3 Flaws of BRRRR

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3 Flaws of BRRRR

Рет қаралды 49,861

4 жыл бұрын

Discover the three flaws of the BRRRR Strategy. BRRRR is an acronym which stands for Buy, Rehab, Rent, Refinance and Repeat. And while the technique itself is not inherently flawed (it has been applied for hundreds of years in real estate investing), the coining of an acronym to describe that process has created some unintended consequences. In this video, you'll learn these 3 destructive flaws.

Пікірлер: 144

@freedom_mentor Жыл бұрын

Every successful real estate investor has a mentor. Get your mentor here: www.freedommentor.com/apprentice

@nateamus3920 4 жыл бұрын

Hello there, Phil. I've watched your channel slowly grow over the years and just wanted to let you know how much I appreciate you putting yourself out there like you do. Your commitment to teaching this art comes through in the way you present. Keep it up, Real estate is one of the greatest and most accessible avenues for wealth creation this country can offer. It may seem overly dramatic but I mean it when I say your work is important. Thank you.

@icanbealandlordtoo9994 4 жыл бұрын

Nateamus I second that!!!

@freedom_mentor 5 ай бұрын

Thank you so much!

@LetsKeepOnRollin 3 жыл бұрын

I think of the BRRRR as a tool in the tool box. Great points and good advice. Just think of it as one way to do deals really. Don't put yourself in a "Box" but it's not a bad tool in my opinion if it's done properly. Thank you for the video.

@jamesallenrealestate 4 жыл бұрын

One of the biggest flaws with the BRRRR is the refinance. The appraisers really have the power here and some appraisers play it so conservative that you may not get the appraisal back at what it should be valued at.

@freedom_mentor 4 жыл бұрын

Absolutely. Great comment.

@954djmike 4 жыл бұрын

This is literally my only concern, how does one control the arv?

@muxi0121 4 жыл бұрын

It is the hardest part but If the appraisal comes in low that just means you potentially cant get all your money back out of the deal. It can still be a good deal w cashflow though. So not the end of the world

@954djmike 4 жыл бұрын

Tony Kempisty thank you that is very unsettling for me

@muxi0121 4 жыл бұрын

@@954djmike yea it kind of is for me too

@BitcoinMotorist 4 жыл бұрын

I thought this was related to "money printer go brrrr"

@picklepickle1639 4 жыл бұрын

lol same!

@divagoddess2024 2 жыл бұрын

That’s why you’re supposed to run the numbers first to see if it’s a good deal or not regardless of what anyone else says, because if the numbers don’t make it a good deal then you are left with two options 1. Walk away from it or 2. Negotiate the price so it will work with the numbers

@ThaMajesticWun 2 жыл бұрын

Agreed, if you were to BRRRR you make sure all steps will be in your favor before you buy. If not try a different technique or run through alternate exit strategies.

@tomatobrush3283 4 жыл бұрын

The main benefit to BRRR is that people with limited capital can create portfolio by taking their money out over and over. If you have a lot of capital then BRRR is probably a lot of unnecessary work where you can just focus on cash flow strategies.

@freedom_mentor 4 жыл бұрын

I disagree. Wealthy people borrow a whole lot of money too.

@tomatobrush3283 4 жыл бұрын

@@freedom_mentor I didn't say that people with a lot of capital do not borrow money. All I was saying is that wealthy people can afford to leave deposit money "trapped" in a property and still go on to expand their portfolio. While someone with only $50k in savings needs the BRRR method so they can keep using the same $50k over and over to build a portfolio. Wealthy people can still do BRRR but if they have millions already then they might be wasting their time renovating houses when their time could be best spent finding other deals or spending time with family or whatever.

@freedom_mentor 4 жыл бұрын

Your comment is typical of those who don't know how wealthy people lead their lives. Those with millions are still renovating houses in droves right now (albeit hiring contractors to do the work and assistants to manage the details). They are in business every day too, not simply spending every waking moment of every day with their families. Because their families have lives too, such as school, etc. So while millionaires may have more free time, they still devote some of their time to productive economic work.

