Out of state BRRRR steps

[Seth Rose]

Hello, I’m interested on getting some insight from anyone willing

I currently live in Seattle and want to get into REI but the cost out here makes it tough to be able to get involved without capital

I read the out of state investing book and it got me interested in trying somewhere that I don’t have to burn up all my capital to get started

1. What are any recommendations on stable markets?

2. Do most people contact the PM, realtors, contractors in that area remotely or is it more ideal to fly there and meet people?

3. Any tips on where to begin my venture is greatly appreciated also.

Thanks

[Account Closed]

@Seth Rose

I would look at the approach from a revenue mindset, not a discount mindset (which is where the BRRR concept was born).

Firstly, I would like to point out that properties with great cash flow potential and deep equity positions aren't just floating around the MLS. In this market, people are willing to buy properties without any equity. This makes acquisition of a good deal a high active effort from you. You will have to work hard to find a good deal, and you will have to work hard to add value to that deal in order to generate an equity position.

This leads you to a decision, whether you are aiming to be a passive investor or an active investor. If you aim to be passive, walk away from BRRR, value add, rehab, deal hunting, etc... If you are willing to make a business out of this, then go for them and consider the following:

You are an active investor working to generate 25-30% equity on a property. Let's say you do, and the property is worth 100k and you have 30k of equity. You tied up 70k and a minimum of 6 months just to go through this process. You now how to decide what to do with that equity to generate the highest possible return. You can:

a. Refi the property to get your initial 70k back. Now you can rent this property out and net $100-$150 dollars in cash flow after taking aside money for current and future expenses (many get less, few get more on these BRRR deals). You can use the 70k to do this all over again over another 6mo period. You've also got 30k of equity in the property that you created, which you're choosing to leave tied up in exchange for that $100/mo. You have an infinite ROI bc the property was free, but you are generating a 4% annual return ($100x12) on your 30k equity position.

b. You sell this property immediately after rehab (maybe 3 months instead of 6) and get, lets say 95k back after expenses. 25k is profit. You can do this four times in a year and make 100k in profit from your initial investment of 70k. 

If you're going to go through the trouble to buy and rehab... you're a flipper. Just a flipper that keeps his property as a rental, which is what many flippers do when they fail to sell. The effort level is lower to sell than to BRRR, because you don't have to rent or refinance the property. It's also faster. You also pay taxes on your profits. You also make about 80x the profit in this scenario than you would have made renting the property.

If you've read through this and that process all seems like a lot, you can take the passive investor route. I believe this is right for most. Go find a high yield property with a 20% cash on cash return, that can be purchased immediately with financing. Those are the deals my investors and I always go for. Invest the same 70k you would have tied up in that BRRR. Make 14k a year avg. Save it all along with your regular savings. Reinvest it. You won't get any "free" properties. You also won't have to do all of the work. You'll also make 6x more in rental income than if you successfully did 2 BRRR deals, all while being a passive investor.

Just make sure you run the numbers for all of the above scenarios with each deal you come across. The results will show you what makes the most sense. 

The only situation I would consider the time, effort, and cash tie up in BRRR deals worthwhile would be in larger value add opportunities. A couple million dollar apartment building, office space, etc... Not on 100k single family homes.