100% Return in BRRRR Isn’t Always a Good Idea

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Investing in real estate can be an exciting way to make money and grow your wealth over time. One popular method that many people use is called the BRRRR strategy. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. This strategy helps investors buy homes, fix them up, rent them out, and then refinance them to get their money back so they can do it all over again. It sounds like a great plan, right?

But here’s the thing: some investors make the mistake of trying to get 100% of their money back every time they refinance a property. While this idea sounds perfect, it’s not always the best way to go. In this article, I’m going to explain why aiming for a 100% return isn’t realistic and how you can be more successful by aiming a bit lower.

What is the BRRRR Strategy?

Let’s break down what BRRRR means in simple terms:

1. Buy: First, you buy a property. It’s usually one that needs some work because homes that need fixing are often cheaper to buy.

2. Rehab: Next, you fix up the property. This could mean anything from painting the walls to replacing the roof. The goal is to make the property look nice so that people will want to live in it.

3. Rent: After the property is all fixed up, you rent it out to tenants. The rent money they pay you each month helps cover your mortgage and other costs.

4. Refinance: Once you have renters in the property, you refinance the loan. This means you get a new loan based on the property’s new, higher value after the rehab. With the money from the new loan, you can pay off the old one and hopefully get some extra cash back.

5. Repeat: Finally, you take the extra cash you got from refinancing and use it to buy another property. Then, you do the whole process again.

Why Do Some People Aim for 100% Return?

The idea of getting 100% of your money back after refinancing sounds fantastic. If you could get all of your investment back every time, you’d have all your original money ready to invest in another property. Some people think this is the perfect way to grow their real estate portfolio fast because they never run out of cash.

But aiming for a 100% return is like trying to hit a home run every time you’re at bat. It’s possible, but it’s tough, and it can make things much harder than they need to be.

The Problem with Trying for 100%

Imagine you’re baking a cake. You want it to be perfect, so you spend hours making sure every detail is just right. But because you’re so focused on perfection, you end up taking too long, and the cake is never finished. In the same way, trying to get a 100% return on your investment can cause you to miss out on good opportunities.

Here’s why:

1. It Takes Too Long: Finding a property that will give you 100% of your money back is rare. If you only focus on these deals, you might spend a lot of time searching and not enough time actually investing. While you’re waiting for that perfect deal, the real estate market could change, and you might miss out on other good opportunities.

2. It Adds Pressure: Trying to get all your money back can put a lot of pressure on you and your team. Your general contractor (the person who helps fix up the property), property manager, and real estate agent all need to work harder to make the deal work. This extra pressure can lead to stress and mistakes.

3. It’s Risky: When you aim for 100%, you might end up taking bigger risks. You could buy a property in a risky area or cut corners on the rehab to save money. But these risks could lead to problems later on, like trouble finding renters or expensive repairs down the line.

A Better Approach: 80-90% Return

Instead of aiming for 100% return on every deal, a smarter goal is to aim for 80-90%. This means you try to get back 80-90% of your money when you refinance the property. While it might seem like you’re leaving money on the table, this approach actually has many benefits:

1. You’ll Move Faster: By aiming for 80-90%, you can find and buy properties more quickly. You won’t waste time looking for that one perfect deal, so you can build your portfolio faster. More properties mean more rent, which means more money coming in each month.

2. Your Team Stays Happy: With a more realistic goal, your team won’t feel as much pressure. They can work at a steady pace, which means they’re more likely to do a good job. Happy workers make for better results, which helps your investments succeed.

3. It’s Safer: Aiming for 80-90% gives you more options. You can invest in safer areas or take on projects that don’t require as much risk. This way, you’re less likely to run into big problems later on.

Why Perfection Isn’t Necessary

Remember the cake we talked about earlier? Well, sometimes a cake doesn’t need to be perfect to taste great. In the same way, your investments don’t need to be perfect to be successful. By letting go of the idea of getting a 100% return, you can focus on building a strong, steady portfolio that grows over time.

Here’s another way to think about it: Imagine you’re playing a game of Monopoly. If you try to get the best properties every time, you might miss out on other good properties that could help you win the game. It’s better to buy a variety of properties, even if they’re not all perfect, so you can build your empire faster.

What Happens When You Wait Too Long?

Let’s say you’re trying to get a 100% return on a property, so you wait and wait for the perfect deal. But while you’re waiting, the prices of properties in the area go up. By the time you find the deal you want, it costs more than you expected, and your profit margin (the amount of money you make after all expenses) is smaller. You’ve missed out on the chance to buy other properties at a lower price, and now your returns aren’t as good as they could have been.

This is why it’s important not to wait too long for the perfect deal. In real estate, timing is everything. The sooner you buy, the sooner you can start making money.

