Let's be realistic with the BRRRR thing

[Scott Lepore]

Okay, I'm tired of hearing how easy it is to BRRRR. And the numbers people (eh hem, Brandon) are not realistic IMHO. One example Brandon gives is $200k purchase, $40K fix, $10k soft costs, $350K ARV. First off, finding a 200k purchase that only needs 40k to be worth 350k is not common. I'm not saying they are out there but it is extremely rare to find such a deal. again, IMHO. If you have a wholesale business set up and can get great deals yourself, then this is more likely. Second, 10K is soft costs is just not accurate. Let's look at the numbers here: 5K points, 6k interest, insurance, title insurance, closing costs 5k. So 16k, not 10k. Now refinancing. Anyone who can get 80% on the new value has a great bank and I want their number. More realistically in this day and age is 65%. Now lets look at those numbers in a more realistic light:

$200k purchase, $40k rehab, $16k soft costs, $320k ARV (a 120k spread on a 300k house is great).

65% of 320K is 208K loan.  You are all in at 266k.  You need to come up with 58k.  If you want to do 5 houses in a year, that's 290k you need out of pocket.  And lets not forget seasoning.  Another PITA issue to deal with.  So Brandon, it is not as easy as you make it out to be and unless you are getting absolutely screaming, killer deals, it doesn't work without bringing a good chunk of money to the table.  I have done it and so I am not saying it cant be done and I am not a bitter "I can't do it so you're wrong" person.  It is just very hard and those deals are extremely rare.  Would love to hear others take on this and experiences

[Daniel Haberkost]

Originally posted by @Scott Lepore:

Okay, I'm tired of hearing how easy it is to BRRRR. And the numbers people (eh hem, Brandon) are not realistic IMHO. One example Brandon gives is $200k purchase, $40K fix, $10k soft costs, $350K ARV. First off, finding a 200k purchase that only needs 40k to be worth 350k is not common. I'm not saying they are out there but it is extremely rare to find such a deal. again, IMHO. If you have a wholesale business set up and can get great deals yourself, then this is more likely. Second, 10K is soft costs is just not accurate. Let's look at the numbers here: 5K points, 6k interest, insurance, title insurance, closing costs 5k. So 16k, not 10k. Now refinancing. Anyone who can get 80% on the new value has a great bank and I want their number. More realistically in this day and age is 65%. Now lets look at those numbers in a more realistic light:

$200k purchase, $40k rehab, $16k soft costs, $320k ARV (a 120k spread on a 300k house is great).

65% of 320K is 208K loan.  You are all in at 266k.  You need to come up with 58k.  If you want to do 5 houses in a year, that's 290k you need out of pocket.  And lets not forget seasoning.  Another PITA issue to deal with.  So Brandon, it is not as easy as you make it out to be and unless you are getting absolutely screaming, killer deals, it doesn't work without bringing a good chunk of money to the table.  I have done it and so I am not saying it cant be done and I am not a bitter "I can't do it so you're wrong" person.  It is just very hard and those deals are extremely rare.  Would love to hear others take on this and experiences

Conceptually, it's a great idea but you're right that it's very difficult to get all of your money out in practice. Part of the issue may stem from the fact that BP started marketing the idea years ago when the RE market was less hot and it was more viable to get a good enough deal to get all of your money out. I BRRRed a property early this year and ended up leaving a bit of cash in the deal BUT it still worked out much better than if I had just bought a property on market. It's a great concept and I can't really blame them for pushing it as much as they do, it is possible. 

I get your point though, if you listen to too many podcasts or read enough books it's easy to start off thinking you can build a large portfolio without any money (good luck). The reality is, real estate investing is a cash intensive venture and it's best paired with a high paying job or lucrative business. 

Dan