Does BRRRR count as a "simple" strategy?

Question

First Post,

Hi BP community,

My name is Gil and I am new to real estate investing (old to life though).

I just found BP at the end of Oct. after I reached out to some friends about REI and they both independently sent me here.

I live in SoCal and am partnering with a realtor friend.

I have been listening to podcasts, reading and gathering some troops. 90% of the info I am getting is from the BP site and its materials.

I Just finished Brandon Turners 7yrs to 7figures guide, where he lays out a pretty simple plan to get a million in real estate in 7rs starting with 20k.

If you are familiar with the guide, one if its main rules is to Keep it Simple. I am paraphrasing, but he warns against complicating the process which is based on simple math.

Part of the 7yr guide asks us to buy cash flowing multifamily properties at 20% of value (with 20% down) and then force 10% equity.

That is the quick backstory, now for the question:

Does the BRRRR strategy enhance or hurt the plan laid out in the 7yrs to 7 figures guide?

If I use BRRRR I will put an extra STEP in the PROCESS, but is it a complicated step compared to what I might gain in access to winning deals?

Happy Thanksgiving.

Rick Pozos · Answer

All that stuff is just theory. What is left out is the detail on how to find a property at 20% discount. How are you going to do that????? You will not get it from a realtor. Why would a realtor list a property at 20% discount?? They are not going to do it.

You have to go out and FIND the deals. Marketing and networking with individuals that NEED to sell their house. Behind on payments, behind on mortgage, divorce, estate, needs lots and lots of repairs, someone that needs cash fast, THAT is how you will find a property at a discount.

I would worry about finding A deal that cash flows. Then try to find another one. Finding deals consistently is the hardest part of this business. When you can find discounted properties on a regular basis, you will be on your way.

Brent Coombs · Answer

@Gil Ferro, please ask your partner to keep in mind: if your "more cash flow than less" mindset prevents you from wanting to refi (every time) to get your original deposit/s back, then that will prevent you from buying as many good deals as you would otherwise qualify for!

ie. Worry less about the cash flow of each individual deal, and more about the number of actual buys! [ie. It's the Tenants who pay down the loans anyway, so would you prefer them to be paying down 10 deals for you, or 20 (or 100)?] Get my drift? [I vote: Yes - "simple"!] Cheers...

John Leavelle · Answer

Howdy @Gil Ferro

Happy Thanksgiving.

The BRRRR strategy is not exactly a simple process.  It is confusing to a lot of investors.  But once you figure it out it’s a great way to expand your portfolio with minimum capital.

Does it enhance or hurt the 7 to 7 plan?  Yes and no.

Brandon’s plan depends on equity appreciation both initial forced equity (10%) and 4% annually over a few years.  It also depends on accumulating good Cash Flow ($200 per unit/month) over the same timeframe.  You then utilize both to upgrade to a bigger property (more units.

With the BRRRR strategy you are pulling the forced equity out in order to payoff your acquisition loan and recoup your Cash to do the process over again.  So the only equity appreciation will be the annual 4%.

Additionally,  since you are obtaining a larger loan amount for the Cash out Refinance your Cash Flow will be reduced to maybe $100 per unit/month or less.  Thereby requiring you to hold the property longer to reach the same equity threshold as Brandon’s plan.

The upside is you can acquire properties faster with a greater Cash on Cash Return.  In the basic 7 to 7 plan you may purchase 3 properties before you do the exchange.  With the BRRRR method you may purchase 4 or 5 properties in the same time period to get the same exchange results.

Hope that helps clarify things.

Gil Ferro · Answer

Thanks, John.

Your thoughtful answer clarified more than just the nuts and bolts of these strategies.

Honestly, it seems like I need the discipline and patients the 7yr plan requires.

I have been exposed to a lot of information in a short time. Finding one good deal is a great goal to have.  Not "how can I work all these strategies I just learned this month."

I meet with my partner tomorrow to game plan so I'm glad I have this perspective going into that meeting.

Also, I know my partner wants more cash flow than less, and multi-units over SFHs so I am not going to muddy the waters with things I am not really that sure about.

K.I.S.S.

Gil Ferro · Answer

Thanks, Brent. We're not using BRRRR with this plan. It adds a few extra steps that can "speed bump" the first deal getting done. The criteria set in the 7yr 7figs guide creates a total of 30% equity in the first year and saves 100% of the cash flow to buy the next property.

In theory.

Looking forward to seeing how the reality goes.

Brent Coombs · Answer

That's all fine, but remember, unless you're also buying way under market value, you'll need to come up with new deposits every time (because the refi idea would be off the table anyway)!

ie. It won't be BRRRR, because under that strategy, you only ever need one (recyclable) deposit!

John Leavelle · Answer

@Gil Ferro

Yes, KISS!  Get the first deal under your belt.

I want to retire from my W2 job within 5 - 7 years.  I want an average cash flow of $200 per unit.  My current target is ruffly 50 units.  To get there I will be using the exact method you are discussing.   The BRRRR strategy acquiring the initial small residential properties (1 - 4 units).  Then exchanging them for small apartments (8 - 20 units).  Cash flow will be more important to me when I get the small apartments because that will be my primary retirement income.  Cash Flow is not as important for the Residential properties because I’m trying to acquire as many as possible in a short timeframe.

I will say I have been lucky so far meeting both.  I’m averaging over $200 per unit and been able to cash  out more than what I needed to payoff my private lender and get my cash plus extra.  I don’t expect this with every deal, but, we shall see.

Does BRRRR count as a "simple" strategy?

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