Guidance on first BRRRR
Hello BiggerPockets family, I am new to Real Estate investing by way of the BRRRR strategy. Like most rookies, I have a YouTube University degree and I've listened to hours of BP podcast. For the most part, I understand the process and what it entails in its various steps. I have a realtor sending me deals daily, I'm in many local Facebook groups in my area and come across deals that way as well. I think I'm stuck in what they call the analysis paralysis stage. I've convinced myself to start after the holidays. If you're still with me here I'm looking for things I should have squared away before even making an offer. I would like to use hard money to finance the deal my credit score is excellent, but I know that isn't everything. I'd be grateful for any kind of advice or information.
@Demetrius Ward I bought a long distance investment property using conventional financing just to get the ball rolling. We closed a couple weeks ago and are getting a renter in at the end of the week.
I’m looking to get more creative in my next deal. Good luck and I hope you have a good experience.
Hi @Demetrius Ward,
When using the BRRRR strategy, here are a few things to consider before putting in an offer.
Financing - You mentioned you want to use hard money. Before putting in an offer you should get preapproved by multiple hard money lenders. This will allow you to shop rates and terms and determine which hard money lender will work best for the deal. It is best if you have them pull your credit within a 30 day period so that it doesn't affect your credit score negatively.
Rehab - Once you choose a property, you should reach out to a few contractors and have them each walk the property and provide a quote. This will allow you to verify your rehab estimate, which is very important. Also, you now have a contractor ready to go once you close on the property.
Refinance - I would look into lenders that you will want to refinance with. This will make it easier to do once you are ready to refinance and pull your money back out. Also, you want to see if they require a seasoning period. If you are not ok with a seasoning period because of holding costs or what have you, then you can look at delayed financing. This type of financing is set up ahead of time so you can pretty much skip the seasoning period.
These are some considerations to account for prior to submitting an offer. Hope this helps! Good luck!
@Demetrius Ward - what makes you think you are suffering from analysis paralysis?
Originally posted by @Jay Helms:@Demetrius Ward - what makes you think you are suffering from analysis paralysis?
Thank you for replying, I believe I am stuck because I keep looking for a home run of a BRRRR. Basically getting more than what I put into a property. I'm not completely naive and I know now that deals like that are few and far between. So I guess my struggle is knowing how much money can be left in a BRRRR and still be considered a success. Hopefully, that makes sense.
Originally posted by @Sean Fillmore:@Demetrius Ward I bought a long distance investment property using conventional financing just to get the ball rolling. We closed a couple weeks ago and are getting a renter in at the end of the week.
I’m looking to get more creative in my next deal. Good luck and I hope you have a good experience.
Thank you, best of luck to you as well.
@J. Henriquez Thank you for the insight I will be getting these things in order so when I do pull the trigger I am ready to go on all fronts.
@Demetrius Ward Get set up with a hard money lender so you can make offers with confidence when you start actively looking. Figuring out how you are going to pay for a deal is an important first step in any real estate transaction.
Originally posted by @Demetrius Ward:
Thank you for replying, I believe I am stuck because I keep looking for a home run of a BRRRR. Basically getting more than what I put into a property. I'm not completely naive and I know now that deals like that are few and far between. So I guess my struggle is knowing how much money can be left in a BRRRR and still be considered a success. Hopefully, that makes sense.
That depends on what return you want on your money. For me personally, if it doesn't beat the stock market by a large margin, then I'm not interested. Why put money in an investment that requires effort from you when you can get a similar return in a set-it-and-forget-it investment? I usually look for 15% COC minimum. Anything below that and I move on or figure out how to make it return 15%. Your first BRRRR probably won't end with you pocketing $15k as you leave the refinance, but if you only have to put 1-2k in at the end, I'd consider that a home run from a first deal perspective. Just my 2 cents. I'm also working on my first BRRRR.
@Demetrius Ward start making offers.
Often with BRRRRs investors like to offer cash and waive the inspection. For your first deal you may want to include an inspection so you have the ability to back out if there’s serious issues. You’ll have 30-45 days before closing to focus on lending and prepping for the rehab.
@Jon Kelly Noted thank you
@Greg Lott That makes sense, thank you I think I would be okay with leaving 5k in at the absolute most. Especially if the cash flow is good.
