Turnkey Rentals vs. BRRRR
BRRRR is an acronym that stands for buy, rehab, rent, refinance, repeat. Fittingly, the term was first coined by Brandon Turner, founder of Bigger Pockets, the uber-popular real estate website and forum. (He is quick to clarify that he didn’t invent the strategy; just the acronym.) BRRRR is more than just an acronym, however. It’s a system that hundreds of thousands of investors have used over the years to profit in real estate. It’s been proven time and again to work under the right circumstances. But even Brandon Turner admits that there are serious drawbacks to the BRRRR strategy. We agree. The BRRRR strategy isn’t right for everyone. Here’s why:
The Challenges of the BRRRR Strategy
There are challenges and hurdles to be aware of with the BRRRR strategy.
First, you need to buy the right property. For most folks, you won’t be able to buy in the same area where you live because the market isn’t affordable. (Note that it may be affordable in terms of buying a home for your family to reside in, but not in terms of getting a good deal on a potentially profitable rental property.)
This poses a secondary, but related challenge. You’ll probably need to buy out of state. This means you’ll either be buying sight unseen (please never do that with a distressed property), or you’ll be spending time and money to travel and find a property to buy. Factor in unpaid work days, hotel accommodation, car rental and meals, too. Also factor in the intangibles, like stress, time lost with your family and…more stress. Remember, the property you buy, where it’s located and the price you pay have a direct influence on whether or not your BRRRR plan will ultimately succeed or flop.
Next, you need to rehab the property. Ah, this is where it gets interesting. More accurately, the rehab is where things get dangerous. Rehabs are very, very hard. They’re hard physically, intellectually and emotionally. They take physical effort, mental acuity, and they take a toll on your personal life. And this is true whether you decide to do all the work yourself, part of the work yourself or whether you hire other people to do everything for you. The actual transformation of a residential property from being in a distressed condition to something that actually qualifies for a permit of occupancy, to something that a person would actually pay to live in, is one of the hardest things that you will ever attempt in your life.
It’s also dangerous. Personal injuries are very common when non-professionals do rehab projects. In fact, the odds of you getting injured at some point during your rehab are nearly 100%. Maybe you hit your head on a joist while crawling through a dark attic looking for a wire. Or you put your back out while pulling termite-infested kitchen cabinets off the wall. Or, heaven forbid, you get exposed to asbestos without wearing the appropriate protective gear. A property under rehab is not a safe place.
But there’s an even bigger, more insidious danger with BRRRR. The refinance phase can wreck your whole deal or even ruin you financially. Let’s say you score a distressed property for $40,000. You budget for $20,000 worth of expenses, including labor and materials. But then you discover that you need to put in another $20,000 for unforeseen conditions.
If you can’t refinance the property for the right terms, you’ll be stuck paying high interest and holding costs that will be money straight out of your pocket. No rent payment is going to be enough to cover the interest and principal on a hard money loan or a credit card. The problem is commonly with the appraisal. What if your rehab wasn’t enough to get a high enough appraisal? What if you thought you could get a value of $100,000 and the appraisal comes back at $80,000? You’ve already got $80,000 in the property, and you aren’t going to get a 100% value refinance. Banks will only give you around 75% of the value, or thereabouts.
Assuming you borrowed money to do this BRRRR, you now have to pay it back. And if you don’t have the cash to pay it back, you may default on your loan, which means your credit is going to sink, which means you may be done getting financing on any other investment property anytime soon.
Despite all this, the fact remains that BRRRR works for many people. But if the idea of risking your health and finances isn’t something that appeals to you, we don’t blame you. It’s not for everyone; in fact, it’s not for most people.
Turnkey Rentals Fit Everyone’s Style
If you’re just interested in making money in real estate without sacrificing time with your family, without taking a gamble on a highly speculative project, and without risking your credit, turnkey rentals are for you. Turnkey rentals fit everyone’s style, whether you’re a single parent, a stay-at-home mom, a recent college graduate, an entrepreneur or a professional working a nine to five job. Turnkey rentals work with any lifestyle because they don’t interrupt lifestyles. There’s no difficult decision-making, no hard rehabs and no worries about refinancing.
It’s as easy to invest in a MartelTurnkey rental property as it is to count to three.
1. Search our turnkey rentals for sale and find one that you like.
2. Download all the financials and call us with any questions.
3. Buy the property and sit back and collect passive income.
SDB – Search, Download, Buy. The acronym may not be as catchy as BRRRR, but we sure like the strategy a whole lot more. We think you will, too.