All Forum Posts by: Adrian Smude

Quote from @Jamie Stone:

I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).

 It's not really an advanced strategy; it's just not a "get rich quick" strategy. I would hazard a guess that 90% of all investors that ever made any serious money in real estate did it the old fashioned way - they bought the property and held the property, the same way that 90% of all investors that ever made any serious money in the stock market did. Warren Buffett didn't get rich by day trading. He bought quality stocks and never sold them (never being a dramatization, as I'm sure he sold things over time when it made sense and was accompanied by a specific strategy of reinvestment). People who made serious money in RE that weren't builders weren't flippers. They found a decent property, bought it, and held it for the long term. 

If there's any "problem" with BRRRRR it's that people think it's a way of quitting their day job in a year or two. This strategy was never meant to mean instant wealth. It is a way of building long-term wealth by using the power of leverage to hold wealth-building assets long enough that they eventually pay for themselves, thus giving you the ability to use other people's money to acquire assets you could not have acquired otherwise. Likewise, the "Refinance" part of the equation doesn't assume you'll refinance 3 months or 6 months after you've finished fixing up the joint. It might take a year or two or four before your property has appreciated enough to be able to reacquire your down payment. That doesn't mean it isn't a good strategy - if the property still produces healthy cash flow after expenses (which includes future capital needs if you've deferred such), at a minimum you could be rolling the cash flow either back into the home to own it outright or using those funds to prepare for your next purchase.

I think a lot of "newbies" see people who they perceive as successful in RE, especially on BP, as just knowing the ins and outs or just being lucky in timing. Everyone I know who's been successful at RE investing (I count myself in this group) has a lot of mileage on them. Forget about what you hear on podcasts of guys with 6 months of experience owning 3 million doors and 45 billion in equity. It's either lies, part of partnerships, or just damned lucky. 

@Adrian Smude I just bought a SFH for 20k, put 38k into it, got a renter in for $900/month and it appraised for 105k. I'm doing a cash out refi at 8.25% and getting 23k cash out. It breaks even, I have $0 in the deal and I have 23k cash out. Another SFH I am in the middle of refi...purchased for 57k, put 20k into it, appraised for 120k, rented for $1,250, 8.25% rate, breaks even and pulling 13k out. Another one in the middle of rehab right now...

Seems to be working for me.

Quote from @Timothy W.:

It never really was a good method. It relied on everything going right and nothing bad ever happening. One hurricane, one downturn, one localized series of job losses, and the house of cards falls. You need to buy, rehab, rent, manage, refinance if the numbers make sense, don't if they don't, repeat if you identify the right property and if you have the capacity to properly manage, and maintain external sources of cashflow to really get it going. Those who preached BRRR the most made their money off of the preaching, not the doing.

I don't agree with that. At it's essence all BRRRRR (I add the 5th R for "Reserves") is, is purchasing a rental property using financing. That's it. People have been renting out financed properties forever. The "method" is nothing new and indeed the term is completely unknown outside of BP. The problem, if there is one, is the perception that one should get all of your money back out of a property. That rarely happens and is an unreasonable expectation. When you can refinance and how much you can take out is largely dependent on market and economic forces that are out of one's control. That doesn't mean the method doesn't work.

Quote from @Adrian Smude:

I believe the BRRR method is dead or at best on life support! The last decade has been easy for investors to use the BRRR method, but now we need to learn other methods. I've been learning these other methods for over a decade because I went through the last recession when banks stopped lending.
Why I believe the BRRR method isn't going to work in the next seasons of investing:

1. Bank rates have gone up which won't allow most properties to cashflow
2. Banks have tightened their lending requirements which aren't allowing most people to qualify.
3. Appreciation has slowed and even flattened in markets which means there isn't free money any more.  

What other reasons do you think the BRRR method is in the past?

There not, it's all about getting good deals. All my purchases are 20% net caps. So even if I did refi, which I never do, it would still be a great COC return. Just get better deals,

All the best 

@Adrian Smude Thanks for topic. It's interesting to hear everyone's opinion on this. I'm in the process of refinancing my second BRRRR. I completed the first one last year with a rate just over 6%. It cash flows about $300 after PITI, PM, and reserves. However, it is an older home and requires more maintenance.

The one I'm about to refinance will have a rate of ~7.5%.  I expect the cash flow to be $0, and I will have to set aside some of the reserves out-of-pocket for the first year or two until the rents increase.  But, the property is in a much nicer neighborhood.

I still see BRRRR as a to way acquire a property while also forcing some appreciation. Even if there is no cash flow immediately, I'm satisfied if I can purchase a property with less than 20% of my money left in it, which is what I can still do with BRRRR. It does take some time and understanding of your numbers to find the right property.

I realize appreciation across most markets isn't as good as it has been over the past 10 years, so I feel it's important to buy in areas where appreciation is more likely.  And, I plan to follow a strategy that includes buying higher quality, rather than just looking for high cash flow. Over the long-term, I believe these are the properties that will continue to see rent increases and appreciation.

@Adrian Smude

it's a good topic to discuss.  i'd argue that the key point is that cash flowing from BRRRR is much tougher.  it's still very possible to force significant equity, and then break even. it's just not a good cash flow strategy.   

so new investors looking to cash flow = as difficult as ever

experienced investors looking to build wealth via equity = still possible

I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).

@Adrian Smude

You're 100% right. The BRRRR method doesn't work in most markets anymore like it did in 2017. However, people want to sell books about it and gurus claim it still works in today's environment. Lol. I've found other ways to cash flow like pivoting to renting by the room or sec 8. The days of cash out refis to scale up and make a killing are gone. I've bought 12 rentals from cash out refis by pulling equity out to scale up. But it doesn't make sense anymore with current interest rates. Today's environment will "thin out the herd." Many investors will go away until the numbers work. And many noobs who want to hit a home run right away without "planting that tree" and willing to wait several years will get a hard lesson on the reality of what we're dealing with. I'm ok planting some trees in todays environment and waiting a decade for it to produce. But the impatient ones that need to make a ton of money off their investment quickly will be disappointed.

Thank you @Rachel H.! The mobile home that I am interested in is already in the MHP. I would be purchasing the MH and leasing the lot space, having the tenant pay. 

Buying a business, adding value, and pulling that added value out has been around forever and will continue to forever.  It just is harder or easier depending on market conditions (and investor deal flow).