If BRRRR numbers don't work, should I flip?

Question

I've been looking in the San Antonio market for BRRRR deals and so far, each of the properties that my wholesaler has sent me make sense as a flip but don't cashflow to make BRRRR work. Obviously, BRRRR is a more profitable, long-term strategy but what are the downsides or risks of flipping?

Account Closed · Answer

All comments are too general and only accurate numbers can answer the questions. My take on what you are saying is; you have some sort of feeling the market will go south so you would rather walk away from high-end flips and do low-end flips. In that case, when would you ever feel comfortable to do high-end flips.

Personally, I think there is too much b.s. from people who claim they make a good profit from flipping houses. I go to many real estate club meetings and even the best flippers turning over more than 10 properties per month claim they earn from $3,000 to $10,000 per property they flip and every flipper tells stories about the flips where that lost a lot of money.

Earning $3,000 to $10,000 on a flip and then losing money on a few is a pathetic way to invest in real estate when smart investing can earn a solid $10,000 to an unlimited amount with no stinky $3,000 profit and no pathetic losses.

I just don't believe no where near as many flippers are as profitable as they claim to be and I would love to be a fly on the wall when they are doing their books.

Again, as I say in every post, I've been investing in real estate more than 50 years and earned millions and millions of dollars. I will look at 100 or 200 properties before making a purchase and will crunch the numbers over and over until I am 100% positive that I am making the wisest of decisions. Sometimes, I can't find a property for 2 or 3 years, but when I do it is always a goldmine.

Be patient and wait like an alligator!

Russell Brazil · Answer

Not sure I follow here. You can brrrr with lower margins than flips.

Aaron Bihl · Answer

I think it really depends on what you want to do.  BRRRR deals are difficult in san antonio as it's hard to find a house that you can be all in for 75% and then it still cashflow.  On higher pricepoint properties BRRRRS are difficult here because we don't have much of a higher end rental market.I try to go into each property with multiple exit strategies.  For me it's determining what it looks like selling as is, what it looks like for a buy and hold, and what it looks like for a flip.  And from there its determining the appropriate level or repairs/rehab to fit the comps in your neighborhood. Ideally when you complete it you'll be able to keep it or sell it based on what you need.All that being said, if your goals are BRRRR I would stick to that.

Brent Kiger · Answer

@Jim Piety This is just my personal strategy and philosophy, as I'm like you, and always prefer to BRRRR. However I have done a little flipping recently with the market conditions, however I still stick by I won't entertain a flip, unless I can turn it into a rental and have it be a least an OK BRRRR deal. May not be a great one, and I may still leave some money in the deal, but that's not a deal breaker for me. In this market full of economic volatility, I think the need for multiple exit strategies has never been more important.

In other words, I'm staying away from high-end flips, just because I don't know how much to trust the market. I stick to lower end flips, that if I can't get the sales price I need to sell, I could rent it and at least add it to my portfolio and have it be close to a 1% deal. Having that additional exit strategy makes doing the flip a lot less stressful, when you know it would at least be an OK BRRRR.

Not sure if that helps at all, but that's my thoughts in these crazy times.

Jim Piety · Answer

@Brent Kiger @Russell Brazil Account Closed

Appreciate all of your responses! This answers my question exactly: have multiple exit strategies. @Aaron Bihl is right that it's a bit difficult to find BRRRR properties in San Antonio. Most of the "deals" i've seen don't make sense as a BRRRR because the rent is too low. But they show profitability for a flip. But the volatility does make it risky.

Ofer Eyal · Answer

@Jim Piety in that case, I'd consider moving the investment to somewhere where BRRRR is a viable exist strategy. Don't limit yourself based on locality and for sure don't cut corners giving up on an exit strategy.

A great resource to look at is "Long Distance Real Estate Investing" by David Greene.

Ofer Eyal · Answer

@Jim Piety In my opinion and especially at current market conditions, even if you only want to flip you should be considering BRRRR as an exit strategy. So, this goes without saying that if the BRRRR numbers don't work - don't go for a flip. Unless you have another exist strategy that is viable with those numbers.

As for your question, the single major downside of flipping - in my opinion - is that the housing market might start plummeting during the holding (rehab) period. At this time you're mostly exposed. That is why flippers a really keen on getting done with the rehab ASAP.

The second downside is keeping the rehab within budget.

Those two can directly eat at your profitability.

Other downsides and risks are a prolonged rehab and of course the very hustle of the rehab.

Michael Noto · Answer

What do the numbers look like? In my experience if numbers work for a flip they should work pretty well for a BRRRR since it is basically the same concept.

Alexi Schreier · Answer

Other than the good advice that has already been given in this thread, also consider your personal goals. What is it that you're trying to achieve?

Are you trying to build up capital quickly? Flipping tends to be a good way to do that (just keep in mind that taxes eat into your profits).

Are you more focused on long term passive income and not in a rush to make upfront profits? Buying rentals and/or BRRRRing is better for that.

Also, it doesn't have to be either or. It all depends on the numbers of the deal and what you're trying to achieve.

If BRRRR numbers don't work, should I flip?

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