One must b Renovate RRR. In this buyer’s market. Do you agree?

Question

Hey there!  (Sorry, i wanted to change the title above to ‘seller’s market’ but BP won’t let me).

I keep hearing from many investors that “numbers don’t make sense,”  “not enough cash flow...”. I think when someone is new to investing, one must see that no one can retire off of their first investment property and sail into the sunset.  It is also unfair to judge the performance of the property just by owning it for just one year. With this being the seller’s market, investors are going to need to value add by picking the diamonds in the rough and having the stomach to do Renovations. What do you think? How are your deals working out?

Nicole Heasley Beitenman · Answer

It's really about goals. If you want to use the first property to get the second, you're likely more concerned with equity. It's going to be pretty rare that you're able to obtain a turnkey property below market value, so you're going to have to find something that needs rehabbed. I plan to hold my properties for the rest of my life, so if I found a property that broke even for a few years but gave me a huge chunk of equity, I'd jump on it. I'm 29; in 30 years, I won't care that it didn't cash flow for the first 3 years.

Timothy Lewis · Answer

I second this

Angela Yan · Answer

@Matthew Irish-Jones So true regarding the core 4 plus 1, the insurance agent.  I stuck to one market that i learned to know well in Columbus Ohio.  I have gotten this far with BRRRR strategy because i trust them and have systems in place that they check on each other.  There are so many elements that can go wrong regarding BRRRR if not set up appropriately.  My team took many years to set up with a lot of phone calls and relationship built over time demonstrating that i am an investor that knows the market, self independent, and will close with jobs paid.  It is certainly not for a novice as i have paid those sort of tuition in the past with some mistakes but i got back on the BRRRR horse again and so far, so good. Thanks for such an insightful feedback.

Matthew Irish-Jones · Answer

@Angela Yan my one criticism of BP is how much they push the BRRR strategy.

The BRRR strategy is great if you are an experienced investor with a great team, agent, insurance broker, property manager, general contractor, etc...

But... what I find is it is most attractive to newer investors who want to stretch their dollar faster.  They realize they are about to put their life savings into one property and it will take years to get money back out to buy a second, third, etc... while that may be true you what they don’t point out is a low risk return can sometimes equate to a higher return.

When you add debt pay down, appreciation, and cash flow you can be anywhere from 5-25% returns depending on variables and execution.  That snowball starts immediately on an investment once it’s performing.

Meanwhile a newer investor is using 100% of their Capital to get into a high risk BRRR scenario that seasoned contractors have trouble quoting.   I see investors taking high interest HML loans or rehab loans and coming in 20K over budget and months late.  Add up the hassle, mistakes, interest, and other issues that come with large renovations when you make mistakes and their returns are lower in the long run.

BRRR can work but to me it’s like C/D class investing, you really need to know what you are doing, a lot can go wrong, and its better suited for experienced investors with teams already built up.

If you have not done a carpet and paint renovation, why take on a gut and rebuild that includes mechanicals, lead paint, asbestos, and all kinds of other issues.

Damaso Bautista · Answer

@Angela Yan

Hey Angela I think there are many new investors who have the idea that investing in real estate is a get rich quick scheme.

I believe all investing vehicles work if they are done over a lifetime. Consistently over time.

Before you know it 30 years down the line you look at your accounts and you are amazed at what has accumulated.

I feel this is true about real estate, especially the n California’s large cities.

It has made many people lots of money but it also takes time and this is something people don’t like to hear.

Nice post topic!

Angela Yan · Answer

@Timothy Lewis. you are so right. as long as you picked a great property with appreciation play, i think it is worth a few years of negative cashflow, slight one to see future gains.  Times are tough when it is a robust seller's market. A smart investor needs to be creative with renovations.

Lumi Ispas · Answer

@Angela Yan, You are correct. I love renovation loan for the owner-occupant buyers and for investors the best buy and hold property if they can find a deal is to buy, fix it up themself and add in the property what's required in the area to be able to give more amenities to the tenants: washer/dryer, extra baths, central air, open concept kitchens with islands, etc which automatically raises rent values and ultimately property values.

Angela Yan · Answer

@Nicole Heasley so true! My “sell” button is broken on my investment properties. I love renovating to value add.

Mike Dymski · Answer

Yes, adding value at low cap rates can be very profitable.  The BP forums is one of the few places where you will find real estate investors who wish for bad market conditions over good ones...and where $100 per month cash flow matters more than $1,000 per month in value.

One must b Renovate RRR. In this buyer’s market. Do you agree?

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