@tomatobrush3283 4 жыл бұрын

@@freedom_mentor I am not sure if we do disagree. All I am saying is that BRRR is great for people starting out but if you have millions, you can do other things, as leaving your money in a property is not as big as a impact as it is when that is the only savings that someone has. Also when refinancing the cash flow might go down if the renovations results in more equity but not necessarily more rent. So if the deal has a high cash flow already and a rich person can afford to leave their deposit tied up in the deal they might not need to renovate and refinance. They could even buy already renovated properties that cash flow well for below market price and still make money on it even though their capital is tied up in the property. Sure I am not saying that rich people don't have the same incentive to take their money out and have no money in. Also I appreciate that rich developers will probably have systems that reduce the effort required to renovate properties making my argument irrelevant, but that is not necessarily always the case.

@brendayourlender 4 жыл бұрын

Thank you Phil for another video. I always always watch them and sometimes I watch them multiple times! My first two deal were BRRR deals. I am glad I did them because they gave me part of my ongoing education about real estate. I think the trick to BRRR is to not pay too much for your properties (which I did). The trick is to also not pay too much for renovations (which I did). The trick is to also not pay too many fees for hard money loan and refinance (which I did). The trick is to ensure that the appraisal comes in at your projection (which you have no control over). The refinance loans that I was able to find as a new investor were 75% LTV based on the appraisal. What this means to me is that the cash I started my real estate journey on is tied up in the properties. I have approximately $90K in equity tied up in two properties. These two properties are cash flowing. And I'm glad I have them. And I'm thankful for the lessons. But now it's time for me to get creative in real estate and find a better way. I'm working on finding owner finance deals and working on the sandwich lease option that doesn't require much upfront money in the deal. No matter what-I'm thankful for the journey and the education. Thank you Phil for being an ongoing part of my journey.

@freedom_mentor 4 жыл бұрын

How much is each property cashflowing each year (after ALL expenses)?

@brendayourlender 4 жыл бұрын

@@freedom_mentor Together they cashflow $577.41. I have left about $50k in both deals combined. At the moment the two of them hold $90k in equity. So $40k in equity has been created (until the market dips). My strategy is buy and hold. And I adore the tax savings as I'm also a W-2 wage earner.

@freedom_mentor 4 жыл бұрын

@@brendayourlender Assuming you are also factoring in reserves for replacements (roof, hvac, etc) as well as emergencies, and you truly have a $577.41 per month positive cashflow, that translates to a Return on Equity of 13.9% (calculated with your $50K cash, not your estimated $90K total equity). Not bad; but you can do much better out there.

@brendayourlender 4 жыл бұрын

@@freedom_mentor My first few deals aren't my best deals. I'm working on my education and learning all the time. I'm currently sending letters to non owner occupied house in my area. I'm looking for win/win situations for owner financing and sandwich lease options.

@michaeloladipo7166 4 жыл бұрын

@@brendayourlender why dont you utilise the equity with a heloc or a hard money lender, Then use that money to finance buying more?

@arizonanative7409 3 жыл бұрын

I have had a long-term approach avoidance mindset with real estate investing. Just seemed too complicated and scary. But I'm edging closer to jumping in and I like the creative aspect of REI. Excellent video. I will now start watching the free course you have on flipping. Thank you, Phil.

@freedom_mentor 5 ай бұрын

Great! Have you gone through that course yet?

@jayc4715 3 жыл бұрын

One thing i dont get about these multiple mortgage strategies....is this....if i need adequate income to buy ONE home...why/how/what bank is going to say "oh ok..you barely had enough income to qualify for the 1st home you bought..(which is supposed to be your homestead) but heres more and more mortages.."