Hi @Demetrius Ward, congrats on getting started! In addition to all the great advice you've already gotten here, I'll also highly recommend that you do whatever you can to connect with other investors in your area (if you haven't already). Attend virtual or in-person Bigger Pockets or local REIA meetups (if they are happening and you are comfortable), make connections on BP, etc. Learning what works for other people in your area will go a long way towards boosting your confidence and conquering the analysis paralysis! You will also run into tons of questions as you progress, and having local folks to run them by will be invaluable. Best of luck!
@Annchen Knodt Thank you, I will definitely be attending local meetups soon. I am a teacher and a football coach, season is close to over so I should have much more time for everything real estate related.
Let's focus on the steps to create value creation:
1. Acquisition - Try and find undervalued properties that are already worth less what you are purchasing them for. Think estate sales, divorces, general mispricings.
2. Renovation - Add value wisely. Don't overspend on materials (i.e. fancy tiles, hardwood floors) but do try and add items that appraisers look for (i.e. painting cabinets and putting a granite countertop and a modern faucet can be seen as a "new" kitchen). Or other items that increase rental revenue directly (i.e. adding bedrooms) or indirectly (i.e. used stainless steel appliances, a washer/dryer, etc.). Don't be afraid to subcontract if work can be chopped up and bid folks out. Estimates can have a wide range.
3. Leasing - Marketing, marketing, marketing. Take nice photos and tout amenities, location and be active during showings. Be responsive to all leads. Follow up!
4. Refinance - Feeding the appraiser with information before hand primes them to reach a similar conclusion. I typically provide comps, outline renovation budget in detail while talking about improvements with pride and provide a cap rate analysis to show how the desired ARV is beyond reasonable.
Basically, I am setting up the scene to make any other figure feel unreasonable or simply not as robust.
Happy to discuss further and help you prepare materials for your next refi.
A couple things to keep in mind right now too...
1.) Longer rehab time - Contractors have been crazy backed up since last Spring (at least here), and getting them in there and getting the jobs done may take longer than you thought. Like @Alexander Szikla said, don't be afraid to subcontract out. A lot of times, you can get a handyman in there to do some of the smaller jobs that you're paying extra for a general contractor to manage. I'm not sure if you are purchasing a BRRRR type property locally or out of state, but find some recommendations and call a few.
2.) Be prepared for some Covid-related changes - Could be doing virtual walkthroughs instead of being in person. Could be limits to how many people can be at a property at once, etc. Everything can still be done, but something to keep in mind. Again, this could vary based on if your buying local/out of state and what their current health guidelines and protocols are.
Know your criteria, and when you see that deal trust yourself when it comes time to buy. Don't be afraid of going through the process and not getting EVERY dollar back out when you refinance or hitting that crazy Home Run you mentioned. Obviously, that's the goal. But if you get most of it out, are cash flowing, and now have an asset that is going to produce for you long-term, that's a win.
Don’t be afraid to make mistakes, as David green says just get your first deal to get the ball rolling. You might not get be able to get the 3 most important thing which are a house under market value, a house that produces positive cash flow and finally a home that in a C+ neighborhood. If you have get 1 of these it’s a single referring to baseball if you can get all 3 it’s a home run. So as a beginner you might start of hitting singles but eventually you’ll hit those home run deals. By the time you hit the home run deal your gonna have experience doing deals and knowing what to look for. The experience alone is so valuable so don’t worry about trying to hit a home run deal on every offer you put out. To me the most important thing is LOCATION LOCATION LOCATION.
Hey, I'm pretty new to this game myself. I'm ready to get started and would like to connect with some like mined individuals. I think the 90 day challenge is perfect. We should connect.
Listening to podcasts is a great thing to do especially when you're new to real estate. You can also do some readings, try Joe Fairless' Best Real Estate Advice Ever.
When it comes to the rehab process, you might want to get multiple bids from contractors, we have found success in supplying the materials ourselves and having them quote just labor. This removes some of the guessing game out of it, and you don’t get penalized for installing higher quality materials with extra markup. Do not be afraid of a beat-up property. You'd be surprised how you can make money in real estate when you buy someone else's problems.
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Broker Oregon (#201206275)
- Uptown Syndication
Originally posted by @Sean Fillmore:@Demetrius Ward I bought a long distance investment property using conventional financing just to get the ball rolling. We closed a couple weeks ago and are getting a renter in at the end of the week.
I’m looking to get more creative in my next deal. Good luck and I hope you have a good experience.
If you have the capital to buy a property with traditional financing, it can be a great way to get started. You can often buy a turnkey property, sometimes with tenants already inside. This can help you get over the fear of jumping in and make it easier to work up to the next deal.