Should You Do a BRRRR Right Now? Probably Not
When we wrote about the BRRRR strategy back in 2018, we covered the five top risks of this method. The post was surprisingly popular, and it still gets a tremendous number of hits on our website, even after all this time. For those of you who may not have heard of BRRRR, it stands for Buy, Rehab, Rent, Refinance, Repeat. It can be a very solid way to build wealth, given the right economic conditions. But with things the way they are in the world currently, it’s probably not a strategy you should be testing out right now.
Reviewing the Risks of BRRRR
We covered the five main risks of the BRRRR method three years ago, but they warrant repeating. Every risk is associated with mandatory steps in the BRRRR process, so there’s no getting around them. They are:
– Renovation Time
– Renovation Cost
– Time to Fill Vacancies
– Rent Amount
Now, some of these risks would be mitigated due to existing circumstances in the U.S. economy. Others are so prohibitive—and, frankly, scary–that we can’t recommend that inexperienced investors get into a BRRRR project right now.
Renovation time refers to the amount of time from when you take ownership, to when the place is ready to rent out. Unfortunately, unless you’re a Jack or Jill of all trades, you’re not going to be in control of the renovation time. (And even if you can wear every trade hat necessary to do a rehab, you still won’t be in charge of the time because of the next point. But we’ll get to that in a minute.) Basically, you’re going to be at the mercy of your contractor and their workers, meaning the construction crew, tradespeople, etc. Ordinarily, in the best of times, you virtually need a whip and some kind of leverage to get rehab work done on time. That’s just the way it is in the construction business. Contractors juggle a lot of jobs at one time and it’s rare that projects are completed on time.
Now, you throw in the fact that the government right now is essentially subsidizing unemployment with free money, and you’ve got a shortage of workers to deal with. You’ve seen it in your neighborhood, we’re sure. “For Help” signs are in every storefront window. If McDonalds is having trouble finding enough staff to fry patties, how are you going to find qualified and licensed workers for your BRRRR project?
It all adds up to lengthy—and we do mean lengthy—periods of time waiting for your renovation to get done. Meanwhile, your money is tied up, your property is sitting empty (not bringing in rental income), and you’re making payments to your insurance company and your lender.
Frankly, we at MartelTurnkey have been working with contractors and construction crew for years now, and even we’re experiencing challenges with renovation timetables, getting workers on site and sourcing construction materials. And we even have our own Etienne Martel on site in Memphis overseeing everything. Despite this, it’s been harder than ever to get our projects rehabbed and ready to rent, all because of the way the economy is currently operating.
No matter how industrious, energetic or determined you are, there’s no getting around the fact that turnkey rentals are your best real estate investment option at this time. Please think twice and then think again before attempting anything like a BRRRR right now. It could be years before you reap any gains from it. Meanwhile, you could be getting passive income for you and your family as soon as next month, when you buy a turnkey rental from MartelTurnkey.
Renovation cost is the sum of all the costs associated with finishing your rehab. This includes labor, materials and permits. Costs of construction materials are very much tied to everything from natural disasters, political climates, levies, taxes and even building trends. But in all the years we’ve been doing turnkey rentals, we’ve never found it so hard to lay our hands on simple renovation supplies. We’re talking about a 4-6 week wait on a basic shower stall. It’s just mind-blowing. We even have contacts and regular suppliers that we’ve built relationships with, who are telling us their hands are tied because no shipments are coming in. This is what we meant when we said, even if you are a master plumber, good luck getting your materials for your BRRRR. It’s going to be a long, hard wait.
Now, the other three risk factors will be mitigated since property values are up and rents are up. So you won’t have to worry too much about your appraisal coming in too low, filling the place with a tenant, being able to charge a high enough rent or getting refinanced. But if you make it to this stage, you must have so much luck on your side that we recommend you run out and buy a lottery ticket right now! Because it’s near impossible to find qualified workers and source materials. That’s why we can’t in good faith recommend that you do a BRRRR right now.
We’ve said it before and we’ll say it again. The best way for you to invest your money right now is in turnkey rentals. You get a fully rehabbed property, already rented out and pulling in passive income. What more could you ask for from a real estate investment? We’re MartelTurnkey and we have your turnkey rental opportunity ready to buy.
“I am very fortunate to have found you and your company. I really look forward to working with you more in the months and years to come! It’s very rare to find someone who is honest and sincere in their dealings with others. You truly treat your investors like family and likewise treat your properties like your own.”
~ Edna Los Angeles, CA