BRRRR strategy with cash

[Jared Hockensmith]

Hello everyone! I’m 21 and looking to get into real estate investing. I’m currently in the education phase and learning as much as I can and starting to network with people and friends of similar real estate investment interests.

I'm really interested in the BRRRR strategy to build up a solid SFH rental portfolio, but I would love some feedback on my potential strategy and if it would even work.

Instead of using leverage, I want to save up cash to buy first BRRRR property. (I know it will take a couple years but that's ok with me) After going through the steps, I want to take out a home equity loan instead of doing the cash-out refinance. Now to save up cash for the next house, I plan to flip houses. Using this cash plus the home equity loan, I can then buy property #2 and then repeat. This way, the only mortgage I have is from the home equity loan, which will do two things: 1. More cash flow because mortgage is smaller, and 2. Quicker pay down because mortgage is smaller.

Is this way of doing the BRRRR even possible in theory? I know it will take longer but I feel like it will pay off in the long run. Thanks so much for your feedback!

Jared Hockensmith, Aspiring Investor from Tampa, FL

[Clayton Smith]

There are a couple of reasons why real estate investors use debt. One is that you can write off the interest paid on your properties and pay less tax. Why not get to keep more of your money that you put in the time and effort to create. The second is the opportunity cost of your money, mortgage rates are really low right now. If you have a loan paying 4% interest but your investment is making an 10% cash on cash return you are netting 6% more on your money plus the debt pay down. Plus you will be locked into the low rate for the life of the mortgage. I have mortgages on my properties and once I have the loan paid down some I will get a HELOC against the equity in my property. Run the numbers and look at the cash flow difference. You will make more cashflow buying 5 -$100k houses using 20% down than having just one $100k house paid off plus you keep more money based on tax savings. Some people can't stand the idea of debt but it one of the best tools in real estate.