Cash flow vs. BRRR method

[Keith Cuddeback]

Hello Bigger Pockets. This is my first forum post. I am a new investor. I have worked in the investment area as a contractor, but this is the first investment personally. I am intrigued by the BRRR method, as a first time investor with rehab skills. My goal for 2022 is to purchase 6 units by the end of the year. My cash reserves aren't very deep, but enough to get started. Here is my question. As a first time investor, would it make more sense to purchase a few turn key, rent ready, cash flowing units, at a potentially higher purchase price or spend time researching for a deal to BRRR, with its many variables? Just looking for some input. Thanks to all.

[Will Kenner]

@Keith Cuddeback As the other respondents have said, there are several factors to consider other than "cash flow" vs. BRRRR. Cash flow is important as this will help ensure you can successfully operate the property from one month to the next. Buying a property that will see appreciation is key to building wealth. Lastly, in my opinion, cash reserves are crucial as this is what allows you to weather any storm and changes in market corrections so you can survive long enough to see that appreciation. Banking solely on appreciation, especially in a market cycle such as this, can lead to significant difficulties in the short term. (Refer to 2006-2008) Therefore, always ensuring your deal is strong and works in the short term is key when first starting out.

That said, you may want to focus on getting through your first deal before jumping into multiple units. You will learn so many valuable lessons in property evaluation, the transaction process, and property management with that first deal. And as they say on the BP podcasts, your first deal doesn't have to be a home run. Once you get that first deal, and are armed with more knowledge, you can move on to the next and start constructing more complicated deals, always making sure you are well capitalized. Buying right, stabilizing your properties, and having cash reserves will always allow you to BRRRR later down the line. You don't have to find that perfect BRRRR right off the bat. Even if interest rates go up, your monthly payment may still decrease as you'll have been paying down your principal so your new financing will be for a lesser amount and over a new amortization.

Specific to your question about buying a turn-key at a higher than market price vs. spending a bit more time researching, I would recommend the later. Over paying for a property sets you up for difficulty if conditions soften: decreased cash flow and an almost guarantee that you won't be able to do a re-fi of any kind. Since you have a background in construction, I would assume a turn-key property isn't crucial for starting out. You'd be well suited to estimate rehab costs and have connections to subs that your average investor wouldn't. Spending your time finding a property that needs improvements well within your skill set may be the better play. Your acquisition price will be more favorable, you'll get the tax benefits doing the repairs and improvement yourself, and you'll have control over how much you spend, always being mindful of your cash reserves.