Building Momentum

Momentum is when things keep moving forward, getting faster and stronger over time. In real estate, momentum is your best friend. The more properties you buy, the more experience you gain, and the better deals you’ll find. Your team will also get better at their jobs, making the whole process smoother and quicker.

By aiming for 80-90% return, you can keep your momentum going. You’ll be able to buy more properties, learn from each deal, and build a bigger, stronger portfolio faster than if you were waiting for that perfect 100% return.

Don’t Let Analysis Paralysis Stop You

Have you ever spent so much time thinking about something that you couldn’t decide what to do? That’s called analysis paralysis. It’s when you overthink things so much that you end up doing nothing. This can happen in real estate investing, too.

When you’re trying to find the perfect deal with a 100% return, you might spend so much time analyzing that you never actually buy anything. But by aiming for 80-90%, you can avoid analysis paralysis. You’ll be able to make decisions more quickly and keep moving forward.

The Importance of Cash Reserves

One thing to remember in real estate is that unexpected things can happen. Maybe the roof needs to be replaced sooner than you thought, or the property stays vacant longer than you planned. That’s why it’s important to have cash reserves—extra money set aside for emergencies.

When you aim for 80-90% return, you’re more likely to have some of your money left in the deal. This can act as a buffer, or safety net, in case something goes wrong. Having this buffer helps you stay financially stable and allows you to keep investing in new properties without worrying about running out of money.

Thinking Long-Term vs. Short-Term

In real estate, it’s important to think about the long-term picture. While it might be tempting to try to get all your money back right away, it’s better to focus on building a strong, lasting portfolio that will grow over time.

When you aim for 80-90%, you’re setting yourself up for long-term success. You’re buying properties that will increase in value, provide steady rental income, and help you build wealth over many years. Plus, you’ll be in a better position to take advantage of future opportunities in the market.

Why 80-90% Can Turn into 100%

Here’s something cool: Sometimes, aiming for 80-90% can actually lead to a 100% return or even more. If the property’s value increases over time or the rental market improves, your initial investment might grow faster than you expected. In this case, you might end up getting all your money back (or more) without even trying!

By being patient and focusing on the long term, you give yourself the chance to benefit from market trends and natural property appreciation. This is especially true in growing areas like Tampa, where property values have been rising steadily. So, while you may start with a goal of 80-90%, you could end up doing even better than you planned.

Don’t Let 10% Steal Your Thunder

The main takeaway here is that you shouldn’t let the pursuit of 100% perfection stop you from achieving great things. Sure, it would be nice to get all your money back every time, but that’s not always realistic. By aiming for a strong 80-90% return, you set yourself up for success without the stress and pressure of chasing perfection.

Think of it this way: if you were to focus only on perfect scenarios, you might end up missing out on a lot of good opportunities. Real estate is about momentum, learning, and growing over time. By allowing yourself to leave a little bit of money in the deal, you can keep things moving, build a bigger portfolio faster, and reduce the risk of getting stuck.

Remember, even the best investors know that every deal won’t be a home run. Sometimes, it’s about hitting singles and doubles that add up to a big win over time. By setting realistic goals and keeping your eye on long-term success, you’ll be better positioned to achieve your financial goals.

Building a Strong Team for Success

Another important aspect of real estate investing, especially when following the BRRRR strategy, is having a strong and reliable team. Your team includes your general contractor, property manager, real estate agent, and even your financial advisor. When you aim for an 80-90% return, you’re helping to keep your team motivated and focused.

A team that isn’t under constant pressure to deliver perfect results is more likely to perform well and stay with you for the long haul. They’ll be more willing to take on new projects, work efficiently, and help you grow your portfolio. Plus, when your team knows you’re realistic about your goals, they’re more likely to go the extra mile to help you succeed.

Embrace the Journey

Real estate investing isn’t just about the numbers; it’s also about the journey. You’ll learn a lot along the way, from how to spot a great deal to how to manage tenants effectively. By aiming for realistic returns, you allow yourself to enjoy the process, make smart decisions, and build a portfolio you can be proud of.

In the end, real estate is a marathon, not a sprint. It’s about making steady progress and building wealth over time. By setting achievable goals, keeping your team happy, and staying focused on the long-term picture, you’ll be well on your way to success.

Conclusion

In conclusion, the BRRRR strategy is a fantastic way to build wealth through real estate, but it’s important to approach it with realistic expectations. Aiming for 100% recovery on every deal might seem like the perfect strategy, but it can lead to stress, missed opportunities, and unnecessary risks. Instead, focus on achieving a solid 80-90% return on your investments. This approach allows you to maintain momentum, grow your portfolio faster, and set yourself up for long-term success.

Don’t let the pursuit of perfection steal your thunder. Real estate investing is about making smart decisions, building a strong team, and enjoying the journey. By being flexible, patient, and focused on the big picture, you can achieve your financial goals and create a successful real estate portfolio that lasts a lifetime.

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Written by Jorge Vazquez, CEO

 

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