BRRRR Vs Flip - I have read other posts but this is a diff qs

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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BRRRR Vs Flip - I have read other posts but this is a diff qs

T Sanch
Investor · Miami, FL · Member since 2020 · 4 posts · 1 vote

Hello everyone I hope you are all staying safe ! :)

I am new to BP although I have watched almost every podcast episode.

My name is Tatiana Sanchez and I am just getting started with real estate investing.

I have done substantial research on the BRRRR strategy and I would LOVE if you experts could help me understand something.

I am brainstorming if I should enter the "Buy and Flip" world or pursue the BRRRR strategy.

I am well aware that the numbers will always vary depending on the deal and many other factors, but as a rule of thumb, or an industry average, if I am correct, one would take roughly about 6-10 years to earn the same amount of money on a BRRRR deal, than on a Flip if we consider the numbers on the same deal?

Based on several scenarios that I've found online, if i could for example earn $30,000 on a Flip, yet on a BRRRR deal on that same property i could earn $350 passive cash flow, it would take me:

30000/350 = 85.7 months or 7.14 years to net 30k in rental income.

I understand that I should also be considering tax advantages by expensing depreciation on the properties, as well as property value increasing and not having to pay so much taxes on a Flip, but just looking at the net income part, does it really take that long or I am missing something here?

I would really appreciate some examples.

My goal is to earn passive income, so I know BRRRR would be the strategy to pursue but once I realized how long it would take to earn the same amount of money that I would in a 3 month flip its making me go back to the drawing board.

Thank you all very much in advance! :)

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Billy Zhao
Member since 2016 · 80 posts · 134 votes
6y

It seems biggerpockets podcast investors including Brandon and David are all employing multiple real estate income generation methods. BRRRR is just one of the strategies. They do wholesale, flip, BRRRR, and buy and hold on a larger scale. Then they also generate more income by teaching classes, selling books, youtube, podcast, etc. etc.

So I think trying to figure out which one method is superior is perhaps missing the point. All these methods have pros and cons, and you can spend the rest of your life trying to analyze them and debate on them but still can't come to complete confidence that one is better than the other. 

A few general guidelines that are preached by countless successful people:

1- generally, growing assets is more important than growing income - though without a steady and sufficient income you are risking losing your assets due to credit and market risks. At the end of the day, it's the amount of assets you own that define your wealth, not your monthly income. 

2- diversification is one way to control risks but not able to eliminate them - multiple income stream, multiple strategies, multiple partners, other asset class investment are some of the examples

Am I missing something? 

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  • Julio Garcia
    Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
    6y

    Just depends on your goal. Some ppl enjoy the faster return on Flips than a cash flowing property, but the same can be vice versa. Think of your end goal, focus on that. 

    but there's no wrong answer. IF a prop is better for a flip- flip it! if its ina good area BRRRr it. either way congrats on getting started on your journey. 

    1Reply
  • Yuriy Grytsulyak
    New to Real Estate · 19426 · Member since 2020 · 20 posts · 1 vote
    6y

    if I could get 350 positive cash flow(accounting for all expenses present and future), I would take this vs 30k profit now. Also, if BRRRR on this deal would get me all or almost all of my money back that it is a no-brainer.

    1Reply
  • T Sanch
    OP
    Investor · Miami, FL · Member since 2020 · 4 posts · 1 vote
    6y

    Thank you very much for your replies!

    Cash flowing properties for passive income is definitely my goal, therefore BRRRR is what I should focus on.


    My question is, does it take on average 6-10 years for an investor to make as much money on a BRRRR as if that same property would've just been flipped?

    Thanks again for your answers !

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @T Sanch

    It really depends on the deal and numerous other factors.  Let me try to hit some of them.

    Profits on flips are taxed as ordinary income.  So, that includes having to pay self employment taxes.  That 15% plus say 25% marginal tax rate puts you at 40%.  Then, whatever your state income tax comes to you basically are handing over ~50% of your profit.  Hmmm....

    A rental is categorized as an investment thus is passive income.  Tax losses, not necessarily cash losses, don't easily get deducted from your 1040 return.  Income is taxed at your regular rate, but there is no self employment taxes.

    Lets not discount appreciation either.  By holding the rental, you may be able to sell at an even higher (or lower) price then if you had flipped it.

    Also, while depreciation is a powerful non-cash deduction, there is no "free lunch" with the IRS. When yous sell, you have to pay I think up to 25% on what is called depreciation recapture.  So, depending on your prior year marginal tax rates, you are either ahead or behind the game.  Also, it depends on your tax situation that year in which you are selling...

