How to Convince Significant Other to BRRRR + Other Questions?

Question

Hi Everybody,

I'm pretty new to this space, but I've been researching this year in preparation to make my first purchase in Winter 2020. I am in my early 20's currently renting right now, and my plan was to move into a 3 bedroom/2+ bathroom for around 200k-300k in the Irving, Farmers Branch/Carrollton, Addison area due to a lot of development in the area/vicinity to work.

I recently finished David Greene's book on BRRRR and bought into a real estate investment course (slightly regret but too late now) and have a few concerns that some of you might be able to give me advice on.

1. My main issue right now is
     getting my significant other on board with this idea. She is a person who
     would rather buy her dream house (imagine stereotypical millennial design aesthetics)  a little farther away from the city instead of a BRRRR in a C class neighborhood. What
     would be the best way to try and convince somebody to get on board with
     real estate investing to build some wealth in the long-run - or at least try and get to a place of compromise. I've been trying to ease her concerns with running numbers... but she's also is not too crazy about the idea of house hacking/living with strangers.

- I did some comps, and used rentometer and it seems I can get around a .8-.85% rent to property value in these areas after renovation costs of 40k-60k (~20% ARV value). I figure this wouldn't be terrible if I also live in the place, but it also isn't ideal.

- Cash flow seems in best case scenario seems to be about $300 a month, but more likely in the $200s for a full out rental based off current houses I'm looking at on Zillow.

2. I also figured that this is my first property I should probably do a 20+% down conventional as opposed to like a FHA loan to save mortgage insurance, but would want to hear your thoughts on this. It would definitely financially hurt more to do 20+% down, but I know it will probably be easier to close. What other factors would you consider besides rate?

3. My background: I am not too handy, or familiar with contractor work but my plan is to perform some work myself to save on costs (probably piecemeal one room at a time over the course of a couple months). Doing a full BRRRR seems pretty ambitious at this point in time. I would like to know more about renovation work, but am unsure of what I can provide to somebody else in exchange to learn about their systems for rehab work. I can provide free labor on weekends - I know this may be something that could be enticing since a lot of people are hemorrhaging money right now.

- Also are there book recommendations specifically geared to this for modern design elements and ways to save on cash?

Andy Webb · Answer

@David Y Mei - you mentioned a $40-60k rehab...which to me is not reflective of a property that will go conventional (I assume you mean a Fannie-Mae or Freddie Mac backed loan).  I guess it depends on the type of renovations, but if I am north of $20-25k or so, there is usually something structural I am doing that is not compatible with those types of loans.  That is one reason to do the BRRRR - buy it, rehab it, rent it out, and refinance into a long-term, cheap-money FNMA loan with a 30-year term.

As far as getting your spouse on board, once the stay-at-home orders have been lifted, get her out to some REI groups so she can understand the power of real estate. Find one that has a "power couple" or two that go and get her talking to them so she can hear both perspectives.

And why do the house-hack/live-in flip thing, especially if that is a no-go for her?  It is much quicker to get a property, leave it vacant, pay other people to get in and get the work done for you, rather than wasting a lot of time doing things yourself, then rent it out and move on to the next one.

And good choice of location:  Carrollton/Farmers Branch is highly sought after, commands high rents and leases up very fast.

Andy

Craig Curelop · Answer

@David Y Mei - Your first step is to get your significant other on board. That is if they are "significant" enough for you! I would recommend letting the experts do this. Have her read some of the best-selling books such as Rich Dad Poor Dad, The BRRRR book, The Millionaire Next Door, etc. The authors who have written these books have been explaining these strategies to people for years! Let them do it. If she is not a reader, maybe have her listen to the audio books, podcasts, etc.? Your job should not be TO CONVINCE her. Your job should be to get her to consume information from the expert convincers.

As for the deal itself. I wouldn't get TOO caught up in the number of $200 vs. $300 a month. Either way you will be good and cash flowing. The experience and confidence you will gain by actually taking action is worth far more than any sum of money you will get from an individual deal. My suggestion will be to jump on a deal that cash flows, don't get too caught up in the numbers, and make it happen!

Brit F. · Answer

@David Y Mei,

What are her concerns?  ...other than her budget for a primary residence is different than yours.

Coming from LA, does she understand the real estate market here?  And unless she's already familiar with your target area (plus you mentioned your lack of background in BRRRR), you're asking her to take a huge leap of faith that this is a good idea for both of you.

Compounding that, if you were implying your House Hack would be in a class C neighborhood, I can understand her reluctance...you and she would have to be obsessed with real estate to house hack in a class C.

It sounds like you should dial back your plan a bit...For example (and not saying this is what you should do), you could try an approach where she gets her nice house in a good area with appreciation, then move after a 1-2 years and show her the equity upside.  In the meantime, you can do projects around your house and apprentice to a rehabber/flipper/wholesaler/whatever to gain experience.  At any point, if you force the rental idea issue, you've lost the battle.  It's a long game, so yes, you'll have to be patient.

Ultimately, you have to find a way to show that real-estate will meet her goals and address her concerns.  How you do that is more art than science...you might even try reading some negotiating books, such as Never Split the Difference.

Steve Vaughan · Answer

If my son was in his early twenties with his whole life ahead of him, I would encourage him to follow his reasonable desire and goal of 'moving into'(?) buying and rehabbing a solid value add home.

