Quote from @Bonnie Low:
@Allen Ramirez you're asking great questions and you've gotten some spot-on advice from seasoned investors like @Dan H. who know your market very well. One particularly salient point he makes is "I want a market where my value add adds the most value." This is absolutely critical with a BRRRR and I say that from the perspective of a lender and an investor experienced with this model. It's true that it was MUCH easier to pull off the ultimate BRRRR strategy even 2-3 years ago. But between bloated asking prices, the increase of rehab costs and higher interest rates, it's much harder to do. That does not mean it's impossible, just harder. I've had to shift my thinking in 2 ways. 1) the "infinite return" whereby you get all your money back, plus cash flow, is less likely. But at the end of the day, I'm ok with that and here's why. I don't mind leaving 10-15% in a deal. I look at it like paying 10-15% down on an investment property and I can stomach that. 2) I have to force significant value into the property to ensure I get as much of my cash back as possible. It might seem this is easier to do in a cheap market, but as Dan points out, that's not always the case. You need to buy it right (almost never the listing price), you need to be confident in your rehab pricing and ARV, and you need to use the right financing tool that won't eat up your profits. These are the things that will safeguard your investment and allow your strategy to work for you.
Don't overlook the importance of having the right financing product to achieve your goals. When you build out your team, make sure you've got a lender on your roster. I say that both as a lender and an experienced investor. It's never too soon to create a relationship with a lender so that when the time comes to buy, you know you have a trusted partner in your lender. If you run across a lender who only wants to talk to you when you "have a deal", keep looking. A good lender is worth their weight in gold, just like a good Realtor and a good GC.
Best of luck to you and if I can help in any way, please reach out.
Thank you so much Bonnie for the great and thorough feedback!!
This does help as I was starting to get somewhat down about my chances of investing into something in Cali. But all the feedback I have been getting on BP is great to consider going forward!
I do agree that finding a listing well below market value will be key for me. I am also considering that whatever market I am pursuing will increase in value in the next coming years.
I've spoken to a realtor in Crestline, CA, where I want to invest into, and she mentioning future developments in the works. She is on the city board and has insight on upcoming developments around the area. So I am somewhat banking on the fact that even if I don't make money on the initial rehab, OR even decent cash flow the first year or so, that the property value will increase significantly over the years.
But again, that doesn't mean ignoring the strategy to buy as low market value as possible, streamline the rehab process, and ensure I am getting the best outcome for cash flow as possible. I DO save some money on the permitting and design drawings from my background, so that does help a little.
Are you still a lender? If so, I'd love to connect to see how we can collaborate together. As you said, it's always good to have rockstar people on your side. And having an investor background gives that much more strength in helping people like me :)
