BRRR OR TURN KEY INVESTMENT?

Question

Deciding what is my best option to do. I have a current 3 family as a primary residence I’ve owned for 3 years. Looking to acquire my second property 2-3 family having that owner occupied. And looking to also expand my portfolio. Need advice. Massachusetts 3 family’s currently for a turn key is about 300,000-400,000 in the area im looking for. My plan was to do conventional owner occupied on a turn key for 20 percent down. And live there and then save up again to repeat. And have cash flow from 2 properties. But need advice, I have 65,000 in cash, and my father can access a HELOC for 50k+.. and he is looking to refinance and pull out some equity. Should I attempt a BRRR? Or should I try and do a turn key and have 2 cash flowing rentals. If I get my second turn key I will have cash flow of 2,300 a month from just 2 properties... My goal is to get enough properties to cash flow about 6,000 a month. And sit nice... I heard BRRR method but don’t know if it will be smart to have more debt to my name.. and not have so much cash flow and have more properties and more tenants and more debt and less cash flow...

Edward Eloma · Answer

@Jaysen Medhurst wow thank you that’s exactly what I needed to know!! Perfect that was sweet. So helpful. And that way I won’t have to wait so long to save up money.

Joshawn McFadden · Answer

@Edward Eloma brrrr

Jaysen Medhurst · Answer

To answer your questions, @Edward Eloma:Do I need to completely renovate to pull off a BRRRR? No, not necessarily. You do want to maximize you ARV, though. That's how you pull your cash back out at refi.Should I buy something really cheap...? Yes, ideally you find a property in distress, fix it up, and then refi. That's the basic strategy. The basic formula for a BRRRR is (ARV*0.75) - Reno costs = Max purchase price. As an example: Buy a triplex for $200k; $15k DP; $185k mortgageRenovate for $60k worth of workRent out the other two units at market ratesRefinance at the new appraisal of $350k @ 75% LTV; this pays off the original mortgage and returns your initial capitalRepeat: after a year move, rent out the final unit and do it all over again.

Edward Eloma · Answer

I think that’s a good point, I actually thought may it be a good idea to buy a family for a cheap price and do some work to it on the inside raise the rents and refinance I think may be a good idea. But will I still make a lot of cash flow on the property??

Edward Eloma · Answer

Yes I fix everything myself and my property I own now does generate 1,000 a month.. after all expenses. I have a higher cap rate of around like 10percent. I manage myself and have good rents. But I was projecting if I got another property like this I would generate 2,300 basically Saying my second property would be around 1,300 extra cash flow. But that does make sense and if I buy a low payment down and do I need to completely rehab the place for me to be able pull off a BRRR? And also should I find somehning really cheap put a low down payment and fix it up and do the refinance and do it that way?

Jaysen Medhurst · Answer

BRRRR is very powerful since you can continue to recycle the same capital in deal after deal, @Edward Eloma. A live-in BRRRR might be just the right thing for you. Do a low-down payment conventional loan, live in one unit, and renovate the property. After a year, refi, get your capital out, and repeat. For what it's worth: I'm very skeptical of your cash flow number. $2300/month cash flow on 6 units sounds high, especially if you're leveraged. Are you accounting for all expenses, including Vacancy, Repairs, CapEx, Management?

Jaron Walling · Answer

@Edward Eloma Congrats on taking the leap into real estate investing. You and I both started about 3 years ago. You seem very excited about the next step to achieving you goals. It's an important step. What you need to figure out is how involved you want to be. Do you want to swing hammers, hire contractors, remodel distressed property, or do you want other people to do it for you?? That's a big question because you can make a better ROI if you do some of it yourself. Turn-key properties rarely produce as much cash-flow compared to a property you flip yourself. You can ReFi and pull the cash-out after 6 months and depending on how tight you kept the budget you'll leave very little cash in the deal. It's a much more involved strategy but it pays off hence why so many investors do it. BRRRR is NOT A NEW strategy like some novice investors think. I think it's important to understand the labor costs and challenges involved to remodel a property. Turn-key or not someone has to do the work. What type of investor do you want to be? Good luck man.