How many BRRRR properties are too many to acquire?

How many BRRRR properties are too many to acquire?

Member since 2020 · 34 posts · 10 votes

As I get educated on RE investing, I've been drawn to the BRRRR approach as it most closely suits my long-term goals. I keep hearing from enthusiastic people talking about how it's the way to go, how one can lock up SO MANY properties super quickly using this method. This all sounds great of course, but surely there must be some point at which you have to say your risk is too high now to continue locking up properties (and debt) at a break-neck pace. What is that point?

I understand that if applied correctly, you'll be pulling all your capital back out of the deals so you can repeat again and again.  But, with each deal comes a new mortgage, new units that need to be filled, and always the possibility of multiple cap ex expenditures hitting you all at once.  Obviously your ability to absorb these costs is directly tied to how much capital you have ready to use at any given time.  I know that a smart investor has always attempted to project and pro-rate all such costs, but there's always the possibility that too many unfavorable scenarios could play out at once any you'll run out of money and get into trouble?

Are there any BRRRR pros that have had to deal with reaching their property limit and how did you overcome that?

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Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
5y

I assess my risk based on cash flow, reserves and equity. Equity is inherent with a good BRRRR deal since you need equity in order to get your money back. Cash flow is one of my requirements up front before I move forward....Reserves are generally your limitation. I'm personally slowing down right now because I want to ensure I have more reserves before going much further for exactly what you're talking about. I will say though the more properties you have the more you are "smoothing" out your monthly cash flow, so having big expenses is in some ways less impactful.

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  • Real Estate Broker · Omaha, NE · Member since 2020 · 329 posts · 203 votes
    5y

    I love the idea of the stack, such as from 7 years to 7 figure wealth. If you start off with a property or two, save the cashflow and your CAPEX/Maintenance reserves, then acquire a new property after you've gained some equity. You can BRRRR out of each property without completely overleveraging yourself, and eventually start taking out HELOCs to help with your bigger deals. Make a goal of not over leveraging and say maybe you won't buy a new place until you have a 60% LTV on the last property, which will allow you build up your reserves and/or pay down your loans faster depending on how you purpose your cashflow.

  • Real Estate Agent · Fleetwood, NY · Member since 2018 · 264 posts · 235 votes
    5y

    @Ryan Monty Great questions! I think the answer will vary based on the investor. For example, the number one has in reserves (for each property) needs to be one that makes the investor feel comfortable - this number could be very different for each investor. The amount of risk one is willing to take will also vary. 

    BRRRR is great because it forces you to buy a great deal (if the numbers are right!) which means it gives you the flexibility to sell or bring in a partner if need be. These can be two options if you feel like you're scaling too quickly.

    Hope this helps and best of luck!

  • Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
    5y

    I assess my risk based on cash flow, reserves and equity. Equity is inherent with a good BRRRR deal since you need equity in order to get your money back. Cash flow is one of my requirements up front before I move forward....Reserves are generally your limitation. I'm personally slowing down right now because I want to ensure I have more reserves before going much further for exactly what you're talking about. I will say though the more properties you have the more you are "smoothing" out your monthly cash flow, so having big expenses is in some ways less impactful.

  • Member since 2020 · 34 posts · 10 votes
    5y

    Thanks everyone!  @Joe Aiola & @Ryan Howell - what type of reserves do you target before moving to the next deal?  Is it a percentage of your total mortgage note payments or something like that?  

    One piece of advice I also heard was to go in when you first buy a property and be liberal about replacing fixtures and other items that you suspect may not last too many years as it's way way easier to do certain jobs when a place is vacant versus while there are tenants.  This helps prevent and insure somewhat against future loss of use

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