How Fast Can You Scale the BRRRR Strategy?

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
6yFollow

How Fast Can You Scale the BRRRR Strategy?

Ben Morand
Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes

Hey guys! My name is Ben Morand and I am a 20 year old college student interested in buy and hold investing. So over the past few months, I have researched various investing niches/strategies such as small multifamily properties, large multifamily apartments, MHP's, etc. and now I am exploring the world of single family home BRRRR investing.

So I like the strategy a lot due to its relatively low barrier to entry financially and it’s lasting sustainability. What I am wondering is just how powerful is this strategy in real life? I’ve read all about it in the various BP books and on the blogs and podcast and forums, etc., but it almost seems too good to be true.

I've seen people such as Ryan Dossey on social media who have scaled the BRRRR strategy to buying 150+ single family houses in just 2 years. While I don't plan on acquiring THIS many properties in 2 years (I am a full time college student so I don't have quite this amount of time or resources), I am wondering what the real life pros and cons are to the strategy. Is it really a virtually "free" cycle where investors can repeat over and over again, building a massive portfolio of homes? How long does the entire process generally take? Is it common for people to find lenders for the refi that don't require a seasoning period? How difficult is it to take on so many loans? How hard is it and how fast can someone potentially acquire 15-20 properties this way? Any information that people can provide on this subject would be greatly appreciated!

Thanks so much to everyone willing to help!

5Reply
126 views

Most Popular Reply

Neil Henderson
Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes
6y

Ok, there's a lot in here but I'll address the questions I feel qualified to answer. Mostly, the answer is, it depends. 

The BRRRR strategy, or value-add in general, is a very powerful strategy. It's what Warren Buffet has used to build his fortune. Find a temporarily distressed asset that can be turned around, add value to force the appreciation, and increase cash flow. Rinse, repeat.

The BRRRR strategy is not too good to be true, but it often doesn't work "by the book."

The financial barrier to entry is not quite as low as many would lead you to believe. 

In order to acquire a property, you are often going to need to act like a cash buyer, which means you either have the funds to purchase a property for cash, or you have access to funds that allow you to purchase a property like a cash buyer. If you are borrowing those funds, there is going to be a cost of capital. In order to refinance into a longer-term loan, the end lender is very often going to require you have reserves equal to six months of PITI (Principal, Interest, Taxes, and Insurance) on each mortgage. Depending on the size of the mortgage payment, that can be significant. If you have a portfolio of 7 properties with an average monthly PITI of $650/month, that means the banks are going to want to see about $27,000 sitting in a bank account somewhere as a reserve.

A BRRRR rarely goes by the book. A rehab could go over budget. An appraisal could come in low. A lender might see the market changing and require you to keep more money in the deal to protect their downside. A property might take longer to rent.

Achieving scale is the hard part and it's why we have transitioned away from building a huge portfolio of single-family BRRRRs and into self-storage. 

Traditionally, banks will let you, as an individual, acquire up to 10 Fannie Mae, Freddie Mac loans under your name. After that, you'll be looking at portfolio or commercial loans via cross collateralizing. Those loans are not going to be cheap, and they often won't have the traditional 30-year amortization schedules or terms of the agency debt (Fannie and Freddie).

I would not proceed unless I had the capital reserves to handle the unexpected, a good relationship with a lender who knew exactly what I was planning to do, and a rock star contractor who I trusted. A good lender and especially a good contractor will make or break your BRRRR.

None of the above should discourage you, but you should go in with your eyes open.

12Reply
See this reply in the discussion

21 Replies

Jump to latestLatest
  • Neil Henderson
    Specialist · Carolina Beach, NC · Member since 2016 · 390 posts · 496 votes
    6y

    Ok, there's a lot in here but I'll address the questions I feel qualified to answer. Mostly, the answer is, it depends. 

    The BRRRR strategy, or value-add in general, is a very powerful strategy. It's what Warren Buffet has used to build his fortune. Find a temporarily distressed asset that can be turned around, add value to force the appreciation, and increase cash flow. Rinse, repeat.

