BRRRR vs TurnKey - Which makes more sense?

Question

BRRRR vs TurnKey

What are the positives/negatives for each?

Looking for a little cashflow but more of a long term play to gain equity and Improve Net worth.

Alexander Felice · Answer

the big problem with turnkey is you are essentially paying someone to BRRRR for you, sounds good, but I average 30-40k in equity per deal and I outsource 100% of the labor. Also note that it will never be a fully passive investment, so the real question is

are you willing to pay a 25% price premium to avoid handling the rehab?

Turnkey is absolutely less profitable, and maybe less headache. Lots of people get lousy deals and lousy property managers from buying turnkey and at the end of the day they haven't learned anything from the process because they didn't actually do the process.

If you want passive, I say go really passive. If you want control and to learn the business hands on, do the BRRRR

Mike Dymski · Answer

I don't see how these are alternatives strategies for one another.  One is very active and the other not so much.  I recommend starting with your goals and then analyze strategies that align with them (rather than the opposite direction).

Jonathan Oh · Answer

@Jake Rhodes

BRRRR is an incredible way to scale quick unlike turnkeys. Beauty of BRRRR is to be able to get most or all your money out and into the next deal. But beware, it's not as simple as reading a few books and then pulling off a successful BRRRR. You need to build a strong team. Understand how to analyze deals, how to calculate ARVs accurately, how to manage contractors, etc.. I would suggest practicing analyzing deals and reading up on stories here on BP.

Turnkey is "safer" given that you do your hw. It is perfect for people who don't have the time or desire to go through all the hurtles of BRRRRing. You are buying at market price, so very little room for immediate equity growth. But you will still be cash flowing. Scaling on turnkeys will be much harder than BRRRRing.

I invest in turnkeys as well so feel free to reach out to me for more questions!

Jay Hinrichs · Answer

in crown point  ( nice little town poised to do well given proximity to Chicago) you can just buy a rental home on MLS.

rehabbing locally is much safer than trying to do it afar.. if you have never done it.. doing it out of area brings on serious risks.. that get glossed over.

but you buy a semi beater.. you guys paint it put new floors in etc.. this can easily be done were you live.

Caleb Heimsoth · Answer

@Jake Rhodes having owned turnkey for several years, you’ll average 7-9 percent return if you’re lucky.  I’m getting 20 plus sourcing my own deals.  So I think you’re better off doing that

Jim K. · Answer

For your first deal, don't buy a 70-110-year-old single-family house in a Rust Belt hood for $35K because a wholesaler told you it has a ARV of $250K and just needs some TLC. That's not the runway to launch of a successful BRRRR series of plays.

The heartache will start at overwhelming if you live within walking distance from your money pit and double for every additional further mile you get from it. There is no mercy limit.

Jake Rhodes · Answer

I went to the bank yesterday and they said if doing the BRRRR strategy they would only give me 75% LTV (if held under 3 years) on the purchase price and the rehab costs.  NOT the appraised value.

Example.  Buy for $50K put $20K into rehab.  Total of $70K.  They would do a cash out refi and give 70% on the $70K = $49K .  NOT on the appraised value.  Has anyone else seen this?

If I hold the property for 3+ years before doing the refi, then they will cash out on the appraisal.

Thoughts???

Mike D'Arrigo · Answer

@Jake Rhodes it depends on your goals and your personal circumstances. If your primary goal is equity and you have the time, skills and ability to manage a rehab and have the right people in place to do it, BRRRR could be a good way to go. You have to keep in mind that is is more risky and there is no guarantee that you will be able to pull all of your money out. A lot of things can go wrong. The biggest challenge, especially for a non local investor is being able to buy right and have a good handle on the ARV and construction costs. That's not easy for someone that isn't in the market. Turn key is better for the out of state investor that doesn't have a lot of time, experience or skills, especially if they are out of state and the main goal is cash flow.

Crystal Smith · Answer

I see no negatives to BRRR if you purchase at the right price point; don’t over renovate and the property value appraises significantly higher than your original purchase price, thus allowing you to refinance, cash out and move on to your next deal.

The challenge we’ve found with most turn keys is the price point leaves little to no equity.  When we first got started we purchased turn key; paid top dollar.  When the market took a turn we were still cash flowing those properties, but we found ourselves underwater with respect to value.  The same thing could happen with any property, turn key or not.  But our experience with turn key changed our acquisition strategies.

BRRRR vs TurnKey - Which makes more sense?

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