How to BRRR as a beginner / beat a fear mindset around renovations

Question

Hi folks!

I'm at the start of my investment journey with the goal of owning property by September of 2024. House hacking drew me to real estate and my ideal situation would be to purchase a duplex in Boston to do so. The reality is I'm likely to purchase a MFH out of state - heavily leaning towards a few neighborhoods in Chicago. I will 100% be flying there to assess any properties, no sight unseen deals for me ;)

I want to open my mind to the BRRR method. I fear the "renovation" piece - having a property that is "cheap" on face value but a disaster to fix (i.e., lighting, plumbing), getting quoted one thing and paying thousands more. Obviously doing your due diligence is critical and the podcast has great points on working with contractors etc. but I'd like any advice I could get to beat my anti-BRRR mindset.

What's your checklist when finding "add value" properties (in my mind that's up and coming area, outdated kitchen/bathroom, not overly in shambles - i.e., needing roof repair). How much should I have in the bank as a security blanket and what should I look for as low barrier to entry add-value properties (I'm thinking unkept yard, old paint etc). And what's the timeline I should reasonably consider (i.e., 6 months of repair before going on the market)?

Finally, is the BRRR method better for "later on?" When you've established yourself and have modest cash flow through house hacking or something similar? I assume there's no one-size-fits all answer and it depends on your area, finances, individual appetite for risk etc. but I'm curious if people have some rules of thumb here.

Thanks all, excited to hear what people think.

Sincerely,

A hungry 24 year old ready to learn and work

John Warren · Answer

@Melissa Loupeda it sounds like you are on an exciting journey, and I think you are thinking all the right thoughts! The main thing to realize is that there are some areas in Chicago that are very cheap because they are bad areas, and there are some areas that are affordable, but they are fine. You really want to focus less on the property and more on the type of tenant you want to attract. If you have a good person as your tenant, then the rest will fall into place.

In terms of BRRR, it makes sense to find a property with some upside. That is part of what can propel you forward so much more quickly than other strategies. The trick is not to look for an absolute grand slam, but to understand that sometimes you will leave some equity in some deals. The deals still might be worth doing!

I also would encourage you to look for places that need cosmetic rehab as much as possible. Painting, flooring, landscaping, and other minor cosmetics can be done from afar. You won't have major risk with these projects. Doing major renovations is not simple, and in my opinion, should be avoided until you are multiple deals in.

Melissa Loupeda · Answer

I've been tracking the Chicago housing market since 2021 wanting to hop in so perhaps you're right on starting sooner. I appreciate the note on doing either full reno or cosmetic only. I'll likely reach out to you for more Chicago specific notes.

Jonathan Klemm · Answer

Hi there @Melissa Loupeda - My first thought is you should move that date up by 6 months ;-) and get that first property sooner!

Chicago is a great place to invest!  We have TONS of multi-family properties that need renovations and there are purchase price points at every level.

When we are looking at value-added properties we either want FULL gut renovations or strictly ONLY cosmetic renovations...nothing in between.  We typically like brick buildings and prefer buildings that already have a forced air system in place if it's cosmetic.

The BRRRR method is always for the NOW, just realize that it may not be the "OLD BRRRR" where you get all your cash back...and that's okay.  Getting in the game is more important than hitting a grand slam.

"The key to getting ahead is getting started and the key to getting started is taking your overwhelming task and breaking into incrementally smaller tasks that are far less overwhelming"

Steven Wesolowski · Answer

Let me know if you would like to see what off-market inventory I have in Central Texas right now. A lot of great opportunities my team and I can refer you to, so that you can add to your research and practice running your numbers.

Jonathan Klemm · Answer

@Melissa Loupeda - The market is always going to go up and down over time but a good Chicago deal is always a good Chicago deal!  There are times to be more conservative and more aggressive but at the end of the day, the numbers don't lie.

Happy to take your next step...any idea what that might be?

Melissa Loupeda · Answer

That’s a very good point - thank you

John Warren · Answer

@Melissa Loupeda I wouldn't drive Chicago to get to know the areas. It is a big place! I would rule out the areas you don't want, so you can focus on the areas you do want. Start with the end in mind as they say. Find what you want and work backwards to find the investment areas that fit that. Do you need to be near the airport? Near transit for the loop? North? West?

Bradyn Melser · Answer

I can honestly say, David Greene was right when he wrote in his BRRR book that a bad deal can be a good deal in a few years. I think it's best to approach BRRRing a property with the mindset that you might leave some money in the deal. And if you do, that's ok. You get to start with a completely rehabbed property with less money down. You're not a failure if you left some money in the deal. It's all a learning process, and no one get's it perfect each time.Second, I would suggest starting in an area or with a property that won't crush you. There are many great areas to invest where property prices and the cost to BRRR is much less. So if the appraisal comes in 10% lower on a 120k property versus a 300K property - you could still be in good shape.

Nicholas L. · Answer

@Melissa Loupeda

Out of state BRRRR as a first deal is just going to be really, really tough, and I generally don't recommend it.  I BRRRR locally and even that's really hard - I can't even picture how I would do it out of state.  It involves coordinating contractors, going to the property more times than you think you will need to, going to the property to do something yourself that you paid someone to do who just didn't do that thing even though they said they 100% would, etc.  Why not pick a market / city a couple hours away instead?

How to BRRR as a beginner / beat a fear mindset around renovations

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