Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
Hi everyone, I'm in the Sacramento area working on a few wholesaling deals but like many others my long term strategy is buy and hold. Im interested in BRRR but am having trouble seeing how that would work well in a sellers market. My problem with BRRR is that it relies on leveraging a lenders cash- which to me means using MLS as a source for buying, as wholesaling deals are usually done in cash and often need repairs which makes lending hard anyways. With that being said, the chances of getting offers accepted on decent property at 70% of retail are pretty slim in a sellers market. This leads me to believe the strategy works better in buyers markets. Any thoughts on this?
For the most part, the MLS is a not going to be an option for finding deals in a seller's market. It's simply way too easy to list your property for full market value and sell it in less than a week. Plus, once an agent is involved, most of them are brainwashed to tell their sellers to wait for the highest possible offer, even when an all-cash quick close for a discount may be a better option for them.
I knew of an investor who recently hired two people to watch the MLS and contact agents for him 8 hours a day... know how many properties he bought that way in 3 months? One. He kept constantly getting outbid by contractors, other flippers, or people that wanted to live in the home. The juice simply wasn't worth the squeeze if you ask me, and he eventually stopped looking.
That being said, I know of another investor who's flipped several hundred homes since the early 2000's, and she's calling and making offers on properties on the MLS all day and finding success. Although, I think a big part of what's helping her is that she's had a long time to get her team and flipping process in place, and source the cheapest work she can so she can outbid other flippers and still make a profit. I think her A/C guy only charges like $3,500 for a new system, while most are be charging $5,000-$6,000. Every little bit adds up, and if she can come in $10,000 higher than the next guy because of her lower costs, she's gonna outbid you but still make the same profit.
My advice to those looking for flip deals now is to contact preforeclosures, drive neighborhoods for distressed properties and knock the door, or send letters to vacant or out of state owners. Or hire bird-dogs to do this for you. While that may take more work, you'll get way better deals that way. Even if a fixer gets put on the MLS, all the listing agent has to do is put the any of the words "fixer, contractor, tools, investor, TLC, motivated" etc. in the listing description and dozens and dozens of investors get notified as soon as it's listed. This creates somewhat of an auction-like situation where you're competing with other investors and paying more than you want to. But if you source the deals yourself, you'll likely be the only offer on the table, and get your property at the proper price.
Fayetteville, NC · Member since 2016 · 10 posts · 2 votes
9y
@Jayson Edwards So if I'm correct, it means BUY a property that needs work for a good deal. REHAB up to standard, which brings the total cost of the house still well below market value. RENT it out for positive cash flow while you wait until you can REFI and that is when all of the money between total cost and market value comes into your pocket cash. While continuing to rent it out for positive cash flow?
Investor · Lees Summit, MO · Member since 2015 · 40 posts · 10 votes
9y
Nearly spot on. The end goal is to have your all in costs to be 70% or less of the After Repair Value (ARV). The reason for 70%, is that most lenders will lend up to 70% or ARV on a cash out refi, some more, some less. That way you can repeat the process with the same original money over and over and over again.