    I think you hinted on most of this in your original post.  However, you calculation is way too simplistic.  Take, for example, the current market.  Had I known that properties would be selling for $10k's over asking in a few days, I would have held on to my flips from late last year and this early this year to sell.  Or, some of my earlier ones rented them, take advantage of the rent, then sold it.  That is like a short term brrrr.  Or, just hold onto them, rent them, and assume that in a few years the market will continue to appreciate it then sell it for even more.

    Perhaps maybe its just how you want to look at it.  That's fine.  Like I said it all depends, and certainly your goals and strategy come first.  But, just realize that maybe its not an apples to apples comparison that you are doing.  In your equation you haven't accounted for the equity in the brrrr.  As long as its value hasn't gone down, you still have the SAME amount of gain as the flip, but taxed more favorably.  Additionally, any appreciation above your cost basis will be taxed at the long term capital gains rate.  Oh, and if you are leveraging, the rent has helped you pay down the loan thus building more equity for you.

    So, there is really a lot more that goes into this.  If you want, direct message me and I'd be happy to set a time and we can discuss this.

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    6y

    @T Sanch this is a really interesting question and an interesting way to think about it. I think it's a bit apples and oranges though - if you're flipping, you might use higher end finishes or different features to generate interest. If you BRRR, you still want to get the ARV as high as you can, but you don't need it to be as high end.

    So this might come down to your goals and your interests - and not just comparing numbers.

    2Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Sometimes I think that the world is made up of two kinds of people: income statement people and balance sheet people.  People who hold for long term rentals tend to be the latter types.  Their primary goal is to build their net worth over time.  A working rental generates some cash but more importantly it acts as a kind of deferred savings account through the portion of rent that goes into mortgage pay down and, when well located, also tends to appreciate over time.  Moreover, you can defer payment of taxes on all of this wealth-building if you structure your investments well.  In short, holding a rental is a way of building wealth over time.  Flips are designed to generate current taxable income (hence the income statement designation).  Current income can be invested or (all too often) spent.  It is also heavily taxed.   The most important factor is your time horizon.  Unless you dealing with mega-estates of the .0001%, no flip will generate the amount of wealth you can get from a well-located, well-managed, quality long term hold rental.

    2Reply
  • Marco Anemone
    Bolingbrook Illinois · Member since 2018 · 50 posts · 33 votes
    6y

    @T Sanch

    Your math is correct, but consider this: If you have $30k of potential profit by flipping that property, that means you have (at least) $30k of equity. If you rent that same property, generating $350 a month in positive cash flow, you still have (at least) $30k in equity (profit). It's just not realized in cold hard cash because you haven't sold the property yet. In short, you still have the profit, it's just in the form of equity. If you really want the $$$, then simply pull it out via a loan and keep collecting the rent (although a bit less of it as cash flow).

    1Reply
  • Sean McCluskey
    Rental Property Investor · Newport Beach, CA · Member since 2017 · 218 posts · 138 votes
    6y

    @T Sanch Another point to consider is that future refinances of the property are also tax free. This can be a huge benefit as a 200k property appreciates to 350k and your tenant has paid off the property. You can now refi and get a check for 75% of 350k, all tax free.

    1Reply
  • Brett Tvenge
    Flipper/Rehabber · Phoenix, AZ · Member since 2018 · 269 posts · 152 votes
    6y

    @T Sanch you answered your own question. Your goal is to earn passive income. If you flip, it’s a ONE time profit.

    2Reply
  • Carlos Villalobos
    Los Angeles · Member since 2020 · 88 posts · 36 votes
    6y

    Start with the end game in mind. Align your goals, if it is to earn Passive income go with BRRRR. Keep in mind that if it doesn't pencil out as a BRRRR and meet your criteria, run the numbers as a flip to see if that works and Reinvest those profits back. Always have an exit strategy.

    1Reply
  • Taylor Jones
    Member since 2020 · 7 posts · 9 votes
    6y

    I'm not as experienced as most others are on here, but philosophically speaking, there are multiple advantages to doing the BRRRR over simply flipping the property.

    1. First, using your example the 30k you would make on the flip is still attributed to the amount of equity you have in the property. You haven't missed out on it. The property you flipped is still valued the same. You will be able to take some of that 30k out after the downpayment on the refinance is paid off of for your next deal and the rest is kept in equity of the flipped property. 

    2. Your flipped property is now an asset which will appreciate at an average of 3% a year. If you buy in the right area it is far more than that. 

    3. Interest rates are really low. If your able to secure 2.75% rate, history shows that your property's value will appreciate at a faster pace year over year.

    4.. Your flipped property is now cash-flowing $350 a month ($4200 a year) in addition to the equity you are building into the property every monthly mortgage payment. Assuming the down-payment of the newly refinanced mortgage is at $30,000 in your example you would be getting a 14% annual return

    $4,200/$30,00 = .14 or 14%

    5. Your money continues to work for you. Ideally you would be able to take some money out of the property when refinancing it and funnel it into more and more properties that would cashflow. It may take a few years, but I've heard once you get around 7-10 properties cash flowing, everything starts to become much, much easier. Instead of being forced to continue flipping to create income, your properties do all the work. 

