BRRR Investing in multifamilies strategy, holes?

[Amr Rashad]

Hi everyone,

Long-time lurker here, like many people Rich Dad Poor Dad got me hooked on RE over 15 years ago.

Unfortunately, I never put my plans into action.

As the title suggests, I'm planning on using the BRRR investment strategy in multifamily properties.

Here's how I plan to execute my strategy:

- Currently in the process of paying down some bad debts that we've accumulated, unfortunately.

- HELOC of around $50-70K will unlock capital to start investing

- First 3 houses will be bought with the aim of paying down my kids' colleges:

     . House 1: Budget 300K - 10-yr mortgage

. No extra cashflow expected, goal is to build equity in the property to get son 1 to college with HELOC on equity in the property. He is currently 10 yrs old

          . Timeline: As soon as debts are paid off (around 18 months to 2 yrs from now)

     . House 2: Budget 300K - 10-yr mortgage

. No extra cashflow expected, goal is to build equity in the property to get son 2 to college with HELOC on equity in the property. He is currently 7 yrs old

          . Timeline: 1 - 2 yrs after House 1

     . House 3: Budget 300K - 15-yr mortgage

          . Goal is to get daughter into college. She is currently 3 yrs old

          . Timeline: 2 - 3 yrs after House 2

The idea is to spread this over time, allowing me to save some money and use the HELOC amount over and over again, to attain and keep properties

You will also notice that I'm assuming that their college tuition will cost 300K each. There's no telling of course how much it'll cost in 8, 10 or 15 years. Some forecasts say it'll continue to rise like it has in the past 10 years. Other forecasts say it'll fall. I'm assuming a marginal increase over the current rates, and anything extra can be financed via student loans.

After the first 3 houses:

My plan is to keep executing the same strategy over and over again with 15 - 20 yr mortgages to keep those properties to fund our retirement. Goal here is different, with some cashflow planned, to keep the ball rolling.

I'm currently 37 years old, and plan on working full-time throughout this process.

I'm quite handy, so will be doing some of the BRRRR work, but not all of it.

Where are the holes in this strategy, or are what details am I missing?

Do you see a better, more efficient way of achieving the same goals?

[Jaysen Medhurst]

Hi @Amr Rashad. Always great to see another CT investor here on BP. I grew up in Manchester and have family in Ellington, so I know that area well.

My first question is about your "bad" debts. Will they prevent you from getting a mortgage? If not, I don't see the point of waiting 18-24 months to get started. If they will be an impediment, can you use your HELOC to pay them off now? The interest rate will probably be lower and you can aggressively pay down the HELOC to make those funds available for your first investment property.

Over the last 30-40 year college costs have far outstripped inflation and I don't think there's any reason to assume that's going to change. The good news is that very few students actually pay "full freight" so those scary tuition numbers are misleading.

Using short-term mortgages actually doesn't make as much sense as you might think. The difference in rates is marginal (especially now) and you give up a ton of flexibility. Better to get a 30-year note and pay it down like a 10-,15-, 20-year. Sure, you'll pay a little more in interest, but if something unforeseen happens, you have the flexibility to reduce your payments to get through a rough patch.

I would challenge you to think about think about how you fund the kid's tuition a little differently. You're basically aiming to have $300k in equity to tap for each child as they go to school (we'll put aside inflation, NPV, and all that complicated stuff for the moment). So that's 75% LTV on a $400k property. How else could you use $300k? If you were to put that into a larger MFR that generates a modest 12% CoC ROI, that's $36k/year. Maybe not enough to completely cover college costs, but will get you most of the way there. The big advantage is that with a property in the $1.2-1.5MM range you're going to see a lot more appreciation than you will with the $400k property. Plus, once college is finished you'll continue to have that $36k of cashflow each year. Use that to pay off any student loans, graduate school, etc.

Looking forward 30 years when it's time to think about retirement, even if you never bought anything else, you and your wife are looking at $108k/year in today's dollars. Is that a good number for you to retire on before considering Social Security, 401(k), and other investments?

I'm not saying that my approach is necessarily better, but just a different way to think about it.