Don't Fall For This Trap As A BRRRR Investor

[Stuart Udis]

I am hoping this post will help those interested in the BRRRR investment strategy avoid this common trap. From what I consistently observe, the ability to complete the BRRRR investment strategy and recapitalize oneself is a key metric used in how many underwrite acquisitions. For illustration purposes, the majority of investors who post on BP will move the property that pencils as a true BRRRR to the front of the line over the better situated asset with better fundamentals merely because they receive 100% of their invested capital back as opposed to 90% (again numbers are merely to illustrate a point). I will be the first to share I understand the value in being able to recycle capital through refinances to grow a portfolio but this should not be done at the expense of other fundamentals that are more telling of the properties current and future economic performance. Unfortunately many investors become laser focused on the 100% recapitalization of their transactions and end up working harder than those who don't place all of their emphasis on the 100% capitalization and have real estate portfolios that perform better because they made investment decisions better aligned with the underlying real estate's fundamentals.

[Jake Baker]

@Stuart Udis great post your made here.

We do 20 Flips/BRRRRs per year in Jacksonville FL and we use a hybrid approach. We BRRRR 8-10 per year and the flips supplement the money left in the BRRRRs. How do we choose which ones to BRRRR? - Location. It is not about how much is left in the deal for me. It is about the long term appreciation of the asset.

I look at Cash Flow and Forced Appreciation as a hedge against market corrections. Cash flow (in my portfolio as a whole) covers my expenses. Forced Apperception (BRRRR or buying at a discount) allows me to build in equity from the beginning of the investment in case I need to fire sale the property for an unforeseeable reason.

Debt-Paydown and Tax-Benefits are just a result of owning real estate and can be more-or-less predicted over a time period. A good CPA will help you save a ton on taxes as your wealth grows.

Market Appreciation is where you will make the most money over a 10-year period but is the least predictable. However, real estate values (on a national average) have never gone down over a 10-year period. https://fred.stlouisfed.org/series/MSPUS