    In the end, you now you have multiple sources of income, multiple assets that are appreciating, and multiple properties that are being paid down. Your net worth is exponentially increasing and your cashflow is more than sufficient. You could continue Brrrring to create more passive cash-flow or shift your focus on other passions. Either way, you have created financial independence. 

    Now just think of the extra possibilities if you were able to short term rent your properties out an generate even more cash-flow! That's what I'm currently trying to do!

    2Reply
  • Kalim Kalla
    Investor · Atlanta, GA · Member since 2018 · 104 posts · 116 votes
    6y

    @T Sanch big factor to consider is the rate at which you are able to scale the BRRRR method vs the rate at which you can scale flipping. With the BRRRR method when you refinance on the joke and pull that equity out you can pretty much do it again and again until you find yourself having a 15 property rental portfolio with the 350$ monthly cashflow being a $63,000 cashflow annually. Thats not even considering the amount of equity building in those 15 homes and the profit that can be realized on the sale of each of those properties. When i think of these 2 strategies SCALE is generally what it comes down to. Best of Luck, I am no expert here!

    1Reply
  • Matthew Powell
    Rental Property Investor · Gresham, OR · Member since 2018 · 36 posts · 19 votes
    6y

    @T Sanch

    My wife and I had the same debate before we first got started.

    If your over all goal is to create passive income then you want to get started as early as possible. It’s going to take time to build yourself a portfolio large enough to fully sustain the lifestyle you want.

    We have decided to focus on buying and holding using the BRRR strategy. The more properties we have under our belt the soon we will be financially free.

    If we run across a flip opportunity that will give us a good chunk of change to put towards a buy and hold property we will do a flip with the strict purpose of using the profits to invest in that.

    There’s a recent BP episode with Thach Nguyen that has a really lively way of explaining the benefits of this. Follow him on social media. His way of thinking and investing is a perfect model for our situation.

    3Reply
  • Mark Bills
    Member since 2019 · 36 posts · 21 votes
    6y

    No right or wrong answer here as many have already stated.

    Personally I would hold. Cash is the lowest yielding asset class, it's best to leverage the equity you will have in the property you will brrrr. I was looking into flip and fix earlier this year then covid put all that on pause. I was still able to purchase a duplex though and I am now house hacking and looking to purchase another property Q4 of this year or Q1 2021

    You can also utilize both methods flipping and brrrring are not mutually exclusive.

    1Reply
  • Billy Zhao
    Member since 2016 · 80 posts · 134 votes
    6y

    It seems biggerpockets podcast investors including Brandon and David are all employing multiple real estate income generation methods. BRRRR is just one of the strategies. They do wholesale, flip, BRRRR, and buy and hold on a larger scale. Then they also generate more income by teaching classes, selling books, youtube, podcast, etc. etc.

    So I think trying to figure out which one method is superior is perhaps missing the point. All these methods have pros and cons, and you can spend the rest of your life trying to analyze them and debate on them but still can't come to complete confidence that one is better than the other. 

    A few general guidelines that are preached by countless successful people:

    1- generally, growing assets is more important than growing income - though without a steady and sufficient income you are risking losing your assets due to credit and market risks. At the end of the day, it's the amount of assets you own that define your wealth, not your monthly income. 

    2- diversification is one way to control risks but not able to eliminate them - multiple income stream, multiple strategies, multiple partners, other asset class investment are some of the examples

    Am I missing something? 

    3Reply
  • Robert TinkerPro Member
    Rental Property Investor · Round Rock, TX · Member since 2019 · 251 posts · 159 votes
    6y

    @T Sanch Don't forget to account for your equity you made in the BRRRR deal if done right. And your tenants continue to build that up for you.

    2Reply
  • Samuel Albert
    Property Manager · Burlington, NC · Member since 2018 · 57 posts · 20 votes
    6y

    As I understand it, (I'm not a veteran and pet new) flip profits are taxed as income and taxed hard. Plus if you're doing the brrrr correctly I think you should be able to take all the money invested in a cash out refinance. So you get the 350 a month and then you can use the capital you took out to acquire another property that might get you another 350. So over time the 350a month will start to grow to thousands. Just my understanding.

    Either way 30k is a great profit. Good luck.

    1Reply
  • Jim Spatzenfeld
    Investor · NorCal · Member since 2015 · 282 posts · 240 votes
    6y

    The perfect case scenario is when you buy a fixer BRRRR property so cheap that after fixing it up you already get more money than your total investment through a cash-out refinance.

