Does Brrrr Method work in all markets? North Jersey

Question

Hello Bp!

I guess this will be an introduction and also a question.

Little about me:

I have been lurking around this website for months reading forums, webinars, podcasts, etc. and it has been very helpful. I do have a strong entrepreneurial background, I am the owner of a textile company in a very niche 30m market. We have two warehouses with about 40 employees and in the past 5 years we have become the biggest player in this space.

1).As for my real estate experience, it's a bit limited, although more then most starting out. I have a townhouse that was pretty much a turnkey investment traditional money down and it cash flows about 300 dollars a month but only because I put more then 30% as a down payment.

2). Bought a 32,000 sqf office/warehouse space back 11 years ago. This was a better deal, I didn't know it at the time but he was a "motivated seller". It will be paid off in 4 years and the net cash flow with be 27k a month!

3). My wife and I wanted to purchase our first home 3 years ago however, we could not find anything that fit the bill even over the 1m mark. So we decided to purchase a house in a area we liked and build a new house. When working with a realtor and nothing came available after months of searching, I decided to take action. I made hand written notes and put it in neighborhoods in which we wanted to build. Wouldn't you know it? got a seller with the first batch I put out. 62 year old couple was getting divorced and wanted to sell. Looking back I pretty much paid retail price for it, but wasn't thinking like an investor.

Ok enough of my background.

So as the title says I want to use the Brrrr method to acquire homes and rent them out for positive cash flow. I set a marketing budget to 2k a month for the next 6 months. I have formed a list of the type of people  that would be motivated sellers and some where I saw property that looked like they were not taken care of.

So last week I had dinner with a friend who's whole family is in real estate. They as a family, own one of the largest brokerages in the state. So I laid out my plan and he pretty much said it's not possible or going to be very difficult. DREAMS CRUSHED!

Now, I live in a very expensive and highly competitive part of the country. I watch these podcasts where people buy a dozen homes a year using this method but usually in markets that are not quite as expensive or competitive. I paid 450k for a house that I was just going to knock down for an example.

So, I would love to hear from my fellow Jersey people or anyone that as a comparable market that this is possible and my realtor buddy was incorrect.

Thanks,

Michael O. · Answer

@John Gentile

Same train of thought, there is a local meeting this Saturday, hoping I can make it there. Yes, I see all these success stories on forums and podcasts " I bought 5 houses in 6 months using brrrr" etc. People paying less then 100k for properties and not only getting investment back, but one BP'er even said they made 9k instant equity on top of it.

https://www.weichert.com/articles/top-10-wealthies...

Interesting article but 4 of the 10 towns listed are towns that surround me....

Andrew Syrios · Answer

BRRRR can work in any market in so far as you can buy under market and refinance out everything you put into it. However, buy and hold doesn't necessarily cash flow in every market (unless you buy absurdly under market value). We do the BRRRR strategy, but only pull the trigger if the property will cash flow too, and there are many places in the country that there just isn't much if anything that will meet that criteria.

John Gentile · Answer

Hi Michael,

I feel your pain.  I'm trying to obtain my first property via the BRRRR method just south of Boston.  Because of the prices and most properties going for close to asking, it is tough to find the favorable margins (I'm primarily using MLS at the moment).  I'm searching for small single families and condos and it's still difficult.  I've grown to live with the fact that I won't get all my money back but a portion of it.

I'm attending a local AREIA event on Thursday night to see if I can meet some wholesalers who have some off market deals.  I've even considered using a turnkey company to get more favorable margins and ROI (not sure if you can BRRRR with a turnkey company, but the ROIs are tough to ignore).

Very tough investing in an expensive market.  Not impossible but tougher.  And these forums and podcasts are full of people in the south and midwest just CLEANING UP on deals.  To the tune of 100+ units before hitting 25 or 30 years old.  Pretty amazing.

I will be curious to see how you make out.  Best of luck.  I'll be sure to post when I land my first buy and hold.

Richard Jones · Answer

10-4

Michael O. · Answer

@Richard Jones

Well, the whole premise of brrrr method is to use the 70% rule to get most of, if not all your money back from property when you refinance.

Basically, what he is saying is 500k ARV home it is highly unlikely to get that property for 350 no matter the how bad the property is ( not even included rehab cost). Of course there are flippers and new homes being built all the time in my area however he said all their margins are shrinking and some do it to keep their guys working.

Getting the refi isn't a problem already talked to my bank.

What he wants me to do is purchase in a traditional method 20% down rehab and maybe pull some equity out but wont get all. Which is fine but even if I had let say 750k to invest all the down payments will deplete my funds rather quickly in my area do to housing prices...

I talked to a local RE agent on BP and he also said it very difficult to do in our area and even if you could find one that the 1% rule would most likely not apply.

Michael

Michael O. · Answer

@James Wise

I see what you're saying, properties that wouldn't make the brrrr qualifications I could list and sell as a regular agent and make the commission on the sale.

Agree, my buddy with the brokerage claims to have over 400 realtors yet said many of them are housewives or people who do it part time selling one or two houses a year through their friends etc.

Thanks for the insight.

James Wise · Answer

When your an agent you are basically working for yourself. There's no schedule or minimum amount of things you need to do for the broker. Your just giving yourself a way to make money off of a higher % of those leads your spending that money on.

Instead of making money on say 1% of your leads via a BRRRR why not make MORE MONEY on that 1% doing your BRRRR & now saving money on listing commissions while also adding in a paycheck on another 10% of those leads via listing the properties that wouldn't work for your BRRRR? It's a no brainer, especially if your an income diversification guy. On top of that as an agent you'll just end up meeting more sellers faster then you would otherwise.

Michael O. · Answer

@James Wise

Well I guess it depends on how many leads I get out of my direct mailers. If I can more leads then I can handle I rather form a team to handle that then work for someone else.

I'm not looking to replace me current company or sell it to start something new, rather supplement or diversify my income stream from multiple areas. Sort of like yourself with that laundromat you own. Btw, we are sort of in the same industry!

Thanks,

James Wise · Answer

Welcome to the site @Michael O.

If your going to spend 2k / mo marketing to sellers you should get your license & go work for your buddy's brokerage. You'd have a lot more ways to earn some money with all of your leads. It's short sited to only look at BRRRR as a method to making money while spending all that coin on marketing. Put more tools in your belt!

Does Brrrr Method work in all markets? North Jersey

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