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re: BRRRR Method
Posted on 1/17/24 at 5:22 pm to Jerrysworld
Posted on 1/17/24 at 5:22 pm to Jerrysworld
Pros:
You can use debt to leverage your dollars and buy more income-generating property than more “traditional” ways of investing in assets. Theoretically that leverage will make you a real estate mini-tycoon.
Cons:
That same leverage can put you out of business if you have some severe financial problems along the way. The most obvious one to me is the severe optimism people usually have about what it will take to renovate a home. My anecdotal experience has been that people with little to no experience woefully underestimate the capital and/or time it will take to complete the remodel and end up with a much higher breakeven than they initially thought. Typically if an easy flip pops up, the seasoned real estate investors buy it. If you’re able to buy it, you might want to ask serious questions about why the pros let it go to you.
The other potential problems are the idiosyncratic risks that a single property presents. Ex - Replacing an A/C when you have 10 rentals is a lot easier than when you have 1, all else being equal. Vacancy and tenant problems will also exist. You can also run into issues with the overall cost of capital in high interest rate environments. Insurance costs can be a problem as well.
You really need your cash flow in a good spot to truly mitigate those risks.
Real estate investing is a tried and true way to create significant wealth, but a lot of people get tired of the headache and can’t wait to get rid of their rental(s) too.
Good luck.
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