    The BRRRR strategy is not too good to be true, but it often doesn't work "by the book."

    The financial barrier to entry is not quite as low as many would lead you to believe. 

    In order to acquire a property, you are often going to need to act like a cash buyer, which means you either have the funds to purchase a property for cash, or you have access to funds that allow you to purchase a property like a cash buyer. If you are borrowing those funds, there is going to be a cost of capital. In order to refinance into a longer-term loan, the end lender is very often going to require you have reserves equal to six months of PITI (Principal, Interest, Taxes, and Insurance) on each mortgage. Depending on the size of the mortgage payment, that can be significant. If you have a portfolio of 7 properties with an average monthly PITI of $650/month, that means the banks are going to want to see about $27,000 sitting in a bank account somewhere as a reserve.

    A BRRRR rarely goes by the book. A rehab could go over budget. An appraisal could come in low. A lender might see the market changing and require you to keep more money in the deal to protect their downside. A property might take longer to rent.

    Achieving scale is the hard part and it's why we have transitioned away from building a huge portfolio of single-family BRRRRs and into self-storage. 

    Traditionally, banks will let you, as an individual, acquire up to 10 Fannie Mae, Freddie Mac loans under your name. After that, you'll be looking at portfolio or commercial loans via cross collateralizing. Those loans are not going to be cheap, and they often won't have the traditional 30-year amortization schedules or terms of the agency debt (Fannie and Freddie).

    I would not proceed unless I had the capital reserves to handle the unexpected, a good relationship with a lender who knew exactly what I was planning to do, and a rock star contractor who I trusted. A good lender and especially a good contractor will make or break your BRRRR.

    None of the above should discourage you, but you should go in with your eyes open.

    12Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Neil Henderson Neil, thank you so much for your insight! I am definitely on the same page. I don’t think I’d hop in just yet due to a few of the reasons you just stated. I really appreciate your insight on the process!

    0Reply
  • Charles Situ
    Rental Property Investor · Wayland, MA · Member since 2020 · 55 posts · 18 votes
    6y

    @Neil Henderson You provided some very insightful information. I done some small rehabs where there were some small value added. But now I am looking for deals where there are bigger rehabs so I can scale BRRRR. All of this is long distance. I think my biggest struggle are 1) finding deals to buy right (low price enough to make it work) and 2) contractors. I am fortunate enough to have some good source of funds to do cash purchases (some equity from my earlier investment I can pull out, my day job salary has increased over the years, HELOC from my primary residence, some cash flow from my existing portfolio). I found a good lender to help me cash out, even for a LLC, although wont amortize longer than 20 years. I found a wholesaler that has steady inventory. But the most capable person that I know that can look at them is my PM, who is also a investor and realtor. He is very busy. So I am thinking how to structure a fee schedule to incentivize him to look at them--maybe a flat fee for each deal he scopes out for me that doesnt result in success and a commission, which is larger, for successful deals. My PM also has good contractors. I am wondering if I am going about this the right way. Any other suggestions?

    2Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Charles Situ Thanks for sharing!!

    0Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Neil Henderson Do you think if you were to find deals that could be purchased for 70% of the ARV, you could cash out refi and use 25% for the down payment and rehab of the next property and keep the additional 5% as cash reserves, covering most if not all of the reserve requirements for 6 months of PITI (for the next property)? Do these sorts of deals even come up?

    0Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Ben Morand BRRRing at scale is entirely possible!  You will need to solve few things to make that type of scale possible. 

    1. Deal flow - you need a solid deal finder who can find undervalued deals regularly that you can continue to pull all or nearly all of your money out.

    2. Scope - if you want to scale quickly, look for deals that have shorter timelines so you can create velocity with your money.  I like projects that are less than 3 months from initial close to full tenanted and refinanced.

