Recommendations for BRRRR, Long Distance Real Estate Investing

[Alex Mina]

Hello everyone,

I am a brand new investor. I live in San Diego. I rent my own place and have been for the past 8 years. I have about $35 saved to invest and I would like to put it towards my first investment properties. I'm more than happy to go out of state, as I know that I will get more bang for my back. I preferably would like to take on the BRRRR strategy, starting small. Maybe 2 B 1 B. I listen to all the podcast and just finished David Greene's BRRRR book.

Any recommendations on area to start?  Or even better, are there any real estate veterans out there that would let me in on a deal?  I'm coachable and want to learn.  

[Dan H.]

I recommend newbies start local but I do understand that the cost of entry into San Diego market is not cheap. This can be overcome via a house hack. Owner occupied can get 95% LTV loans. $35k at 95% LTV could likely get a $600k to invest in a property but you want some reserves so $500k to invest in a property. $35k can be enough if going the house hacking route.

If you accomplish the text book BRRRR (not easy), after the refinance you have a property worth well over the $500k purchase and value add costs and $0 into it. I did indicate that the text book BRRRR is a challenge, but would it be terrible if you have $30k into a property worth $550k where you added $50k of sweat value? You return at this point would be $50k on a $30k investment. Not bad!

I indicated the text book BRRRR is challenging to do local. How challenging do you think it is to do a text book BRRRR OOS? I would think a lot more difficult (we have had OOS property but did not attempt an OOS BRRRR, but we have had to rebuild twice OOS after hurricanes and that was not easy).

We have built our RE holdings largely via San Diego BRRRR. We know it can work. By the way, we typically do not get all of our investment extracted unless we got an assist with market appreciation (which we have gotten multiple times, about half of our RE has had all of our investment extracted). Do not forecast being able to extract all of your investment, it is very challenging to do this in San Diego.

San Diego BRRRR "facts":

• The refi appraisals are conservative.  Expect at least 5% below value if the appraisal was for a sale with associated offer. 
  
  It is very tough to extract all of the investment. Many things contribute to this but high on the list is conservative appraisal, not high cash out LTV, the competition for good candidate BRRRR properties is high so getting it with a lot of meat with respect to ARV is a challenge, labor costs are not cheap, etc.

• 
  the cash flow does not improve after the value add and refinance. We have found that the rent increase percent is very close to the loan increase percent with similar LTV. However, if you are going from real high owner occupied LTV to cash out refi LTV you may see a slight increase to cash flow but it will be due to the lower LTV.

My “facts” are not all obvious and there may be some exceptions, but in general they are very likely.

Good luck