Why or when would you NOT want to use the BRRR method?

Question

Seems like an unbeatable strategy so long as you have enough for an initial principal. Why or when would you not want to use it? Still a newbie learning here!

Steve Vaughan · Answer

When you get sick of the pain & suffering of qualifying for and the high costs of bank financing.  Last guy I saw spent $7k to get out $48k.  Whaaaaat??

Terrell Garren · Answer

If you do not want to be in debt.

Robert Leonard · Answer

@Tamara Rodenbeck The biggest time you wouldn't want to use the BRRRR strategy is when you're not 110% confident in the ARV and/or when the ARV appears to be too low for you to get out a satisfactory amount of your initial capital.

Second, to that, you will want to avoid a BRRRR property when the numbers make sense at the beginning, but not at the end. Often times investors run the numbers at the beginning of a BRRRR deal and forget that in order to achieve their estimate rents their mortgage expense is going to increase on the back half when you refinanced for a higher amount.

Robert Leonard

David Moudy · Answer

It is a great strategy - you have to know your numbers though and be confident in them. If you are off on your construction costs, or your appraisal comes in low, rent at expected rate doesn't happen it can sink your ship.

If executed correctly there are no better methods in my opinion.

However it is also a method to lose money very quickly as well. If you miss on your calculations you can be at a negative return for quite a while.

Do your due diligence, calculate your costs, and then recalculate them.

David Moudy · Answer

Until you have gained experience on rehab I would suggest getting a few quotes for scope of work.

2-4 contractors until you have developed an established relationship with them and you are able to trust their numbers fully.

There are several contractors that are on the boards pretty frequently. I know I personally work with a select handful of contractors that give us great numbers and turn out projects quickly for us. As you build those relationships it will become easier.

I would ask for a few referrals to great contractors as well because word of mouth is in my opinion best way to learn about great contractors.

When you do hire them I would give a 30% buffer into your numbers for potential overages. Where this can be high for projected overages, I would rather be way off on my projected overages than way under on my estimated total cost.

Richard Borashan · Answer

As others have mentioned, I feel like the BRRRR method is all about having rock solid numbers. I guess the other thing I would mention is making sure you're able to pull most of your money out during the re-fi stage. I've been looking into some rehab projects and have started seeing a trend where killer buy/hold rentals seem like they would make great BRRRRs in theory, but the actual ARV number isn't big enough to cover the 75% during re-fi. Just another thing to consider in my opinion.

Tamara Rodenbeck · Answer

@David Moudy @Robert Leonard. Thanks very much guys. Without much experience in rehabbing, estimating wrong is my main fear. Would you suggest that I just track very conservatively with the numbers and learn on the job? Or go a more traditional buy and hold rental, and just wait for that gold mine deal? What do you all do? Thanks!

Why or when would you NOT want to use the BRRR method?

Most Popular Reply