In Theory, the BRRRR is great. It's like saying, buy a stock low and sell it high (flips). Or buy stocks that pay dividends (rentals). These are solid investing strategies generally speaking, but they are way more complex than an axiom we throw around.
Theoretical math always works out perfectly because we are in control of the numbers. But what happens in the group scenario when there is a 10k overage in the reno and the group has to come out of pocket and some members do not have it. Now what happens to the percentages? Or if it is time to sell and you guys can't agree on the list price or the agent. Will the group member engaged daily want a bigger piece or have to put in less money? There's lots, and lots, and lots of challenges to the BRRRR, here are some:
BUY: Obviously you want to get in for as cheap as possible, but if you are working off of MLS or wholesalers then you'll be at Market or above after all the closing costs. If you can buy cash, that is best, get's you the best deals. There's opportunity to buy RE at 60% - 70% of its value for cash. You just need to know where, how, and have the proper channels set-up. Now, remember this is a commission based industry for the players involved, so an agent may send you something with blown out comps or a wholesaler may do the same thing. So buying can be an issue. You need a solid property analyzer that has your interests at heart, not theirs. But you are just one contact in their phone, they are just trying to move properties to whomever. Are they really gonna hold your hand and waste time on you? Setting up your assembly line of deals marching in is not easy. Took me over 6 months to build a network up to the point where I get sent properties now weekly by multiple sources and I closed with them all, I made sure to close with everyone at least once because you're nothing to them until you close one.
REHAB: Well, welcome to BRRRR Purgatory. You may never get out of this stage. You may be in a stalled project, looking to wholesale out at a small loss. Don't believe me? Anyone who dips their toes in the General Contracting waters will lose a digit or two. Projects will last longer than thought, cost more than thought, finishes won't be as good as promised, holding costs will pile up, then you hope your GC doesn't ghost you and run off with the draw money. This is one of those professions where being a licensed professional means nothing. All it means is that you have $100 and watched a video on Lead Paint. And they all sound great on the phone. They're huge yes men and they have great before and after photos. I've had to switch GCs mid project, I've been ghosted, I've been lied to, had money embezzled. Like I said, this is Purgatory and you may never leave.
RENT: If A property manager finds you your tenant they usually take the first month's rent and then 8% - 10% of the rent there after and then, you have the tenants problem of poor treatment of the house you just finished and then you'll see that your PM won't be as attentive as you want and then when they do go to the property they will charge you the handyman fees for changing this and that. It can be a real headache.
REFINANCE: Here's where you hope there were no market shifts in the sales prices and ARVs. The appraisal comes in and then you have to find a good spot for your refi. Another closing and you hope to get your cash back that you laid out, you rarely get it all back if you bought near or at Market, most likely you're leaving money in.
REPEAT: If you dare!!!!!
