Opinions on My Strategy

[Tucker Cummings]

Wanting to get some thoughts on my strategy. I'm going back and forth between buying strategic/sensible MLS properties, or using the BRRRR method:

First off, my goal is to replace mine & my wife's W2 Income with rental property cash flow. My wife and I live entirely off her income, and we end up pocketing about 60k/year after taxes with my income. I have about 85k in cash ready to be invested. My dilemma is how to best strategically invest my income. 

Option A) BRRRR Strategy

This is the one we always here everyone talking about because you could potentially get infinite ROI and equity capture. Other pros are the relationships, experience you gain in this method. The downside is just more moving parts, the 6 months seasoning, managing a project, trying to get a deal with the right numbers in a hot market and tying up all my cash at once. I know people say private money is an option, but without having a track record I don't feel comfortable asking for money. That being said, I'm beginning rehab on my first BRRRR investment, with all my own money, so perhaps after this project I'll be able to use OPM, pending this one is successful.

Option B) Current Strategy - Rent by Room

December 2019 I bought my first investment property. I saw it on the MLS, it was turnkey, no rehab needed and it was right at market value. I bought the property knowing it wasn't the smoking hot deal, but I bought it because I knew, more than anything, I just needed to take action. Moving forward, I'd probably try to get things below market value. The property is in a military town and I rent out to soldiers by the room. Benefits of this are that 1) I'm in touch with their CO so if they act out then we have direct line for reprimand, 2) We have direct contact with HR, so it gives us a steady stream of tenants, 3) If they move out, because of PCS-ing, then we usually know 3 months in advance, 4) When the move out, usually its just one of the roommates, and the one that stays will recommend a buddy - zero vacancy. Long story short, I am running about a 36% Cash on Cash Return in my first year. If I was renting out by single family, it would be around an 18-20% CoCR. I could probably pick up 3-4 of these deals per year. The cons of this strategy are just giving up the "hopeful infinite ROI" for the 36%. Just makes me feel like I am leaving a lot of money on the table.

So summarizing - do I stick with a more passive rent by room for stronger cash flow, or do I go with a more active BRRRR strategy for cash flow by volume?

[Kyle A. Isaacs]

@Tucker Cummings - see my most recent article on military tenants.  My thinking is that you could combine the two strategies to maximize both cash flows and reinvestment capital.  Nothing is better than when your cashflows buy you other properties.