@Je.rone_ 4 жыл бұрын

*I'd like to watch this(grabs popcorn)* I can't wait to I start investing in real estate so I can talk about it on my KZfaq channel

@freedom_mentor 4 жыл бұрын

If you haven't already, watch this video: kzfaq.info/get/bejne/iN5inal2uc7baHk.html

@PatrickYepez 4 жыл бұрын

Thanks Phil, as always great insight on your part!

@freedom_mentor 5 ай бұрын

You're welcome! We really appreciate it.

@steveelling9604 4 жыл бұрын

To me, the biggest BRRRR flaw is nobody seems to address the fact that refinancing a loan can severely crimp the rental unit's cash flow. If you pull $30K or $40K from a deal to fund the next purchase, the mortgage cost on the first home is going to climb, cutting into returns. Sure, the tenant is still making the new re-fi mortgage payment for you, but the cash-flow return might drop from $400 per month to $250, or $200. That profit margin x12 months barely covers potentially buying a replacement refrigerator for that particular year. If you intend to pile up as many units as possible, and are banking on long-term appreciation as your main source of (hopefully) capital, the BRRRR method can be terrific. But having fewer units, with smaller conventional mortgages, that each cash flow $500 or more per month means more dinero in hand now, with fewer headaches and red ink owed to the banks.

@freedom_mentor 4 жыл бұрын

Great point. That's why beginning with the end in mind, you can factor in the increase in monthly payments from the cash out refinance loan before you start. I personally only own extremely high cash flowing real estate that can support the increase in cash out refinance loan monthly payments and I also strongly support your idea of less deals (aka less headaches) that cash flow more per deal.

@earth2survival922 3 жыл бұрын

Which is why you see people with 50 doors and no cash or no wealth.

@macknumber9 2 жыл бұрын

The idea is to get an amazing deal so you can put more money into it with high end new appliances and mostly everything new. In that case you will not have to worry about maintenance costs until futher down the road as you have mostly everything brand new. In addition you will be able to squeeze out a little more for the rent cost as you will be attracting higher paying tenants...

@macknumber9 2 жыл бұрын

A strategy that I want to try is finding smaller places (1 bed 1 bath and/or studio)....less sq ft less total cost in renovations....get one that needs a ton of work get a great deal and fix it up with the best furniture/appliances etc and rent out short term to traveling nurses/doctors. They pay premiums and they treat the property with respect....also they are locked in usually on 13 week work contracts for the most part so less managing then air bnb or other short term rentals.... This way you can get the best of both worlds....you can still cashflow with a decent amount per month AND you can pull your money out and do it again and scale quickly...

@Emmanuel-jf7xf 4 жыл бұрын

@ the out of state investor. Phil said to pay attention to the refinance terms. Also find out from other local investor's about notorious banks that use stingy appraisers. Also make sure you do Due Dilugence to estimate accurate ARV before you rehab.

@MichaelP-ke1tm 4 жыл бұрын

Sell it for a profit if you can't cash out refinance everything

@everythingcrypto5577 3 жыл бұрын

BRRRR, Phil just destroy someone little dream :D Back to my stock and crypto

@traviswatson4986 3 жыл бұрын

Another point these guys totally miss is closing costs. A 5 to 10k sunk cost when you refinance and buy an investment property with 25 percent down

@AaronFernandes__ 2 жыл бұрын

You don't put any money down with this method though, it is a cash purchase of the property

@MomoAfterDark Жыл бұрын

@@AaronFernandes__ BRRRR doesn’t automatically mean a cash buyer

@Planetgreenzen 4 жыл бұрын

Thanks for your continued wisdom Phil.

@freedom_mentor 5 ай бұрын

No problem! Glad you've enjoyed our videos.

@Shawk95 4 жыл бұрын

Phil Always looking forward to your Vlogs which are getting rarer. I think BRRR strategy works best for long-term holders. Of course, its full of pitfalls and requires a good deal of experience.

@freedom_mentor 5 ай бұрын

Will have a lot more coming out this year. Thanks for the continued support!

