799 = $487,412

That’s how much we’d make if we sold all those properties at the end of year 5.

Plus we cash flowed $225,000.

So the total at the end of year five is:

$225,000 cash flow + $487,412 equity = $712,412.

Oh and we still have our $75,000 investment nut. And my how that nut has grown.

So $50,000 of Apple stock doubled in that time to $100,000.

But our $75,000 became $787,412. In five years...

Can’t wait to get started with this strategy next year!!

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Member since 2019 · 2 posts · 14 votes
6y

I guess the only argument you can make for Apple is he didn’t lift a finger to double his investment.

See this reply in the discussion

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  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    @Jake Thornton

    On paper that looks amazing! Good luck finding deals like this for 50k cash flowing like that though. What markets are you looking at? I bought a property in a C class hood a year ago for 48k cash and spent 50k completely rehabbing it so I’m all in for 100k. Rent is $1,400/mo but I feel like I got lucky with this property. I’ll probably refi it now that it’s worth about 150k. Should be able to get 112k cash with the refi and it’ll still cash flow $400/month. I haven’t found any deals like this or what your hoping for in the last year. But I’m in the DFW area in TX and it’s super competitive. I would almost say roll the dice and go with Apple stock. However, maybe you have a good wholesaler or agent that can find sweet off market deals nobody knows about.

  • Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y

    Totally agreed, cash flowing real estate is the winner. The other problem with stocks is that statistically, nobody can outperform the market in the long run. Your buddy did a nice job on that AAPL purchase, but I doubt he did that well on his overall portfolio. 

    Additionally, what happens when Apple starts putting out duds? That's entirely out of his hands.

    Real estate for the win

  • Member since 2019 · 2 posts · 14 votes
    6y

    I guess the only argument you can make for Apple is he didn’t lift a finger to double his investment.

  • Contractor · Seattle, WA · Member since 2019 · 339 posts · 325 votes
    6y

    @Taylor L. Apple has been putting out duds for awhile now

  • Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    6y

    @Jake Thornton there is no question that real estate will beat Apple Stock if you buy, rehab, manage and refinance correctly. There is a lot more time involved in doing a BRRRR though, so you have to factor that in as well. I do think that the vast majority of average people would benefit financially a lot more from a rental property than they would from investing in stocks though. Real estate investing can be pretty close to a sure thing if you do it right. You have all the controls, and the investment relies on you. That is what initially appealed to me about it when compared to stock investing. It is NOT passive though. Management of real estate takes time, and even if you have a PM, there is asset management involved.

  • Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y
    Originally posted by @Parker Eberhard:

    @Taylor L. Apple has been putting out duds for awhile now

    Agreed! I'm an Android man myself, and Apple's elimination of the 3.5mm headphone jack was a terrible decision, but they managed to monetize it with the Airpods. It looks like there are equally questionable decisions coming on future phones. One day those questionable decisions won't work out.

  • Contractor · Seattle, WA · Member since 2019 · 339 posts · 325 votes
    6y

    @Taylor L. I have a client who works in the cell phone space; his company builds the chips that do wireless charging (every phone company but Apple uses his chips, and he said that Apple under Cook is a terrible company to try to work with).

    Anyways, according to him the cell phone technology has basically plateaued for the foreseeable future, as there is really not much else that can be done in the terms of technological innovation with the phone. He said that where the phones are going to have their ‘innovations’ moving forward are in the finishes and bells and whistles, as the phones have become such status symbols (especially in the Asian markets) that any way to make them more flashy and expensive is what the companies are focused on now.

    Additionally, he told me that a cell phone tower can only handle 64 calls at any one time so they are constantly ‘switching’ between all of the multiple calls occurring at once to handle such a large volume of calls

  • Property Manager · St George, UT · Member since 2019 · 23 posts · 8 votes
    6y

    @Parker Eberhard hard to know future  of course but I believe your friend is wrong. 5G has started coming out on some Android devices and iPhone should have 5G next year. The cell phone carriers are setting 5G networks. 5G will cause, IMHO, massive innovation, just as 3G and 4G did before it.

  • Rental Property Investor · Member since 2019 · 56 posts · 24 votes
    6y

    Finding a property in a good area that cash flows $500 a month for that price might be akin to finding the perfect soul mate..

  • Contractor · Seattle, WA · Member since 2019 · 339 posts · 325 votes
    6y

    @Michael Cox I would think he would know; runs a multi-billion dollar company that makes the chips that run the phones

  • Real Estate Broker · DFW · Member since 2015 · 350 posts · 270 votes
    6y

    @Taylor L.

    So you’re saying they made a decision that ended up bringing in another revenue stream was a bad decision? Doesn’t make sense...

  • Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    6y

    Well you kind of picked one of the worlds greatest stocks to compare to run of the mill brrrs. Consider Buffett recently made some major (multi billions) investment in Apple about a year ago or when Apple was at some all time highs, did not blink an eye and added a few more billion and Apple pays dividends. Now we have to put a random rental house vs Apple...I guess you could beat with a lot of work, money and time but why bother vs Apple set it and forget it. 