    3. Money - You have options here. You will need your initial capital and construction budget for a project, a HML or PML, and a carryout lender. Here is a guide that will help.  If you want to massively scale, you eventually will want to figure out how to bring in private investors to carry the notes for you and be the bank... far easier than going through the lending process for each property.  

    Hope this helps! PM me with Qs!

    Podcast Guest on Show How to Build Generational Wealth Without Losing it Along the Way
    10Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Whitney Hutten Thank you so much!! I just read your entire article that you attached and it has some awesome advice. I am 100% in agreement that using other people’s money is the best way to scale a RE investing business. I am just a little shaky on the details of the entire process. Again, I really appreciate your help and I’ll definitely shoot you a PM with some questions!

    1Reply
  • David Silver
    Investor · Atlanta · Member since 2019 · 28 posts · 28 votes
    6y

    @Whitney Hutten Thanks for the “guide”, a lot if good advice there!  

    @Ben Morand You could buy a BRRR "starter" property while you are still in college. You can get a conventional loan (for an ugly but habitable property) and private money down payment / construction loan to keep your debt service reasonable. You can do the rehab yourself from watching YouTube videos for everything except the structural framing, electric and gas lines. Once the project is finished and refinanced you can pay off your private money loan, and have a property to live in or rent with (sweat) equity. This is a proven way to BRRR that definitely works and would give you a solid foundation to scale as aggressively as you want from there.

    2Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @David Silver David, I appreciate that so much! That definitely seems like a great way to start. I love that I am able to get started as soon as possible!

    0Reply
  • Charles Situ
    Rental Property Investor · Wayland, MA · Member since 2020 · 55 posts · 18 votes
    6y

    @Ben Morand I know the main strategy you are interested in is BRRRR. But maybe you can start off mixing it with other strategies--live-in flip and/or house hacking. It may not be the scale you want right away. But this works well for young people who do not have a family with kids to care for yet, and it gives you plenty of flexibility on the timeline for your first flip. If you buy an "ugly but habitable" home where you think create added value to live in yourself, you get a lower rate through conventional financing with 25% down (3.5% down on FHA, but the ugly home may not quality for FHA). You won't be in a time squeeze to finish the flip and have to worry about paying high rates to a hard money lender. Once you are done rehabbing, you move out, rent it, refinance to get your capital out, and find your next deal.

    2Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Charles Situ Thanks so much Charles! I’ve definitely considered house hacking in about a year or so. Right now, I actually have a lease signed for an apartment by my university until August 2021 so unfortunately, living in the house would not be an immediate option. However, it is something that I’d like to utilize once my lease is up. I agree that house hacking is such a powerful starting point because if done right, the owner can essentially live for free while still benefiting from principal pay down. I really appreciate your insight!!

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    folks that scale at 50 to 100 houses a year are generally part of an organization with some very deep pockets behind them.
    so for in individual to do this on their own with no help at all from others  MOM DAD  investors whatever its a much slower process.  But one that can build a nice portfolio over time.

    as others mentioned you have to have very good credit income and cash.. then figure 6 months best case per property unless you can buy multiple properties at the same time.

    Of course if its just doors then MF is were you can scale doors much quicker..  And usually when folks talk about having 100 plus or more doors its got some mixture of MF in there.. Generally speaking of course.
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Jay Hinrichs Jay, thanks so much for sharing your insight on this! I do plan on acquiring some MF properties in the future, but as of now, I think I might start with SFR, especially since finding residential (2-4 unit) MF properties in my market (Orlando, FL) is not too common. I really appreciate your help!

    1Reply
  • Jordan Mummau
    Real Estate Agent · Hershey, PA · Member since 2019 · 66 posts · 54 votes
    6y

    @Ben Morand

    The BRRRR is probably the most powerful investment strategy in real estate. It's exclusively how I invest in real estate. As I type this I have three active BRRRR properties in process.

    Here's the thing, you have to not only master almost every aspect of real estate investing to complete a success BRRRR but you also have to have the funding both before and AFTER.