Him having a girlfriend wouldn't change my advice one bit.  Matter of fact, dust and sweat would shine the light on how much of a princess he was dealing with. Nobody earns enough ever to satisfy a prince or princess.

You have a GF. You are in your early 20s with a cool dream. Do what you want.

Whitney Hutten · Answer

@David Y Mei I hear you!  I had to get my husband on board with investing.  It wasn't an overnight conversation and the first few years I went at it quasi-alone to prove out my model.  Now he 100% backs me, and it still more interested in work and play than investing... yet now, he will buy assets that pay for his play bills.

Have a heart to heart with her: What is her goal in life? What is she interested in investing in? Why is having a new home so important to her?  How does she view money (married couples generally have two different views of money)? What does money give her?  How would she feel if she didn't have to work so hard for money?

Then... How does she want to learn? What speaks to her (numbers, stories, track record)?   What does it look like to you for her to invest with you? What role (if any) will she have in the investing?

My husband was on board initially with the extra income and potential for appreciation (in thought only).  However, he had a fulltime job and wasn't interested in more work (I was working full time too). I started slow to prove out the model and he gained interest... but it still took several years to get him into the business.  Now he does what he is strong at which is dealing with contractors and their issues (and his role is limited to his interests).

I agree with Craig, have her read one book to get the gist.  Kim Kiyosaki wrote a women's version of Rich Dad Poor Dad... that might be a good fit.  Women are strong investors, but they generally come at it from a much different direction of security and community.  There are great communities for her to follow as well Goodegg Investments (disclaimer, I work with them), InvestHer, Real Estate Investor Goddesses.

Have the deep conversations, figure how to help her meet her goals too, mathematically model the vision that you can both agree on (it will change over time), and then be prepared to work on the investing piece yourself out of love for your family.  Eventually, she will come around....

Steven Ko · Answer

Honestly I did not read your post but you need to give it time. And she needs to be on board.  She may not be against it but just extremely cautious.

David Y M. · Answer

@Andy Webb So basically what you are suggesting is to ditch the idea, and get a home with her first, and then get a rental down the road? Maybe I am impatient because that definitely sounds like a 3-5 year minimum plan for me considering my finances. I will definitely take this into consideration or just eliminate the house hack plan idea together.

For the estimated cost, I based the 40k-60k off a zillow post, and what the wholesaler estimated the cost of renovations to be. I have to admit, I'm a newbie and very appreciative for this info! It likely means I won't have to budget anything crazy expensive in the future.

Link: https://www.zillow.com/homedetails/3517-Morningstar-Ln-Farmers-Branch-TX-75234/26998896_zpid/I had just assumed that it was somewhere in this range for the cost of modern appliances, and materials. I saw another sale in this area, but it seems like they probably tore a couple walls down or even opened up the ceiling. The link is below.

Link: https://www.zillow.com/homedetails/3905-Clubway-Ln-Farmers-Branch-TX-75244/26995381_zpid/

David Y M. · Answer

@Bruce Lynn Thank you and everybody else for your perspective. I figure I still have some time to talk to her about it since our timeline is pretty flexible. She is also planning on moving from LA to Dallas later this year with me so we will see how this goes. Our finances are both pretty good. We don't have any debt other than our credit cards, but we pay those off timely so it's a nonissue.

We both want the same size house. Our target is around 2000 sq ft with 3-4 bedroom and 2+ bath. The only difference is budget - you hit the nail right on the head. She's looking for houses 300k+. We have attended a couple open houses above 400k. It's been a struggle finding a place of compromise on that aspect.

I know one of her friends also actively invests in real estate, so was hoping to see what his strategy is. If it's BRRRR it might be a lot easier to convince her since it's somebody else we know that is pretty successful.

Also for my third question, does anybody know how I can learn more in person experience with rehabbing? I do not mind working in dirt and grime for free in exchange for knowledge.

Bruce Lynn · Answer

Men and Women are different.  Women often see home for a family for kids for living for having their family over and showing them what a nice place you have.  A nice safe place in the burbs to raise children.   Guys see it often as a financial decision.   This is a really good time to start talking about finances....maybe instead of you being at home, maybe if you show her the financial projecions you can show her how she can stay at home.    You both want to be in agreement on the whole system or it will cause strain.

I remember having a young couple in my office for a buying consultation one time.  When I start asking them questions about what kind of place they want/envision it was clear they were on two very different pages.  They were engaged but not married.  Mr says 1 bed condo is ok or maybe 2 bed.  Garage is optional.  Wants to be very conservative with prices.  Mrs. says she wants 3-4 bedroom house with minimum 2 car garage about 2x to 3x his budget.  They're both looking at each other like the other is crazy.  She asks where he will store his bikes...he says same place they are now in the bedroom.   We never even looked at one place.  I kept calling them after that, but never heard back from them.   A year later I found they had split up.  While probably most people don't split up, I really suggest you be on the same page....and this may take several conversations.   Maybe taking Dave Ramsey's financial peace university would be a good start and/or reading total money makeover.

JD Martin · Answer

Ask her if she'd rather have you at home with her most of your life or out working for her most of your life. That will give you the baseline insight you'll need to know if she wants you or the money you can make.

Assuming she'd rather have you than the money, demonstrate the way your plan works, the soundness of it and the way you mitigate risk. Ask her what she's afraid of and demonstrate you've got a plan to address those fears, some of which are likely realistic and well-founded.

How to Convince Significant Other to BRRRR + Other Questions?

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