Now that we know what BRRRR is and what the pros of doing it are, we can take a quick look at some of the cons. Whenever we talk about cons, it isn’t to deter you from trying something new. Instead, sharing some of the drawbacks of certain types of investments can help you decide what you need to watch out for in trying this new venture! Or, it can encourage you to try a different type of investment; one better suited to your station in life.
Now, the cons:
Interest and Appraisal
First, you’ll need to consider money. You will most likely get a short term loan, which will have high interest and could result in an initial negative income. However, if it’s the right property, this should only be a temporary setback. But if you’re already struggling with making ends meet, this may not be the best plan. Additionally, fixing up a house means knowing how much that will cost, so make sure your initial appraisal is close to correct. Unfortunately, in home repair, things pop up all the time that could add to not only the expense of the upgrade, but also the time.
Refinancing and Loans
Banks have a “seasoning” time, where they wait a set amount of months (usually half a year to a year) before refinancing the property. While this is very reasonable, it could cause some problems, depending on how long your short-term loan extends. Therefore, make sure it is at least 18 months long, giving the bank plenty of time to “season” your property. As for the loans, you’ll have to juggle two: the short term one, and the one you take on when the property is refinanced. Make sure to shop around for the right lender and get the best deal on fees.
Property and Tenant
Make sure you are up to doing major renovations yourself. If you don’t like heading up big projects, BRRRR may not be for you. Additionally, don’t get so wrapped up in the project that you don’t select the right client. It’s still important for you to get a right tenant, so continue good practices in vetting the tenant before you approve them.
BRRRR shouldn’t be scary. These past three posts are here to help you realize if it’s right for you, not scare you away! It can be an accessible start to real estate, but make sure you know what you’re getting into!
For more information about BRRRR, check out the article that inspired this blog: https://www.biggerpockets.com/blog/brrrr-pros-and-cons