Buy/Hold or BRRRR for Active Military?

Question

Hello BP,

I have been researching for about nine months now and have pretty much boiled my options for my first RE investment (besides my home) down to either straight Buy and Hold or BRRRR. I would love to hear some opinions or stories that may help me make this decision....

My Situation

I'm active duty military with a wife and two kids. I have been dedicating 10-15 hours per week to study and research REI, and i think that may be the most I would be able to put towarss property management/rehab each week. I own one home (VA) and want to purchase a multifamily investment property. I have $20k to use for down payment, cash purchase, rehab costs, etc., and want to use it to kick start a real estate business.

My Freedom Number

In fifteen years, I want to have $5,000/month in passive income from my real estate portfolio. At $100/month/unit, I need 50 units by that time, which is only an average of 3-4 purchases annually. This is my Freedom Number.

Option 1: Buy and Hold

This seems like the best option. Most people I talk to have recommended this because it's very passive, and won't require as much time (as compared to a massive rehab). My concern is that if I use the $20k I have to invest on one "turn-key" Buy and Hold property, that cash will be locked into the mortgage for at least 3-5 years until I have the equity to cash-out refi. Also, presuming 1% increase in value annually, that's only 5% over that time. Although the value of the house increasing is a bonus and not really included in running the numbers, it is a consideration. I want to be able to scale this into a multi-property business, but I don't see how I can expand at all with this stategy.

Option 2: BRRRR

I think that value-added investing is the best way to invest, and that's why I want to do this strategy. I would like to be able to buy a distressed property and add value by rehabbing and refinancing, get my initial cash investment back, and invest in another property within a few months to a year. The problem with this strategy, and the reason that most people have recommended that I not go with this, is because of the time required. Now I do not have a problem with investing my time into this business, but I do have my family, so I can't work 120 hours per week on my job and real estate. I can do this one of two ways...

1. Take leave from the military for 30 days to do nothing but rehab and hope I don't go over that time, or...

2. Pay a contractor to do the entire rehab and just monitor/manage.

My last concern with this is if I take my $20k, add that with say $10k of private funding and another $5k of crowd or institutional funding, I will have $35k for the entire project. This seems like a lot, but not when I have to pay a contractor from start to finish...

Thoughts?

I am split as to which strategy to follow. Bith havr their merits, and both make sense to a certain extent. What shoukd I do? What would you do? What did you do?

I would love to hear your thoughts... and thank you in advance!

Sincerely,

Austin G.

Darnell Kramer · Answer

@Austin Groupp I will give you the looking back.

I have been in the military 15 years and bought my first place 12 years ago.

Each duty station I have refied and used the VA to buy at the next duty station. I have purchased properties that needed work and I have done the work in my off hours, weekends, and down time from deployments.  Some places were more just 'buy and hold', they were simple fixes of paint, flooring, cabinets.  Some really needed more work to include roofing, walls, electrical and such.

I am now in the process of exchanging off those first houses and buying multi unit cash flow places. The amount will be much more than the retirement and insurance/benefits of a military career.

I would not limit to one or the other as they are both relatively similar.  I have taken 30 day leave periods just to rehab a place.  I lined up everything prior, drove me and my tools out, and got it done.  Before you do this though, line up your 'uh oh' contractors.  Make sure you have the out should you have work left over and need to return.

I currently do have a wife and two kids and doing the, house hacking, method can be.. fun. You spend less time cleaning up, as you are in a construction zone, and more time locking kids out of working areas.

Hope that helps some. Drop me a line if you have more questions.

Darnell Kramer · Answer

Think of it this way then.  I also mostly have two localities that my job is.  But each time I .. transfer..  refi out the old place and buy a new with VA.  Not necessarily each new order period, but reassess each time you are in done with the last house hack.  You can always Refi a property to take the VA guarantee off your last loan to use it on the next. Obviously you need to have created the 20% equity, or have more cash in.

Corey Chonsky · Answer

Account Closed, I like the BRRRR strategy because if you do it right it can be like investing with no money down or low money down. I've recently closed on a few deals and about to close on a few other using cash and after I refinance I hope to get almost or all of my money back out. I hope things workout for you. Investing while in the military presents some unique challenges.

