Welcome to Tarl’s Weekly Insights, my take on real estate today.
In these newsletters, we'll dive deep into the real estate world, share valuable investment strategies, and explore the craziness that life has thrown my way. Whether it's my struggle and journey of overcoming flipping, deciphering the insanity of the market, successful strategies being used in REI, or just me making fun of social media real estate investors...I can't wait to share it all with you.
Announcements:
Do You Want My Help?
I have never wanted people to hit me up about coaching them. In fact, everyone who has actually reached out to me directly asking for it, I have always told them "No, I don't do that" or I convince them they don't need it...but I have a confession, I actually do do private coaching and consulting for real estate investors that are at a certain level in their business. I don't like saying no to people that ask for help, which is why I don't promote coaching. The truth is, I do not enjoy coaching 'newer' investors, I cannot help them. I do however enjoy coaching experienced investors running a business. I know I help them, they are my sort of people.
I got a text yesterday out of the blue from one of my private coaching clients that said: "In the last 9 months of working together my revenue has gone from $150k/m to $300k/m, thanks for that! Looking forward to the future...!"
I was like...sweet! This particular gentleman pursued me for months AND tracked me down at two separate in person events, persistently asking to coach him. I said nope, nope, nope. You see, I wasn't coaching anyone at that time and didn't want to. However after a few months of wearing me down, I agreed. Since then I took on one more coaching client, and I am ready to add one more and max out with three.
The best part of coaching? Everyone I have coached in the past has become a great friend of mine and still is to this day. In fact three of my past coaching clients OWN BUSINESSES with me, one of them being my lending company and the other my fund, Fixated Capital. Crazy!
If you are interested, there are a number of hoops you need to jump through first in order to make sure we are a fit together:
Click the link to find out all the details and start jumping through the hoops
I will read every application personally, and respond. Not joking.
LINK BUTTON TO https://www.tarlyarber.com/coaching
Inside the Trenches - Word on the Street
BRRRR IS DEAD! But wait...I am still doing BRRRR! My take on the BRRRR today
Is BRRRR dead? Short answer from me, NO. What is the BRRRR strategy you ask? Buy, Rehab, Rent, Refinance, Repeat! This is where you buy a messed up property (aka something you might flip), fix it up, rent it out, refinance it (and get your capital out of the deal) and then do it again and again! This acronym was made famous by my good friend Brandon Turner on the BiggerPockets Podcast, and then later by David Greene when he wrote the book on it.
Why are people saying this strategy is dead? In reality, this strategy is nothing new in the real estate investment world and has been going on since people started investing in real estate no matter the market. It's called buying properties, fixing them up, and putting a tenant in it. Then afterwards, if the appraised value is high enough, you refinance and pull some cash out of the deal.
As an old timer investor once told me years ago "I didn't know I was doing the BRRRR strategy this whole time, I thought I was just investing in real estate..." Basically...the BRRRR strategy is just a catchy acronym for investing in real estate and refinancing once the value increases on a deal. Value add multifamily, commercial, single family portfolio buyers, have been doing this strategy FOR EVER.
What is my take on the BRRRR Strategy today?
I view the BRRRR strategy very simply: I buy a house to flip...and then decide to keep it. Its that simple to me. Every good BRRRR must be a good flip first. For me, if a property is a good flip then I will buy it (so long as it's in my buy box, market, etc). Then, once the rehab is done and we understand the value of the property and our final numbers, if it meets my criteria to keep it...then I keep it! If it doesn't, then I sell it. I don't see it any other way.
So is the BRRRR method dead? NO!
Where people are unfortunately getting stuck when it comes to BRRRR is that they "can't get a property to cash flow." This is typically true if you want to do an "INFINITE BRRRR'' which is where you are able to not only cash flow on a deal with a tenant in place, but you are able to do so after you refinance the property and get 100% of your invested capital out of the deal. You have NO money left in the deal, so this equals an 'infinite' return.
BUT! That's where I think my friends Brandon and David over the years with BiggerPockets (myself included with my YouTube videos on BP over the years), have misled so many investors.
Investing is about investing dollars to get a return on the investment. Where is it normal to get an infinite return on your money? Most people will love a 8%-10% return on their money and struggle to get this day in and day out.
So let's do the math on one deal today (we will keep it simple), let's assume you use all cash for this deal so the math is easy
- Purchase 100,000
- Rehab 50,000
- After Repair Value 180,000
- Refinance after rehab 75% LTV @ 7.5% interest rate = $135,000
- Money LEFT into the deal = $15,000 (I KNOW there are other costs, we are keeping this simple)
- Rents = $1500/m
- Mortgage payment (PI) = $944/m
- Taxes and Insurance = $175/m (varies geographically)
- Cap Ex = Zero for first few years BECAUSE YOU REHABBED THE HOUSE (at least thats what I do in a BRRRR)
- Property Management 10% of rents = $150/m
- NOI after Debt (cashflow) = $231/m
- Annual ROI based on $15,000 INVESTED = 18.5% annual return on your money
NOW! I know what you are thinking, what about vacancy, reserves, and what if it doesn't rent for 1% of the value and it only rents for $1350 or something?? Well...thats the fun of investing in real estate. Is this a bad deal? Heck NO! 18% ROI is AMAZING in the real world. Additionally, even if the property rents for $1350/m in stead you are still getting a 6.5% ROI.
But TARL! All I am seeing is 6% ROI or worse on these BRRRRs because of interest rates. Its not cash flowing enough, I have to leave too much money into the deal, THE OPPORTUNITY COST on my money isn't worth leaving it into the deal...! I can make a higher return flipping houses with that money.
YOU ARE CORRECT! For the short run...but not in the long run.
What is more likely? The value of the house today being higher than it will be five years from now? Seven? Or will the house, in the right markets, be worth more? Based on many market factors that I have written about before, I believe TODAY is one of our last real chances to buy single family properties at these prices. Additionally, if you don't sell the house today, do you lose the equity? Do you lose the cash flow? No, think of it like a "savings account that you get a ROI on." Having a tenant pay the mortgage, buy down your principal, and decrease your taxes (depreciation) until one day you decide to sell...will make your future self very happy.
Are there moments you should sell and flip houses? Absolutely. Some markets do not justify holding onto the properties for many different reasons. However, should you consider keeping every house you get? ABSOLUTELY!
But Tarl...I need my flip money to live. Or I need my flip money to buy more flips. Or I don't have enough money to leave into the deals...it's just not worth it...
Well...that's where running a better business comes in. Do more projects, you can then keep more projects.
Next week I will break this down more. One of the best ways to be able to justify keeping more single family homes, is to get better at doing more single family homes.
Let's stay connected! Find me on social media and stay updated with additional videos and content.
That's it for this edition of [name of newsletter]! Stay tuned for more each week!
Talk Soon,
Tarl Yarber