    It’s one thing to get financing or use money of your own to fund the project but most people don’t realize you need to be bankable to be able to get ideal financing terms when you refinance the property.

    However, when you get the process down. The initial funding and the ability to refinance successfully, it’s flat out dangerous (in a good way). This single strategy allowed my wife and I to hit over the million dollar mark in net worth before the age of 30.

    My advice to you, don't focus on real estate at this stage of your life. Seems counterintuitive but real estate is simple. It's a fundamental math equation. Focus on making money, increasing your credit score, focus on being "bankable". Decrease your liabilities, increase your DTI ratio and you can start buying BRRRR deals that can infinitely add to your net worth and monthly cash flow.

    There is no get rich scheme that I know of. But I do know that if you work hard, keep your liabilities low, build equity and leverage equity appropriately to buy cash flowing assets, you can make out pretty well!

    6Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Jordan Mummau Jordan, thank you so much for your insight!! That is incredible that you were able to achieve that million dollar net worth benchmark by age 30. That is definitely something I’d like to achieve as well, and I’m SURE it did not come easily, but it’s gotta be well worth worth it!

    0Reply
  • Whitney HuttenPro Member
    Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Ben Morand Happy to help.  PM me with Q's!

    Podcast Guest on Show How to Build Generational Wealth Without Losing it Along the Way
    0Reply
  • Nicholas Lohr
    Investor · San Francisco, CA · Member since 2015 · 302 posts · 206 votes
    6y

    I've BRRRRed it up from 0 to 20 doors starting in 2016. One thing I'll add is this thread that has helped me is it's been much easier by having another source of income during this time. It lessens the pressure to find that perfect BRRRR deal that gets you every penny out. It's also faster because I was able to find deals quicker that would at least suffice get enough cash out of the deal in order to continue once the refi was done. Also when you're sitting around waiting for the property to season before it will qualify for the refi you might as well be doing something else anyway.  I prefer volume of adequate deals rather than the home run that may never come. And there's a set of rules, like always making sure the deal cash flows, that I never break. 

    3Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Nicholas Lohr Nicholas, that is awesome (and quite frankly the exact timeline I am looking to follow)! Right now, I am still in college so a full-time job is very hard to obtain. However, in 2 years, I’ll have graduated with bachelors and masters degrees and (hopefully) have a job in management consulting. Oh and luckily no student loans! I totally agree that having volume is a key to success. Would you mind sharing how and when you got started? Thanks man!

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    6y

    @Ben Morand You answered your own question in your post. Ryan Dorsey, assuming everything he says is true, bought 150+ properties in 2 years using the BRRRR strategy. There's already some really good information shared on this thread that will help you out. One piece of advice, you will never have a bullet-proof strategy and all the research in the world cannot prepare you for all the issues that come up. Spend your time researching and planning, but then go out and take action. If you're "too young" or "too broke" or "too busy" to go on your own, then partner with a professional in your area

    1Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Jon Kelly Jon, thanks so much for those words of encouragement! I completely agree, taking action is the key that holds so many people back.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    6y

    We have done quite a few BRRRR. Here are what have been our biggest issues:

    • Deal flow.  We invest in a very competitive market.  Good candidate properties go fast.  
    • Conservative refinance appraisals.  Our experience in our market is refinance appraisals are on the order of 10% less than appraisal that would be associated with an offer of that price.  
      refinance LTV is often 70%. This combined with the conservative appraisal has made it very challenging to extract out our full investment. It is my view that when we have extracted our full investment it was because we got an assist from property market appreciation.
    • Rehabs always take longer than we think and often cost more.   We use a conservative margin in our pro forma, but without the built in margin we would not be hitting our projections. 

    This is not an issue we have (because we are slow), but someone wanting to scale fast also has to be cognizant of seasoning requirements.   I dream of one day having this issue.  

    Good luck

      0Reply
    Join the conversationCreate a free account to reply, vote on answers and follow this thread.
    Log InJoin for Free