    1Reply
  • T Sanch
    OP
    Investor · Miami, FL · Member since 2020 · 4 posts · 1 vote
    6y

    Wow you guys are all amazing !  I am extremely grateful and now have a clear game plan. Thank you very much for all the valuable advice !

    0Reply
  • Ray Evans
    Flipper/Rehabber · Member since 2020 · 57 posts · 36 votes
    6y

    @T Sanch It's great that you are researching REI before jumping in.Full disclosure I love BP but I am from Fortune Builders.In my experience and from my education,we flip for cash flip for cash than buy rentals.Also you can actually spend less on the rehab if your doing a rental than trying to get top dollar from a flip.The mechanicals should be good but the finishes could be less.

    I just completed a rehab with a $55k PP

    $30k rehab that I planned to sell for 125,000.My agent suggested we list for $139 and we got an offer for $146 first day.So 21k over what I thought,how much rent would it take to make that up?

    The main thing to remember either way is not to spend more than 75% of your ARV and you can always refi and get ALL your invested cash out.Then go on to the next.

    In this time of rent hold and a moritorium on evictions flip is the only way to go,hopefully when covid is behind us ,rentals will still be viable.Best of Luck

    1Reply
  • Jerry Lucker
    Flipper/Rehabber · Seattle, WA · Member since 2015 · 333 posts · 459 votes
    6y

    @T Sanch

    Great question. There is a lot to consider. I concentrated on flips initially to accumulate cash. When you have cash in hand many other possibilities will present themselves.

    One guys opinion backed by 20 years of doing (well). 😁

    1Reply
  • Spence Kal
    Rental Property Investor · OH (ohio) · Member since 2018 · 166 posts · 113 votes
    6y

    It sounds like what your asking is, on average how much time does it take to make as much wealth on a rental as the same house flipped, not so much which is better. Obviously it depends greatly but I looked at this also and maybe my math is wrong but it looks around 5 years for wealth, in my inexperienced opinion, just based on a basic standard deal and math. So for example:

    If you buy a $100,000 house for 20,000 down, rent it for 1% of purchase which is $1000/ month, with 50% rule of expenses, so 500 for taxes insurance etc, rest for mortgage and cash. For wealth you have to consider principle paid down plus cash flow but don’t forget amortization. So 150-200 in principle and 100-200 in cash. 250-400 a month that’s 3000-4800/y and in 5 years you have $15-24,000, average around 19k?

    Then your flip would probably be purchase at 70k put 30k in and sell for 130k. So making 30k with 40% taken away for taxes you’re close to that 15-24k range that you hit with your rental in 5 years. That’s just with the first few years of amortization, later years you make more because more goes to principle.

    So based on that around 5 years to make on a rental the “wealth” you would make on a flip

    Disclaimer: That’s just my math, it might be unrealistic

    1Reply
  • Carlos Tovar
    Member since 2019 · 12 posts · 5 votes
    6y

    @T Sanch

    The issue you have here is simple...

    You shouldn’t leave 35 in a house

    Here why...

    If you refinance and pull out 80 percent

    28k mortgage

    7k in each house

    You have enough to buy 5 properties... (you need about 42/43 because of closing costs and miscellanous fees )

    Than you cash flow increases tremendously...

    Say you mortgage is 28000 your paying be 135 at 4 percent

    300-135 165

    165 x 5 = 825

    825 x 12 $9900

    So basically 3 years to get your investment back... than 825 month is all yours... not to mention your principal gone down about 5 grand in 3 years... and your investment value probably gone up 5 percent..

    So I’m 3 years you get your money back and be up 6750

    Repeat the process to your comfortable with your income

    Don’t be lazy now.. it might seem difficult to get 5, but like anything in life.. the more you do it... the better you are....

    it become as easy a withdrawal of cash from an atm machine

    🥳🥳🥳

    1Reply
  • Tyrone Marson
    Rental Property Investor · Baltimore, MD · Member since 2020 · 223 posts · 89 votes
    6y

    @Taylor Jones awesome breakdown.

    1Reply
  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    6y

    Wow! So much participation in responses, but no votes? Come on, give up some votes for this engaging question!

    If you don't consider the tax advantages to real estate investing, you are really missing the boat, IMO. A home run BRRRR deal gives you cash like a wholesale deal, plus you get to keep the property, the equity and the whole barrel of other long term benefits. If you only spent 60% to purchase and rehab, then get 70% in cash out refi, you would get 10% (minus the cost of refi) as tax-free income (borrowed money is not taxable) and you can rinse and repeat. These are all nice even numbers just for the sake of illustration. I hope you get my point.

    Look up the "net worth model" of tracking your investments. It is a concept covered in the book "The Millionaire Real Estate Investor," by Gary Keller. It's a method to keep track of what you are trying to accomplish as an investor. That will give you a much clearer picture of which is better, based on what your long term goal is.

    1Reply
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