Hello @Bryan Noth and @Sam Issa. I'm in Tamarac; which is near Sunrise. Thanks for your input. I was recently reading a post about a gentleman who was asking about using the brrrr method out of state (https://www.biggerpockets.com/...). a real estate investor, @Elliot Elkhoury, responded with this:
"I would look at the approach from a revenue mindset, not a discount mindset (which is where the BRRR concept was born).
Firstly,
I would like to point out that properties with great cash flow
potential and deep equity positions aren't just floating around the MLS.
In this market, people are willing to buy properties without any
equity. This makes acquisition of a good deal a high active effort from
you. You will have to work hard to find a good deal, and you will have
to work hard to add value to that deal in order to generate an equity
position.
This
leads you to a decision, whether you are aiming to be a passive
investor or an active investor. If you aim to be passive, walk away from
BRRR,
value add, rehab, deal hunting, etc... If you are willing to make a
business out of this, then go for them and consider the following:
You
are an active investor working to generate 25-30% equity on a property.
Let's say you do, and the property is worth 100k and you have 30k of
equity. You tied up 70k and a minimum of 6 months just to go through
this process. You now how to decide what to do with that equity to
generate the highest possible return. You can:
a. Refi the
property to get your initial 70k back. Now you can rent this property
out and net $100-$150 dollars in cash flow after taking aside money for
current and future expenses (many get less, few get more on these BRRR
deals). You can use the 70k to do this all over again over another 6mo
period. You've also got 30k of equity in the property that you created,
which you're choosing to leave tied up in exchange for that $100/mo. You
have an infinite ROI bc the property was free, but you are generating a 4% annual return ($100x12) on your 30k equity position.
b.
You sell this property immediately after rehab (maybe 3 months instead
of 6) and get, lets say 95k back after expenses. 25k is profit. You can
do this four times in a year and make 100k in profit from your initial
investment of 70k.
If you're going to go through the trouble to
buy and rehab... you're a flipper. Just a flipper that keeps his
property as a rental, which is what many flippers do when they fail to
sell. The effort level is lower to sell than to BRRR,
because you don't have to rent or refinance the property. It's also
faster. You also pay taxes on your profits. You also make about 80x the
profit in this scenario than you would have made renting the property.
If
you've read through this and that process all seems like a lot, you can
take the passive investor route. I believe this is right for most. Go
find a high yield property with a 20% cash on cash return, that can be
purchased immediately with financing. Those are the deals my investors
and I always go for. Invest the same 70k you would have tied up in that BRRR.
Make 14k a year avg. Save it all along with your regular savings.
Reinvest it. You won't get any "free" properties. You also won't have to
do all of the work. You'll also make 6x more in rental income than if
you successfully did 2 BRRR deals, all while being a passive investor.
Just
make sure you run the numbers for all of the above scenarios with each
deal you come across. The results will show you what makes the most
sense."
The part about the passive investing is what spoke to me the most; The truth is the BRRRR method kind of scares me. I work a full time job that offers a pension and decent pay; right now, the passive method seems to be the best option for me. The only thing is I'm not sure of is how practical my goals really are. For one thing I still don't really know how to evaluate my market; I don't know what metrics to consider. Ultimately the money I get from my home equity loan will determine what I can afford. @Bryan Noth what do you think?
