BRRRR and scaling quickly

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BRRRR and scaling quickly

Justin Pumpr
Oakland, CA · Member since 2015 · 109 posts · 41 votes

Hey all,

I'm at a bit of a quandary with my RE investing goals. My goal was to BRRRR multifamily properties in San Antonio, TX as the rents are generally rock solid there and the purchase prices are relatively low. One of the issues I'm finding in terms of numbers with the BRRRR method is the refinancing part. As an investment property the max you can cash out refi on a property is upto 70% of LTV. This means the appraised value of a rehab has got to be VERY high to be able to get my money back out and still cash flow. Even on single family properties the max is 75%. By leaving so much money in the deal, I'm unsure about how to scale this quickly. Like most people I want to achieve financial freedom. I understand this doesn't happen over night, but at $200/door I need around 50 doors to be able to achieve my goals.

My questions:

1) How do you scale quickly when so much cash is tied up in your assets?

2) Is BRRRR on multifamilies the right path, or is BRRRR-ing SFRs actually a better option? There are lots of "it depends" in this I'm sure, but I'd love to hear from people who have successfully managed this and at scale. Is it simply a case of not finding the right properties?

Thanks!

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Rick Pozos
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
6y

If you have a bunch of money left in the deal, it is because you paid too much to begin with. You should be at 70% to 75% after everything. this way you DONT have a bunch of cash left in the deal.

Also, about $200 per month: Once you get more deals, you put extra money into getting 1 or 2 paid off. Then you start to have $600 to 800 per property cash flowing. When you have 1 house, you put the cash flow + your own $500 into the mortgage every month.

When you have 5 houses, you are collecting $1000 per month. You still put all that AND $500 per month into the first deal. The first deal will be paid off in 7 or 8 years. All you have to do is buy 1 house per year and put as much as you can into the house to pay it down quick. This is your retirement, so you can cut your 401k and put that into the pay down also.

You got to be Frugal AND make lots of money to be put towards the real estate.

-FrugalRealEstateGuy

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  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    6y

    If you have a bunch of money left in the deal, it is because you paid too much to begin with. You should be at 70% to 75% after everything. this way you DONT have a bunch of cash left in the deal.

    Also, about $200 per month: Once you get more deals, you put extra money into getting 1 or 2 paid off. Then you start to have $600 to 800 per property cash flowing. When you have 1 house, you put the cash flow + your own $500 into the mortgage every month.

    When you have 5 houses, you are collecting $1000 per month. You still put all that AND $500 per month into the first deal. The first deal will be paid off in 7 or 8 years. All you have to do is buy 1 house per year and put as much as you can into the house to pay it down quick. This is your retirement, so you can cut your 401k and put that into the pay down also.

    You got to be Frugal AND make lots of money to be put towards the real estate.

    -FrugalRealEstateGuy

    4Reply
  • Justin Pumpr
    OP
    Oakland, CA · Member since 2015 · 109 posts · 41 votes
    6y

    Thanks @Rick Pozos

    Your point about paying too much is right, but I'm unable to find multi-family properties where the purchase price is low enough to accommodate the repairs required and still get a high enough ARV to get the cash out refi. Even on a property where you pay $100,000 and put $20k in, you'd need that to appraise for $171,500 to get your money back and that's not including any carry costs, or closing costs. I'd love to hear from people who have successfully done this on multi-family (2-4 unit) buildings and what those deals looked like i.e. purchase price, repairs, ARV. I'm seeing plenty of inventory for single family, but then you're only getting one door rather than multiple on the deal.

    To your point about paying the property off, is this a preferred strategy to buying more properties? 

    0Reply
  • Rick Pozos
    Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
    6y

    It is not a strategy to buying more properties, but a strategy to pay off your properties so that you can have large cash flow and quit your job as soon as possible.

    0Reply
  • Stone Saathoff
    Investor · San Antonio, TX · Member since 2019 · 576 posts · 307 votes
    6y

    Justin, we are already in touch but I want to post a response in this thread so others can see it if they have the same questions.

    Most lenders will do 75% LTV. If yours isn't then we should explore other options.

    As far as multifamily vs single family for BRRRR, I will say that BRRRR is a strategy that is generally intended for single family homes. It makes it much easier to streamline your processes and scale over time.

    It is way easier to determine rent rates and an ARV on single family properties, there are also more of them for sale. You can see how this plays together. If you want to buy 2 doors a month, a good multifamily deal that fits your needs might not be available for that length of time. There is almost always a decent single family deal available to offer on any given day (at least in the San Antonio area).

    Then when it comes time to exit, you also have a much larger buyer pool since you are selling to potential residential homeowners and not just limited to investors.

    2Reply
  • Polo VazquezPro Member
    Real Estate Agent · McAllen, TX · Member since 2017 · 382 posts · 281 votes
    6y

    Hello all. It seems to me that now days everyone wants to invest in real estate and everyone is looking for fourplexes! Making the competition for them higher than normal. I agree with @Stone Saathoff, I have had more luck with SFR. Easier to rehab, the initial investment is lower, turn around is quicker, and and they generally easier to rent and have lower vanacies.

    1Reply
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