To BRRRR Or not for first investment

[Oscar Tol]

Hey BP!

I wanted to get some insight and advice from the BP community.

I’ve decided to get started with investing (finally),however, I’m am stuck with the analysis paralyses.

I’ve chosen my geographical location to be the Inland Empire in Southern California just because I am more familiar with the area and since I am starting off I want to be close.

I have the money to either do a BRRRR or a regular 20% down on a SFH that needs minor repairs.

I'm in a position where I don't know what to go with. I've read on the forums that fixing up a home is not ideal for a first time investor but I have also read that it's a great way to start. I figured a 20% on a SFH might be the "safer" route?

Has anyone been in this situation when they started out? If so any suggestions would be greatly appreciated!

Thanks!

Oscar

[Account Closed]

I did a few BRRR's when I started investing out of state, 3-4 years ago. I think it's a terrible idea.
You're doing all the work a flipper does, but taking a small slice of cash flow rather than liquidating that equity position. 

Remember, active investing is usually more profitable than passive investing. And it should be. 

If you truly want to be passive, find a high cash flow property thats already stable and put 20% down with commercial financing. Conventional financing will require 25%. If you want to be active, and do all of the work associated with finding a good deal and rehabbing it... make some real money doing it. 

There are many other issues with BRRR scalability. Time associated. Debt to income ratio. Appraisals. Another thing most BRRR lovers don't consider is that commercial lenders (who you will have no choice but to use eventually if you really want to grow a substantial portfolio) will NOT refinance you after some short period of time at the property's market value if it means you're getting every dollar you invested back. They insist you have skin in the game.

Another issue: a lot of investors come to me with BRRR portfolios of 3/5/10 properties...whatever they could reach before debt to income stopped them from getting more loans... and they couldn't qualify for a commercial loan afterwards! The commercial lender looks at something called "global cash flow" on a buyer; one factor of which being how well do their real estate holdings cash flow using THEIR OWN CONSERVATIVE CASH FLOW CALCULATIONS, and the bank sees all of these low cash flow SFR's investors own as a financial liability that may diminish the buyers ability to pay the monthly debt service & maintain healthy reserves on the new property being considered.

I could go on and on :P