Why I think BRRRR is harder for beginners than flipping

Question

I have been researching REI for the last year or so, and am feeling closer towards my first deal. I feel I have the funding resources, a decent understanding of deal analysis, and a handful of investor connections that may be available as resources to help with my first deal. In my mind, I have been going back and forth between focusing on rentals (BRRRR) and flipping. There is an aspect of this beginner decision that I feel has not been mentioned much so far, and am looking for input.

I am attracted to rentals for the longterm wealth growth, and see how helpful BRRR is in maintaining my cash available for future deals. I feel stuck in that I need to partner with someone to help with the rehab, but can't figure out how to structure a partnership for this purpose.

I am attracted to flipping because it seems easier to partner with others, mostly, I need a contractor/project manager with the time and expertise to focus on the rehab. I have a full-time job and have a toddler....aka not a lot of time to manage a rehab.

Thoughts?

Ryan Howard · Answer

@Hongbing K. Yeah I definitely understand that method. I was talking more about flipping when splitting the profit 50/50 with a contractor. I believe if you were to take on a contractor parter that did all rehab and paid out of his own pocket splitting the profit 50/50 when flipping would be a good idea. As long as they were good and trustworthy you would never have to worry about the rehab you would be able to focus all of your time on finding more and more deals

Hongbing K. · Answer

Ryan Howard from my understanding, you don't go 50/50 with contractor. You bring the contractor in the rehab (renovations) the place. The goal is then bring that property that you bought at a discount up to market value. And help justify rent increase. The you rent it out and refi the place. Or you can rent it out and sell the place to another investor.

Ryan Howard · Answer

I'm a beginner also asking myself the same questions. I don't know how much this idea would work but I feel like a good starting point would be to find a contractor that actively invests. Next step would be to find and acquire a property that fits the mold for flipping or brrrr with your cash reserves or hard money and then have the contractor/investor fund rehab costs for a 50/50 split of profit if flipped or an agreed percent if you refinance and cash them out. Let me know what you guys think.

Hongbing K. · Answer

John Oh I agree that Jeff Macdonald is a little confused about what BRRRR is. Buy, Rehab, Rent, Refi (and hold the property for cash flow), Repeat. IMO, BRRRR has similar ideas to flipping when it comes to looking for deals and analyzing a property, but instead of selling it as soon as the the rehab is done you keep the property. Refi and repeat. While earning the cash flow.

John Oh · Answer

This is an interesting post. Thanks @Brent Coombs! I am a beginner and I was also strongly considering between either a BRRR or Flip after I build up enough reserves to do so. I do see how the partnership is essential to you because of your work situation and the family. How I interpreted this was that from the investors I talked to, pretty much all investors know what a flip is, but a substantial amount still don't know about the specifically BiggerPockets-coined BRRR technique. However most investors would definitely get it with a little explaining. I think the communication issue there is what makes a partnership more difficult, but I may be wrong.-Jonathan

John Shortridge · Answer

I have been doing this for 2 years now. My first was/is a rental that I rent to myself and three others. I have flipped 3 straight away since and I would like to get another rental, however it would likely put me to a stand still /: I would want to be in at least 30/35% and that would effectively tie up all my cash. I think though I'll have better borrowing power next year so my plan has been to build cash thru flipping and when ever I get enough cash to carry another rental with an easy note I'll cash in and hopefully repeat the whole process. Good luck!

Brent Coombs · Answer

@Jeff Macdonald, from what you're asking about "how to structure a partnership", I don't see ANY difference in the degree of difficulty between Flipping, or BRRRR.BOTH require finding properties for about half their ARV.THAT'S the hard bit! As to how to pay your Contractors, or how to choose them - welcome to REI! Having said that, I do believe that the difficulty you refer to is very real as it relates to specific (low rent-to-value) MARKETS (eg. LA). So yes, you can't be hanging onto those very nice homes that only return 0.5%/m gross rent per month. They'll have to be flipped! All the best...