Long Distance BRRR???

Question

Currently looking to start long distance BRRR.  Does anyone have any experience with BRRR in Milwaukee WI or Topeka KS?  Just a couple places we have looked in to.  What are your experiences?  Any other markets worth looking into that would work for long distance BRRR?  We are currently located in Salt Lake City.  Any tips or suggestions are much appreciated!

Eric Kovacevich · Answer

Hey Laurie, I live in the Milwaukee market and have to say this is probably not the best strategy right now. BRRRRing was very popular here for the last few years but the faucet has recently turned off. Not saying it isn't possible or won't come back when things go back to normal, it will just be very tough for two big reasons.

1) Cashout refinancing an investment property right now is not possible. I know this as I've spoke to lots of lenders and can't find any that are willing to do this on my property. You will most likely not be able to recoup your funds which defeats the point of a BRRRR. I could be wrong, but I would very seriously talk to lenders about your exit strategy before you pulled the trigger.

2) Labor is expensive and debt is cheap right now. Experienced investors around here have recently stopped BRRRRing because the margin between them rehabbing a property and just buying a turn key are so close it is not worth the headache to manage a project. Contractors are hard to get a hold of because they are in high demand, and they get paid handsomely. Instead investors are choosing to take advantage of low interest rates, just buy and get it rented. Nothing fancy.

Definitely don't want to be a Debbie downer as well, but this is what I'm seeing! There is a big fascination right now with thinking some other market has the magic ticket to be more successful but I'm a big fan of making it work where you live. There are going to be some extreme costs with long distance and I'd be willing to bet Utah has some of it's own micromarkets:)

Tyrone Osilesi · Answer

It can be done. I dont know anything about those particular markets, but I recently completed a BRRRR in western MI and I live in VA. What gave me the confidence and insight to do it? Reading Long-Distance Real Estate Investing by David Greene, establishing my core 4, listening to tons of podcasts on the topic, and jumping in.  Good luck!

Whitney Hutten · Answer

@Laurie Williams My entire SFR portfolio is long-distance BRRRR.  Not with out road bumps either (but I've had the same road bumps investing in my backyard).  I'm not familiar with the markets you have chosen.  Just make sure they are growth markets (jobs are growing, incomes are growing, jobs are diverse, properties are rising in value, rents are going up, etc).  Being out of the market, you want to make sure you are stacking as many cards in your favor as possible.  Next, take the time to build a rock-solid team.  I like using the PM as my cornerstone team member as they are my day-to-day operator and have to deal with any messes created by other people.  PM me if you have more Q's!

Matthew Meunier · Answer

Hi Laurie Williams - I have a few clients who are strictly BRRRR investors but the sub Milwaukee markets they are targeting aren't providing the numbers they're pursuing right now. 1% is the new norm and you have to be willing to accept more risk if you want to push this margin further in class C or class D markets, which isn't something I'd recommend as your first investment out of state. The opportunities are out there but you'll need to establish good relationships with multiple agents and wholesalers so your pipeline of leads stays plentiful. Rehab costs on a lot of Milwaukee homes tend to be larger as Eric Kovacevich mentioned. A plethora of MKE homes were built in the late 30's to early 40's, then another surge hit in the 1950's. Northwest MKE and areas near Washington Heights saw a surge in BRRRR type investing and I believe opportunities still exist here. One thing going for BRRRR's is the market supply is so limited (35% less new listings compared to last month and down 10% YTD) so although you may have to pay more, the median sale price in MKE has increased to around 190K for April 2020, and sits at 175K over 12 month rolling price point. You'll have an opportunity to potentially cash in at a higher appraised value due to sale prices increasing. This of course, is a risk you have to be comfortable with. Refinancing on investment properties, specifically FHA, is a no-go right now. However, if you have a conventional loan with a good LTV ratio, you can get a refinance done. Lenders are putting the squeeze on lower LTV ratios due to COVID so you'll need to come in with at least 15% when you find a deal, per some conversations I've had with different lending teams.Hope this provides some insight for you.

Dave Clauson · Answer

Hi Laurie. I own a number of properties in Topeka. I live nearby in Lawrence so it's not long-distance for me. It's not a good appreciation market but it's a great cash flow market. If you have a well-maintained property in a good area of town, you won't have any problem keeping it rented. There are definitely areas of town I would never invest in especially from a distance. I can recommend a good PM there too.

Dave

Mike D'Arrigo · Answer

@Laurie Williams the key to success in a BRRRR is buying right upfront. You have to really know the ARV and rehab costs if you want to get your money out on a refi. Knowing those two numbers determines how much you should pay. Getting those numbers right can be hard when you are out of state. A good agent can tell you the ARV but it may be harder to get a scope of work for the rehab and put those numbers together before you make an offer, Having a good relationship with a good contractor is key to making this work.

Delbert Standifer · Answer

Hello I purchased a four unit Tenant occupied building in Arizona. 140 purchase price with 25% down (35k). Add another 5k for closing cost. The building is a mess and I’ll start 1 by 1 on the rehab putting in another 50k. I’m all in for 90k. I’m trying to Brrrr but think I’m doing it wrong. Could someone advise me to make this a successful or is it to late. I receive 1549 in rent and mortgage is 750.

Michael Barnhart · Answer

@Laurie Williams just ensure that you take plenty of time setting up and vetting your team in the market you are interested in. Once setup, ensure you have solid systems and processes in place that will make everything smooth from a distance. If you haven't read David Greene's book on Long Distance REI then I would recommend you read through that. He talks a lot about what you need to have in place when investing long distance. Best of luck!

Delbert Standifer · Answer

@Chris Matos. Greetings yes all units are rented. It’s in another state so I’m not house hacking. Do you have any doors.

Chris Matos · Answer

@Delbert Standifer

Hello Delbert, I am a newbie here but I was curious to know if all the units are rented, and are you house hacking by living in one of the units?

Long Distance BRRR???

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