@muxi0121 4 жыл бұрын

Good point on putting the focus on the end. Not so much on the buy

@freedom_mentor 5 ай бұрын

Exactly! It's very important.

@oozmakapppa8525 4 жыл бұрын

I will become your apprentice after I finish my high school and will be in a university. Your content is really great for gaining much required financial knowledge. Thank you Phil

@freedom_mentor 5 ай бұрын

Sounds good!

@nkosivuma 3 жыл бұрын

This is very very information - I see your points on all the flaws you've pointed out.

@freedom_mentor 5 ай бұрын

Thank you! Glad it was helpful.

@ianvarner6488 3 жыл бұрын

Still here learning in late 2020! Great information!

@freedom_mentor 5 ай бұрын

It's never to late to learn! Thank you.

@HcKLiFe 4 жыл бұрын

Nice one Phil! Always dropping the knowledge. You have been an inspiration for me. I’m an Investor/Broker and I just started did my first KZfaq video! Thank you and keep it coming!

@freedom_mentor 4 жыл бұрын

If you haven't already, watch this video: kzfaq.info/get/bejne/iN5inal2uc7baHk.html

@DAnonMusic 4 жыл бұрын

One last comment.... the last thing I remember is having everything up and running as far as the website and ads and I remember becoming stuck at the point where I got a couple calls and I didn’t have a “RE friend” with access to the MLS.... I tried the technique that u mentioned in the class. To ask a few Facebook friends about the win win deal and they kinda looked at me like “yeh ok, call me when you ready to buy a house with my services” 🤷🏽‍♂️ that’s when I said hmmm maybe I should put this energy into this landscaping business first....and maybe I should become a licensed RE agent with access to the MLS before begging people for access....

@freedom_mentor 4 жыл бұрын

PropStream has some excellent MLS access these days. GetPrivyNow does too.

@webuyAzhouses 4 жыл бұрын

Thank you Phil for all your amazing videos and time. My family and I are forever grateful you & your amazing coaches. I am proud to have you & your coaches as our mentors! Your students Jovany & Heather

@freedom_mentor 5 ай бұрын

Thank you so much! You guys have been amazing to work with.

@Blsbr02 3 жыл бұрын

5:20 35k all-in renting for $900-1000/month? I assume that's a short term rental/vacation home....I'd love to see a market where the gross monthly rent is 2.5% of the all-in cost...great video. Thank you.

@mxfern12 2 жыл бұрын

$35000 all in and rent for $1000 is a pipe dream. If bought for $20000, then is a dump and repairs would be on the $30000 or $40000 and probably on a bad location that you are lucky to get $500 rent.

@macknumber9 2 жыл бұрын

@@mxfern12 moronic comment

@glennsnare09 4 жыл бұрын

Good to see you again man

@freedom_mentor 5 ай бұрын

Thank you! We have a lot of content planned for this year and beyond.

@ILUVGOLF 4 жыл бұрын

Hi Phil, I love your energy and willingness to help. I have been searching for my first personal home OR my first rental for about 3 months now. I am undecided as to which I should do first. I've been a 20-year renter because I spent my twenties building a business and my thirties saving to purchase a home in cash. I am ready to purchase now but have not decided which is the best. I think it's probably a higher-success-choice to purchase my own home and pay down the majority of the mortgage so that I can re-invest the money I am currently paying in rent. After all, I am a solid tenant and the peace of mind will be great! Or should I purchase a rental and become a landlord? What are your thoughts. Nobody on KZfaq has focused on this specific question. Would you consider tackling this topic? Purchase a personal home or become a first time landlord? Thanks dude!

