All Forum Posts by: Joel Arndt

@Steve Vaughan

Interesting, so you're buying at a discount, creating equity, but not quite deep enough to cash flow? 

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Seasoning isn't really an active step in the process, although it needs to be factored into your total cost when planning out the rehab. Ideally you refi over the rehab and holding costs.

Also, the point of the refi is to reinvest your principle as quickly as possible. Why wait 5 - 7 years to access that cash when you can buy two or three more properties within a year and half. Three properties with mortgage pay-down, appreciation (equity build up) and monthly cash flow sound a lot more attractive to me than 1 property with a lot of equity but contributing nothing usable to my bank account.

Even for season investor, wouldn't you want to have the most use and control of your cash?

@Russell Brazil 

Yes, higher yield means higher risk, but that doesn't mean higher yield is always dangerous. There are certain criteria that every deal should meet to qualify it as an acceptable risk and keep it out of the danger area. You don't take on a deal where the leverage eats up your comfortable cash flow. Besides, no bank and few lenders are letting finance 100% of the value of the property. The point of the BRRRR strategy is to buy at a deep enough discount so that you can rehab the property, refi at 65% - 80% LTV, and still make money. To your point, the BRRRR strategy actually lets you limit cash in a property and limit leverage, minimizing risk and maximizing yield. 

How? 

Rental Value.

Now to my original point.

If you can't bring in enough rent to cash flow comfortably over and above your total debt service on the property, it's not a deal and you don't buy it. Now, I realize there's an argument to be made about buying right (at a deep enough discount) to create a better cash flow position, but there is a limit to how low you can buy. An abandoned beat up property surrounded by $600k homes likely won't sell below $400k.  You could flip that and make a tidy profit, but you'd be hard pressed to turn that into a profitable rental. Of course, that depends on what number? The rent.

I realize I'm getting a little sassy there, but my point is, when looking at a BRRRR deal, it might actually make more sense as a flip if you can't bring in enough rent.

@Russell Brazil

I would argue that the yield if an asset has everything to do it.

Why invest in one 6% yield asset when you might be able to invest in two or three 12% yield assets in another market.

The point was about judging the effectiveness of the BRRRR method in a hot market. If you can't bring in the rent necessary to make it a worthwhile investment, then it's time to evaluate new markets. (Which was the original point that Brandon and David made anyway.)

PART 2

How some investors are using the BRRRR method in my market is converting bungalows into duplexes by making the basement a second unit. This increases the gross revenue on the property, putting it into a cash flow positive position.

But prices have climbed so much in the last few years that even a duplex doesn't cash flow without it being a sweetheart deal or without putting in at least 100k to 120k down payment. At that point your return on investment drops significantly and it is extremely hard to recover the majority of your purchase price and rental expenses with the refi.

So really, the BRRRR method enables investors to access cash flow in a hot Market when it usually wouldn't make sense. But even then, there's an argument to be made for finding a better suited market where you can buy more properties with the same amount of money it would take to buy one property in this market.

Anyway, just because you can flip properties and make money in your market doesn't necessarily mean the BRRRR method is suited for that market as well.

First of all, why is there no dedicated BRRRR section in the forums?

Anyway, this is about one point that Brandon and David made in the Bigger Pockets Real Estate Investing Podcast #327. It is an excellent episode and I highly recommend you listen to it. It's all about the BRRRR method.

But I have a beef with ONE point that Brandon made (and David agreed to).

Brandon explains how he is often asked how BRRRRing can work in markets with relatively higher prices. People complain a lot about how expensive it is to buy in their market, making investing in their own backyard next to impossible. That's why you buy David's book "Long Distance Real Estate Investing" because it's is the single most practical guide to investing in properties that you will likely never walk through. David and Brandon make that point first in this episode. 

But then Brandon goes on to say something that I fell is COMPLETELY WRONG.

Brandon says, "Is anyone flipping houses in your market? Because if anyone is flipping houses in your market, you can definitely BRRRR there too."

I understand where he's coming from, and in most cases, this is probably true. But in hotter markets, this isn't always the case.

First, I'm a newb. I've done exactly 1 wholesale deal since I discovered real estate investing 1 year ago. So I look forward to being proven wrong. But from that one deal, and from understanding my market (Hamilton, Ontario), I'll prove that, just because you can flip a house in a market, does NOT mean you can BRRRR as well.

The one deal I've closed was a wholesale assignment to a flipper. I got the house under contract for 430k, the flipper had to put 120k of renos in, and it will sell for 630k - 650k. This house will never cash flow positively as a rental, even if it was converted to a triplex, which would arguable cost more than a straight reno.

Rents are high in that neighbourhood, but not that high. Which brings me to my ultimate point.

The BRRRR method is dependent on many factors, but the single most important factor is the rent you can achieve.

Hey @Maja D.,

I can confidently say you'll need to apply for a zoning amendment. Zoned C doesn't allow for any more than a 1 family dwelling. Converting to 2 family dwellings has been allowed without the need for a zoning amendment across most zones in the city, but converting from 2 to 4 family dwellings will require a DE zoning I believe. 

Regardless, you'll have to talk to the city no matter what, they're pretty easy to work with though. They like it when you're (thoughtfully) adding more units.

@Brian Murray

Checkout RentPerks.com. They’ve consistently created competition for their properties in Calgary, even in the middle of a down-turn.

Also, Matt McKeever has a lot of creative information as well.

https://www.youtube.com/channel/UCdRtqnqBSq4GY7DGi...

It's not super detailed, but it will get you started. He does sell courses, and I believe he's working on a VTB course.

@Al Torrington

No licensing required. Although you want to know contractors, the LTB proceedings, be familiar with the residential tendencies act, and the standard lease agreement, and have some paralegals ready on call.

Then get familiar with your market, what rental supply exists, how much different units rent for, and what tenants value in your market.

Find a property management company that can offer you a good compensation package for leasing units and bringing Landlords on board. The company will needs to have excellent system in place that make your job easier.

@Joshua Wilson

That's sweet man. Can you share how you're putting the deal together? Are they all on one purchase agreement? Is the seller open to a vtb? Are you buying through a corp?