Brian Larson · Answer

Austin, first, congrats on being at this crossroads. i have so many colleagues/friends that cant get to this point....even when i spell it out. either way you go, you will do great with that dedication of time.

now, onto my thoughts. i personally say BRRR is the only way to go due to what you are trying to do. i was at this same crossroads about a year ago. i couldnt figure out how i could add the units i needed to add with the "extra" income/savings i compiled.

so what i did was run 2 flips in order to generate cash. i did straight flip, not brrrr. then i took that money, along with savings to have my cash egg that allows me to buy, rehab and rent. then i get my cash back through refi (conventional and private)

results? old model 2 rental adds/year, this model 4 adds since september and 2 in past 3 weeks. fyi, i manage this out of state and pay quality people to rehab, rent, etc. good teams are worth the $ and you can bake that into model

you can see more details under my investor diary post of goals and progress and find my brrrr calculator that i live by in order to purchase.

that reminds me, i need to update my journal with the latest.

b

Account Closed · Answer

Corey,

Absolutely, I agree, the BRRRR stategy is a fantastic way to get your money back after refi. My concern is with getting tied up in a four month rehab project.

I'm seriously considering just budgeting for a professional rehab by getting a general contractor on board from the beginning and planning on keeping a hands-off approach. But that cost can become massive quick, and with the wrong contractor, can break any possibility of a positive ROI.

Does anyone do strictly hands-off rehab? Budgeting for a general and/or sub contractor to do all of the work? Does this typically allow any room for positive equity?

Thanks,

Austin

Account Closed · Answer

Elizabeth,

I started listening to BP Podcast episode 103 this morning, and then started checking posts/replies here on the website... I realized after I read your reply here that you're the one getting interviewed! Funny coincidence!

Anyway, thank you for your reply to my post. Unfortunately I don't get to PCS often (been at the same station for 6 years now), but I did just close on my first VA home in July.

There is also a little-known rule that allows you to sell (or transfer into an LLC) your existing VA home, and get another at the same station. You can do this if you can prove to the VA that you have a legitimate reason for moving, such as needing more space for a growing family (we just had our daughter in November, so this house is already getting a little small). I may have to use that in a year or two, and start renting out this first one. Besides that, I am looking to do 20% down conventionals with private and/or crowdfunding, and buy several 3- or 4-plex properties. There is a really good rental market here, because of the base and a growing business scene.

Never really looked much into short-selling, but you seem to be having a lot of success with it, so I am going to have to do a little reading on it.

Thanks again for your reply and the information in episode 103!

Sincerely,

Austin

Account Closed · Answer

Darnell,

Thank you for your reply! I really want to take advantage of the VA loan at every duty station but currently, I have been at the same station for 6 years and will not likely move any time soon... my AFSC/MOS doesn't move much. Maybe once I start moving again, I'll buy at every location.

We have a lot of really good investors in our area, so I think I would be able to find contractors who are worth the money.

I bought my first property (my current home) in July, so it's going to be a little while before I can move again. But for my next home, I plan on getting a 3- or 4-plex and house-hacking. It just makes so much sense.

Thanks again,

Austin

Account Closed · Answer

Brian,

Thank you for your reply, I appreciate it. That's what I was thinking, too... so many people are telling me to just buy to rent and don't get into flipping right now. I prefer the BRRRR strategy, it makes the most sense.

I REALLY like your tracker... I'm definitely using this as I go into this...

I like how you use your birthday as a benchmark to work off of. I'm changing my goals up a bit, I originally posted on my profile that I want $1M in assets. That's not a very specific goal, so I'm changing it to $5,000/mo in passive income from real estate assets, by the time I reach 36. I think it's a reasonable goal.

For your out of state rentals, do you have a friend/family member to scope out for you? Or do you rely on your agent? I eventually want to buy up in Maine/Vermont/New Hampshire area, since I'm from there.

Thanks,

Austin

Elizabeth Colegrove · Answer

My husband and I have bought a house at every duty station . The first one was a foreclosure fixer that we fixed while we lived there. Than we bought 5 short sales another foreclosure and finally we are buying our 8th house using a cash out refinance. We are strictly buy and hold. We have gotten our downpayment 80% from living frugally and saving. The other 20% was doing a cash out refinance.

We have bought at every duty station , and than when I worked investment my salary into investment. In 4.5 years we have bought 8 houses (the last one closing next week).

Good luck!

Buy/Hold or BRRRR for Active Military?

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