Like BRRRR? Then you'll love DURRR!

[Matt W.]

(Disclaimer: yes, I'm a noob and I'm not planning to go out and lose my life savings on this plan tomorrow.  I'm putting this out to the BP community to see if the concepts are valid.  Any advice is appreciated! However, we all know "advice" can take the form of "don't buy real estate, it's risky, you'll be fixing toilets at 2 am, my uncle lost it all...")

We all know and love the BRRRR method, but why can't the core tenants of the BRRRR strategy be applied to building a brand new house from the ground up? I call this DURRR: Develop Underwrite Rent Refinance Repeat.

Say you/your private lenders have the funds to buy the land, buy plans, hire the GC, permitting, everything until you have a fully built house with a Certificate of Occupancy.  Then, instead of selling it, you get tenants in place, get an appraisal and refinance out your money.  

Advantages I see: because the house was built new to 2020 standards, it would require almost no cap ex anywhere for many years. A decent, brand new house attracts a higher quality tenant. Construction costs could be more predictable, as there is no "surprise issues" like rotten subfloor, asbestos under tiles, etc. Possibly banks/appraisers will be more willing to give high appraisals to brand new homes.  You can keep the design and finishes extremely simple and rent proof, yet still quality; simple one pitch roof, standard size windows, LVP floors from the start, off the shelf insert bathtubs, cabinets, etc. 

Disadvantages I see: Obviously more issues to juggle building a brand new house.  Even though you'll have a GC house builder, you still have to manage them. Probably harder to find financing than compared to fixing up an existing home. 

I know many homebuilders lost their shirts in the last big downturn, and by doing this I could be setting myself up for the same fate. In my case, don't need to sell for a profit right away. Also, if the appraisal came in low and had to leave $10-20k in the deal, that would not be terrible because it's like getting a brand new investment property for 5-10% down, which is a great deal!

Thanks and let me know your thoughts!