BRRRR Out-of-state?

Question

Hi All,

I'm wondering who out there has had success implementing the BRRRR strategy in the Midwest or in some other high-cash-flow area while living out of state. Too much trouble to be worth it, or something worth investigating?

I'm most skeptical of being able to find the right properties and evaluate them accurately, all without boots on the ground. Of course, I think it can be done, or I wouldn't be here asking.

Any thoughts much appreciated!

Ross Denman · Answer

@Brian Bistolfo We have a lot of clients building their portfolios using the BRRRR method, but it is getting very competitive. Personally, I'm not a fan of about 80+% of the wholesale deals that I see, but we have a decent network of realtors who shoot us pocket listings for homes that meet our criteria. We've also just started a team that is walking neighborhoods, knocking on doors, and engaging residents in target neighborhoods to get deals even closer to the seller. While direct mail works, I get about 5 mailers each month on all of my properties and they typically go straight to the trash. Talking face to face is much more effective and there are not a lot of investors doing this as it can be a very cumbersome activity.

As far as having a hard time finding PM's and GC's go... most of the bad PM's have been run off or put out of business, but many investors expect their PM's to do everything for free and don't want to spend any money in maintaining and protecting their properties and keeping their tenants happy. It always kills me to see investors complain about spend an extra few hundred dollars each year to maintain a property and keep a good tenant happy, then watch them leave, lose a good tenant, and then their home starts killing them with problems because they didn't want to clean the gutters or inspect the home periodically.

GC's are a different story. Good GC's are very busy right now. All of us have to protect our GC's and their time as well. Investors tend to have high expectations out of GC's, but don't want to pay for their time. They would rather be working on a job that is paying them than to spend 20 hours doing your 4 line itemized rehab budgets on potential homes. My GC's bend over backwards for me because they know that if I send them to a property for numbers, it likely means more work for them, because we are closers.

I think the best course of action is to get plugged in to an already active network and build your team from there. There are various things to consider about the BRRRR model that doesn't typically get discussed in the podcasts and articles that get everyone hyped. It is not an income model, it's a growth model. That means be prepared for very slim cash flow, keeping money tied up in reserves, and concern yourself less with how much money you can pull back out and look at the actual numbers. If your mortgage is higher than 45% of your rent rate, you're probably not in the best position if you have an investment property that is going to have a higher vacancy rate or maintenance load. You may cash flow every year, but when your tenant moves out, you may find that it wipes out 3 or 4 years worth of cash flow. The true power of the BRRRR is in the underlying equity growth from a leveraged position. Most deals should yield a 100% COC ROI in equity growth in 4-6 years if positioned correctly. Typically this is going to outpace cash flow by quite a bit, but because of the lack of cash flow, you have to retain liquidity to handle any major expenses that come up.

For instance... if you BRRRR a $75k home that rents for $900/mo and refinance all but $10k back out your probably looking at about $4,000 in cash flow over 5 years if you have a vacancy or two. That's only a 40% ROI or 8% annually on average. Not really a bad investment... but that home is going to grow in value around $2,500-$3,500 each year meaning that you will have another $12.5k+ in equity in 5 years. That's a 25% ROI annually. While principal paydown isn't usually going to come in to play in a 5 year period, you will also have more equity from the very beginning due to the value add. Selling in 5 years will likely net around $30k in total on a $10k investment. Even if you have to keep $5-$10k available for reserves for the property, you still have a very good ROI. If you hold it for 30 years and pay off the note, you will be in an amazing position, but most of us are holding properties that long.

Boris Suarez · Answer

Hello, Brian Bistolfo. I live in Louisville, Ky. BRRRR method is all I do. The market here is good and stable. Sometimes I'm amazed by hearing investors paying huge amounts of money in other states when you can buy here for around 50k that brings around 900+ in rent income every month. I'll be very happy to help if you are ever interested in investing in this market.

Jeb Brilliant · Answer

@Brian Bistolfo I haven't done the refi part yet but it's worked really well for me in Inanapolis. With the right PM and a flow of properties ( I use wholesalers) you can really succeed there. I'm happy to answer any specific questions you might have.

Matt Motil · Answer

Finding distressed properties that fit the BRRR mold is very competitive. The only way you're going to success at this is to build a local team in the market you're looking to work in. At this point, you need to ask what value you're brining to the team, since you're not local to the area.

It can be done, but it's tough.

Jeb Brilliant · Answer

@Brian Bistolfo I spent a lot of time on the phone getting to know people and flying out there multiple times to build those strong relationships.

No on the refi, I purchased cash. Now I'm looking for inexpensive money to keep buying, my pockets are not that deep.

Brian Bistolfo · Answer

@Jeb Brilliant much appreciated.  I've heard finding good PMs and GCs in Indy can be tough if you're not there, but it's definitely the deal flow / good evaluation that I see as the biggest hang-up if you can't be there.  Thanks for offering some insight.  How did you network with wholesalers?  And, just out of curiosity...are you planning on refi-ing (I'm assuming you got some loan for the initial deal).

@Matt Motil You're right; a BRRRR is basically a flip that you don't sell.  Not easily done remotely.

Jeb Brilliant · Answer

Hi Alyssa, Excuse the delay in responding, I was on vacation and then playing catch up. To answer both your questions it depends on the area of the city or if you go outside the loop and where outside. Your numbers look good until you have a turn so I’m buying in areas with fewer turns.

I can talk about specific areas if you have questions. Or any other questions. DM me and we can chat on the phone.

Best,

Jeb

Rob Bergeron · Answer

I have a great network, of contractors, lenders, title, and property management company (Mike Butler, author of Landlording on Autopilot). David Greene is actually coming in this winter to speak at my quarterly investor luncheon.

Alyssa Weber · Answer

@Jeb Brilliant how are the cap rates and tenant base in Indianapolis? I am currently investing in the Louisville, KY market, but am interested in networking in other markets, especially with the BRRRR strategy.

Brian Bistolfo · Answer

@Jeb Brilliant good stuff.  For networking with wholesalers, my best bet not knowing any better would be finding whomever I can on BP and checking out local meetups, then seeing how many of both of those I can cram into a short trip in Indy.

Do you use a web tool for comps, or do you know your target areas well after a few trips?  I'd basically be using zillow/google maps at this point...not very strong for getting an accurate feel for whether it's a good deal, no matter how good I am with numbers.

BRRRR Out-of-state?

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