@freedom_mentor 4 жыл бұрын

This video shares with you the true costs of owning vs renting: kzfaq.info/get/bejne/f9WdmayQzqyYdYE.html in which you learn that if you are not going to live in the house for at least 5 years, it better to rent. In your case, why not do both? Why not buy a 4 unit using a owner occupied residential loan and then rent out the other 3 units? Have you cake and eat it too1

@ILUVGOLF 3 жыл бұрын

@@freedom_mentor I bought a home in October 2020 and paid it off last Friday. I was renting for $1250/mo. and now I am paying $216/mo. in insurance and taxes. I have zero debt and that has allowed me to focus on a golf channel. I'll pay someone to edit my videos with the extra cash I'm saving and I'll produce on a consistent basis. I'm happy I went this route as the moratorium could've devastated me. Thanks for taking the time Phil!

@ignacioa3698 Жыл бұрын

Does the brrr method end goal is to sell and sell in very short term; that's one of the goal of that method if correct about that point? Thats the impression I got when looking at other vids especially channels like bigger pockets...that's a lot of what they preach. Also one major flaw is that that brrr method only works in mkts that was re going up based on what I've heard from other critiques of it.

@anonymousdata6771 4 жыл бұрын

Great video Phil! Thank you

@freedom_mentor 5 ай бұрын

You're welcome. Thanks for reaching out and commenting!

@justmyperspective7430 4 жыл бұрын

How to get this “free” book you just advertised?🤔

@freedom_mentor 4 жыл бұрын

www.freedommentor.com/free-book

@atchutneelamuk2554 4 жыл бұрын

thanks Phil. my RE mentor

@freedom_mentor 5 ай бұрын

You're welcome!

@byronbrush9030 Жыл бұрын

Everyone leaves out the fact that you have to hold the property for a year b4 you can refinance. Which is a big deal if you have high interest rates

@freedom_mentor 5 ай бұрын

So true. Being able to refinance the property is so important.

@Endeavor545 4 жыл бұрын

Good stuff Phil! As always!

@freedom_mentor 5 ай бұрын

Appreciate it!

@maynardpaye 3 жыл бұрын

sir i have a question, i own a lot 150sqm & planning to loan 200k usd to build my house. It has nice view of the city and is on hill side. After watching your video, am planning to build a 3 storey house so i can let somebody rent the 2nd and 3rd floor and then I live on the first floor. Is my plan ok?

@austinweber9633 2 жыл бұрын

Thanks for being real phil

@freedom_mentor 5 ай бұрын

You're welcome!

@firebug1892 4 жыл бұрын

Did you see that Fannie and Freddie is charging .5% on all refinancing? Starting 9/1/20 brrrrr lol

@mordykatsevman8161 4 жыл бұрын

another great informative video

@freedom_mentor 5 ай бұрын

Thank you!

@gianthills 6 ай бұрын

exactly what I was thinking. there's no creative financing with brrrr, so I just don't get the appeal.

@freedom_mentor 5 ай бұрын

It sounds better than it is! Appreciate the support on our channel.

@heytheremogwai 2 жыл бұрын

Is there anyway to speak to you directly about my specific situation?

@freedom_mentor 2 жыл бұрын

You can message me here in this comment system

@markjohnson3192 4 жыл бұрын

Great video.

@freedom_mentor 5 ай бұрын

Thanks!

@olliee1919 4 жыл бұрын

Hi Phil. You forgot to put the link for your course in the top right corner of the screen

@freedom_mentor 4 жыл бұрын

courses.freedommentor.com

@DAnonMusic 4 жыл бұрын

Phil is there a time limit to the online access? I had to take some time off to build my business. When I went to sign in my login doesn’t work anymore..... also is the competition still overcrowded for Boston? The last coach told me there were too many students in boston and that I should think of another area....? Advice?

@freedom_mentor 4 жыл бұрын

Contact our support team at support@freedommentor.com

@DAnonMusic 4 жыл бұрын

Phil Pustejovsky thanks Phil

@fixingstufff 3 жыл бұрын

It's hard .. No bank wants to refinance a rental property 😕 .. Maybe refinance and then rent

@freedom_mentor 3 жыл бұрын

There is an entire sub-sect of lenders that love to refinance rental property; but they are not banks. Groups like VisioLending.com, LimaOne.com, CoreVest.com, LendingOne.com

@deadbolt91765 4 жыл бұрын

What market are you finding 35k properties that pay 900/mo?

