Does a BRRRR work out for a Newbie?

Question

Hello Guys, I’m Kenny!

Like many of you, I am very interested in Real Estate and had some questions towards this:

How does a BRRRR sound for newbies? - I am currently thinking of starting my first deal as the BRRRR strategy as a newbie but I’d love more insight towards this topic from people who’ve done BRRRR’s before.

In my situation: I live in South Los Angeles, and to buy a property here is pretty expensive. I’d love to purchase a property here, in the near future when I have equity from some of my future properties, but for now, it’s looking kind of green. Anyways, I have been looking in Northeast Indiana, towards Gary but that market is kind of dangerous, but I’d like to go to the expensive side of Indiana to build equity and gain appreciation as well. It may be near to impossible to gain appreciation in Indiana (since it’s known for cash flow) but I can maybe force appreciation on some of the more high end properties because I will be using the BRRRR strategy.

I am currently 20 Years old, and have some capital ready to get started, but there’s one thing…

I am currently self employed, projecting to make a little under 6-figures this year, and also next year. I have spoken to some lenders and they say it’s really difficult to get a loan because I am self employed.

Banks require at least 2 years of tax returns and want your DTI to be less than 50%. I currently have no debt under my name, thanks to reading rich dad poor dad, and am set to live off of Real Estate Investing.

I’d love more of your insight, any comments or suggestions would be great,

Thanks!!

Will Barnard · Answer

Learn about creative financing which includes, but not limited to, seller financing, Sub2, private money loans, partnerships with cash partners, etc. There is more than one way to skin a cat.

If you have a long term outlook (which you should at your age), it is pretty tough to beat appreciation numbers in Los Angeles. Buying a duplex and living in one unit, renting the other is an option (you can get conventional owner occupant financing this way), finding a deal with value add opportunities and doing a cash out refi down the road is also an option.

Kenny Colato · Answer

@Andrew Postell

Hey man, I love this! Thank you so much for your insight. I will definitely utilize this when shopping around for a loan!

Kenny Colato · Answer

@Wale Lawal

I totally understand and thanks for your insight. But yes, doing a flip and a buy and hold is difficult because it’s two strategies.

Thank you!

Andrew Postell · Answer

@Kenny Colato thanks for posting here.  I think I can share some information that will help here.

Generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.  These are the loan types that need the "2 years of tax returns".

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different.  A portfolio loan usually doesn't care about your personal income.  Usually, it's based on the income of the property.

So all you need is a good portfolio type of lender.  That's where you need to look.

Wale Lawal · Answer

Even though fear is a huge component of why many people don't take action, I am glad that is not you. What I wanted you to take away from the video is the analyzing component. Analyzing a property for one strategy takes some time to understand especially, on a fix and flip where you have to input many expenses. For the BRRR method, you have to analyze 2 strategies buy and hold and a flip, as this can get complex for a beginner. Not saying it is impossible, but I would not be recommended it for a newbie.

Kenny Colato · Answer

@Wale Lawal

Hey Wale, thank you so much! A lot of people add fear is a huge component onto why you’ll hurt to lose some money. In the long run, it’s like paying a tuition for school, where you learn( nothing) very little about making passive income.

As I have read and watched videos, people are afraid of leaving some money in the deal and not being able to refinance all of their money out, but if you really think of it, it’s the same as buying a buy and hold, just that the returns would be bigger than a traditional buy and hold.

That’s my opinion, but I’m not afraid of pulling the trigger, neither fear is in my way. I want a healthy successful life.

Wale Lawal · Answer

Hi @Kenny Colato, You might want to read and watch the youtube video about beginners for BRRR https://www.google.com/amp/s/w...

Hope it will help you.

Goodluck!

Does a BRRRR work out for a Newbie?

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