Is your need to find the perfect BRRRR deal preventing you from getting into real estate investing?
It is so easy to fall into the trap of sitting on the sidelines and not investing in real estate because you are waiting for what you consider the “perfect deal.”
How do you even define a “perfect deal” by the way? Is it based on a mathematical formula? Some arbitrary amount of minimum return on investment?
I think many folks wait to start investing for the fear of missing out. Usually the fear is not wanting to tie your money up in a project in case something better comes along The question lurks in the back of your mind – what if I invest in this project but then a better one appears?
In many ways, I am writing this article for myself. Who has not fallen victim to the constant game of wait and see? I am no exception, and need to constantly remind myself of the principles I hope to convey here.
The game changers for me when getting over this state of perfect deal paralysis were two things – (1) setting firm investment criteria and (2) adopting an approach of “no turning back” decision-making.
Setting Your Criteria
I see many people who get into real estate investing without any real set of what they want to buy. Each potential investment is simply looked at through the prism of – if this happened, would I be happy with the investment?
But what if you took control of the process?
What I mean by this is what if you said, OK, I am going to define a clear set of criteria for projects that I am willing to invest in and I know that if a project meets that set of criteria I am going to be happy with the deal I made even if I were to find a better one tomorrow.
So what is your criteria? I hope that you can use the following table as a template to help you formulate your own investment criteria based on a few simple questions.
|How much money do I want to have “all-in” on any given project?||Between the combination of purchase price, rehab and closing costs, my budget is to no more than $100K on any one project||I will only do projects that I can do all-in out-of-pocket for $100K or less|
|Where do I want to invest in?||Specifically I am interested in XXXX areas in the XXXX area (be specific here – for example – specific suburbs outside of a specific city)||I will only look at projects in the XXXX area|
|What kind of properties do I want to buy?||Single-family residences (for example)||I will only consider single-family residences|
|How much rehab work am I comfortable doing?||I want to focus on properties that primarily only need cosmetic rehab repairs that I can do in a week or so for less than $10,000 so I can quickly rent or sell the property||I will only undertake projects that require no more rehab than cosmetic type repairs that will cost me less than $10,000 to do|
|What do I want the value of the property to be after I have completed the rehab?||I will only invest in properties that I can buy for $100K all in and that I think after all repairs are done will be valued at at least $125K||At least $125K|
|If I am going to rent, what do I want each property to generate each month in cash flow?||I would be happy with any project I think would give me $200 per month in cash flow||$200 per month or more|
Let ́s distill this down – this hypothetical investor now has clear criteria and would be willing to invest in any project that:
So what are the benefits of this analysis?
A final note here – focusing on the big picture is critical when it comes to investing No one deal is likely to change your life. But, a series of well-executed deals that you can leverage into the next and the next certainly has to potential to do so. Just get started!
I know what you are thinking – this is all sounds reasonable but how do I know if a project will meet the criteria I have set for myself and where am I going to get the money to do more than one of these projects?
I have my criteria set, now what?
Whether an investment will meet your criteria is a question of experience and, if you do not have that, then of research and leveraging your network. I would start here by researching and reaching out to real estate agents in your market who could provide you listings that could potentially meet this criteria. A simple Google search should net you plenty of options. With these clear requirements in place clearly communicated to your agent(s), your team should know exactly what to send you to review and, just as importantly, what properties not to waste your time with. If you are struggling to find a good real estate agent, we will be making available to you as a free resource a set of Interview Questions that you can use to interview potential agents (as well as contractors, lenders and property managers) and compare their answers side-by-side so that you can work with the person(s) you feel most comfortable with. Remember, you do not have to know everything yourself to get started…ask the right questions and be specific in your requests and let others do the work and find the deals for you – that is what they get paid to do.
Tangent: Our All-in-One Solution is going to help you big time here. Keep reading to learn more about how our Solution can help you crunch the numbers on an investment quickly and accurately so you always know what you are buying and even allows you to compare several deals side-by-side so you can pick the one you like most.
Scalability: Applying the Buy-Rehab-Rent-Refinance-Repeat (BRRRR) Strategy
We could not write this article and not mention the BRRRR strategy here. You know by now that we love the Buy-Rehab-Rent-Refinance-Repeat (BRRRR) strategy for real estate investing. For those who are not familiar with BRRRR, in a nutshell, the idea is this – buy a great deal on a property, increase its value by fixing it up, lease it to a tenant, find a bank to issue you a loan on the property, use the loan proceeds to buy more properties, and repeat the process. We love BRRRR for scalability because of the ability to recycle the same cash over and over – the refinance loan is simply a bank returning you the initial money you invested, which you can now use again for another piece of real estate. We would be happy to consult you here if you have specific you would like to work out.
Using BRRRR as your strategy helps eliminate that FOMO feeling – you know that as soon as you refinance and get your money back you can invest again, in comparison to the alternative of keeping your money in one project for years and years.
Power of Decision-Making
There truly is great power that comes with making a definitive decision and taking action. Success comes from commitment.
If you find a property that meets all of your criteria and you have the cash available to execute, what is there to hesitate about? Indecision can be your greatest enemy when it comes to investing. Why? The time it costs you to ponder something you already know the answer to when your money could be invested and making you more money and the opportunities you will lose to those who are certain, strong and decisive in their investing.
If you are comfortable with your criteria and a piece of real estate comes along that matches that criteria…invest!
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“If you want to take the island, burn the boats.” – Tony Robbins