This is a great question - is BRRRR dead? But it's not a new question. Investors have been asking this question since we started doing BRRRRs in 2014/2015.
Before we talk about BRRRR, let's talk about why buy and hold investing is so powerful:
Let's say you buy a rent-ready property today for $200k, and rent it out.
If we project your returns over the next 10 years for this property, you can expect:
Cash flow: $36k ($300 a month x 12 months x 10 years) assuming no rent increases, and also accounting for 20% reserves each month for capex/opex/vacancy.
Debt paydown: $25k over 10 years
Appreciation: $68k over the same period, assuming a conservative 3% appreciation annually. (Even if there is a recession in the next 2-3 years, the property will still appreciate over a 10 year period. And as long as the property is rented, you still still get your cash flow.)
Even if the appreciation rate is lower, say $40k over 10 years (which is less than 2% appreciation annually), you will still earn a total return of $100k over the period (36k cash flow + 25k debt paydown + 40k appreciation).
So your conservative return over 10 years from 1 property is ~$100k!
Now let's imagine if you were able to buy 5-10 of these properties a year! That's what BRRRR allows you to do, because it removes the capital constraint.
Now, let's talk market cycles:
Every market cycle has it's pros and cons. And you need to adjust your BRRRR strategy accordingly. For example, when we started investing in 2014, it was very difficult to find lenders and good terms for short term lending. In fact, my wife Palak had to call a 100 different lenders before we could find one that would finance our first BRRRR property. But back then, it was easy to find deals and also contractors for rehab.
Fast Forward to 2021 during the pandemic. Because of all the money printing by the Fed, and low interest rates, buying a property was very difficult, because there were multiple cash offers on properties. And due to supply chain issues, material prices sky-rocketed (e.g., lumber prices), and it was difficult to find a contractor as a new investor. But the advantage of investing then was that the interest rates were really low.
Now let's come to today - interest rates are very high. However, the advantage of investing now is that it is easier to find contractors, material prices have stabilized, and there is not as much competition on properties (although some markets are still very hot!). And guess what, even if you get a high interest rate on your refinance, you can always refinance in 2-3 years when the interest rates come back down again!
So the question we should ask as investors is not "Should I invest right now?", it's really "How should I invest now". There are really 3 things you should focus on right now if you want to build a rental portfolio using BRRRR:
1) Learn how to analyze deals correctly, and build a deal pipeline so that you get access to a lot of deals
2) Learn commercial financing, because one of the key reasons Palak and I were able to build a $10M rental portfolio in less than 5 years is mastering commercial finance
3) Build a solid team of contractor, lenders, agent, etc. that can help you scale.
As they say, the best time to plant a tree was 10 years back, the next best time is now!
