How to scale quickly using brrrr?

[Ashley Keeler]

Hi everyone! I have been using BiggerPockets for real estate info for about a year now, but this is my first post. I’m looking to start investing long distance investing in the Midwest (likely Minnesota, my hometown) from Los Angeles. The goal is to start next summer 2021 with $140,000 cash reserves. We will be using the brrrr method through single family homes and possibly multi-family, as well. We are looking to scale as quickly as possible. Does anyone have advice on how to scale quickly?

[Evan Polaski]

@Ashley Keeler, generally those that have created the most wealth and the largest portfolios are those that have been patient.  As mentioned, you will run into issues, it is inevitable, but if you jump from 0-10 properties very quickly, those mistakes will likely become evident on all 10 properties, versus working out the kinks of the first one before moving to two.  

That being said, with cash to invest, your biggest hurdle is going to be seasoning. Most lenders these days are 12 months seasoning. The good thing is, as mentioned, when you get a track record with a bank, you can typically bring that seasoning down. I did my first 2 BRRRR deals with cash. At 12 months I refi'd them to buy my third. My third deal, I was able to refi based on appraisal within 3 months.

The next issue I ran into was overall exposure to that bank.  They would not lend to me anymore without having another guarantor on the loan.  I was at about 10x my annual income in loan balances to them.  So you then end up slowing down and starting from scratch with a new bank.

For those starting out in today's market, my biggest worry is finding deals that are actual deals.  A lot of properties can cash flow if you don't account for vacancy, leasing commissions, repair and capex reserves.  But if you don't reserve for those today, you will be out of pocket for them in the future.  And capex reserves are needed even if you buy a brand new house.  Mechanicals will go out, eventually.  Kitchens will need remodeled, eventually.  You can save today or find the money when you need it, but the cost will still be there.