@freedom_mentor 4 жыл бұрын

Parts of New Jersey, Pennsylvania, Ohio, Wyoming, just to name a few.

@SylasWorld 2 жыл бұрын

An exit strategy to the refinance issue is to just sell the fully updated house

@freedom_mentor 2 жыл бұрын

That would negate the entire purpose of it.

@SylasWorld 2 жыл бұрын

@@freedom_mentor yes your right but if you do the deal correctly and do your due diligence then the finance will work but for whatever reason you can't get the refi you sale and still make a profit

@malcolmbrownson5205 3 жыл бұрын

Phil...Might the tenant be......A TENANT-BUYER? in L.O.A.

@charuka-mufassabrooks2803 4 жыл бұрын

How do I receive one of these books?

@freedom_mentor 4 жыл бұрын

Go here: www.freedommentor.com/free-book

@Thejasonrogers Жыл бұрын

you have to throw thousands of dollars into the property to hopefully appraise for more than what you put Into it

@freedom_mentor 5 ай бұрын

This is why comparable comps are so important for you to understand what the potential value could be once the property was fixed up.

@Karischmidt 3 жыл бұрын

yup

@freedom_mentor 5 ай бұрын

Thanks for the support on our channel!

@God_of_Poets 4 жыл бұрын

Third.

@jmc4365 4 жыл бұрын

Any chance we will get to see you on the biggerpockets realestate podcast anytime soon ?

@freedom_mentor 4 жыл бұрын

@6040adam 4 жыл бұрын

@@freedom_mentor haha.. I would love to listen to that. That would be educational for those guys..they do have a lot of great guests that can be helpful, but in this video, you did an excellent job on what could go wrong and warning people of how difficult it is to pull a brrrr off.

@carinesomers6529 4 жыл бұрын

Just extremely frustrated I can't have a coach like you in Europe and really don't ever won't to be in the USA ... considering it now as a really dangerous country...❤️❤️❤️

@anthonyc362 4 жыл бұрын

Carine Somers why is the USA dangerous? There are bad areas, just like most of the world but those are specific areas. If you stay away from bad people and certain cities and areas, there is very little crime.

@adolpholiverbush5867 4 жыл бұрын

If you stay away from democratic shithole cities it's not really dangerous at all. Even if that's where your at it's still not that dangerous unless your a gang banger

@freedom_mentor 5 ай бұрын

We appreciate the love and support!

@Thejasonrogers Жыл бұрын

A better strategy instead of brrr would be to take out a heloc

@freedom_mentor 5 ай бұрын

It can depend on how much cash flow the property might have after the refinance. HELOC is a great option to have money that is not really costing you anything until it's ready to be deployed. Do you have rental properties right now?

@Thejasonrogers 5 ай бұрын

@@freedom_mentor of course, everything is contingent on what interest rates are doing. I’m actively looking for my first rental right now. I’m going to write a book one day. My story is not fancy it’s very basic so basic it might be extraordinary to many which is why I’m going to share it. Your videos help me alot so thank you for sharing!

@chrisrobbins3888 3 жыл бұрын

Are you Czech?

@freedom_mentor 3 жыл бұрын

My last name is Czech. Pustejov is the town in Czechia that my distant relatives are from.

@travisthuvu 4 жыл бұрын

i was so against BRRR when i first joined Phil’s program bc i was probably broke lol after 20+ flips im starting to want to BRRR, but the market is so high right now

@freedom_mentor 4 жыл бұрын

Owning long term rentals has it's wonderful place in an overall investor's repertoire. But make sure you understand the potential pitfalls (as described in this video and in several of my other videos) because getting in and out is easier than owning for the long haul.