    Some mentioned what if Apple puts out bad products, you can always click one key and get all your money back quicker than you can take another sip of coffee. 

  • Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    6y

    This post is the definition of “analysis by paralysis”

  • Member since 2019 · 94 posts · 75 votes
    6y

    @Jake Thornton agreed and love the spreadsheet. Only thing I'll chime in is $500 cashflow on a $50k property even after refinancing maximum allowed doesn't seem realistic. I'd say run the numbers with $250 in cashflow. Plus, vacancy rate, plus damages, etc and see if it still wins. I assume it still wins counting all the wealth generators and the ability to scale to a greater degree than a single stock buy.

  • Jake ThorntonPro Member
    OP
    Camas, WA · Member since 2019 · 44 posts · 36 votes
    6y

    @Trent Chance Yes I know it's probably best case scenario. So I also ran the numbers to indicate $250 cash flow. The cash flow with those numbers comes to $112,500. All other numbers (appreciation, equity) remain the same. 

    In that case the total at the end of year five equals $599,912. Still pretty pleased with that. :) 

  • Member since 2019 · 94 posts · 75 votes
    6y

    @Jake Thornton love it :) @Michael Ealy taught me to only do a deal if it cash flows under less than ideal scenarios that way you can ride out the storm through tough markets when others lose their shirt.

  • Jake ThorntonPro Member
    OP
    Camas, WA · Member since 2019 · 44 posts · 36 votes
    6y


    @Account Closed How so? This was a conversation I had with my friend, and didn't have the numbers easily on hand. This was an example of comparing two different investment strategies to see which one works out better over a five year period. Analysis paralysis is where you don't buy something because you get sucked into the numbers and miss the opportunity. 

  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    The biggest differentiator not really discussed here is that with the real estate you have a hard asset that cashflows now.  The stock... not so much.  I do like your thought and numbers... What's your next step then?  Your buddy is already ahead by actually buying the stock ;)

  • Jake ThorntonPro Member
    OP
    Camas, WA · Member since 2019 · 44 posts · 36 votes
    6y

    @Whitney Hutten this is true! I'm getting my HELOC in order now and have been speaking with family investors and have run numbers on several "test" properties that have been sent to me by realtors and wholesalers in markets I've been doing research on. In Q1 of next year I'm pulling the trigger :)

  • Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y
    Originally posted by @Parker Eberhard:

    @Taylor L. I have a client who works in the cell phone space; his company builds the chips that do wireless charging (every phone company but Apple uses his chips, and he said that Apple under Cook is a terrible company to try to work with).

    Anyways, according to him the cell phone technology has basically plateaued for the foreseeable future, as there is really not much else that can be done in the terms of technological innovation with the phone. He said that where the phones are going to have their ‘innovations’ moving forward are in the finishes and bells and whistles, as the phones have become such status symbols (especially in the Asian markets) that any way to make them more flashy and expensive is what the companies are focused on now.

    Additionally, he told me that a cell phone tower can only handle 64 calls at any one time so they are constantly ‘switching’ between all of the multiple calls occurring at once to handle such a large volume of calls

     Interesting, I believe it. Certain areas are rolling out 5G techology, which looks to be a step up on the network side. Steve Jobs, for all his flaws, was a visionary. It seems like we're lacking that type of person in the cell phone space right now.

  • Member since 2018 · 1k+ posts · 1k+ votes
    6y

    I stumbled on this thread and have not looked at other responses. Your assumptions, however, are totally false to the point where I say "Crack pipe thinking."

    Nobody gets 100% occupancy --start there and your house of cards fall. Also, compare the rate of increase in property taxes, inflation, CapEx a-c-t-u-a-l-s, maintenance, etc. and you AFTER you take into account your own time-value of money to manage the projects (buying Apple is fire and forget and don't pretend that management companies don't need review/discussion)) and the two in theory come out the same.


    Risk/Reward. Make sure you FULLY account for the risk, including rent control.

  • Member since 2018 · 1k+ posts · 1k+ votes
    6y

    "5G will cause, IMHO, massive innovation, just as 3G and 4G did before it."

    ---------------------------------

    Three G was a bust. Only the even-numbered G generations made lasting impressions.

    China is already working on 6G.

  • Contractor · Seattle, WA · Member since 2019 · 339 posts · 325 votes
    6y

    @Taylor L. 5G is being rolled out, true. I should have been more specific in that the technology in the cameras, screens, interface, etc has reached a point where there is very little room left for innovation.

  • Rock Hill, SC · Member since 2015 · 104 posts · 209 votes
    6y

    You are comparing apples and oranges. One uses leverage and the other one doesn’t. If you want to do this comparison, you should compare the returns using all cash and not financing any of it or comparing what you have for real estate and call options on Apple stock at the beginning of the period (which is like using leverage).

  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y
    Originally posted by @Parker Eberhard:

    @Michael Cox I would think he would know; runs a multi-billion dollar company that makes the chips that run the phones

     And bill gates referred to the internet as a novelty.  One of many stupid predictions by the man who if not for his generosity would still be the wealthiest person. 

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