Posted by Jessica Huff (Jacobs) on Wednesday, November 8, 2023 at 7:30:17 AM By Jessica Huff (Jacobs) / November 8, 2023 Comment
BRRRR vs. Flipping: A Comparison of Real Estate Investment Strategies
Discovering the Key Differences Between Flipping and BRRRR
When it comes to real estate investing, flips and the BRRRR method are like two sides of the same coin. Although the specifics may vary depending on the market and property, the main distinction lies in the level of investment in finishes. Flips typically involve higher-end finishes, while BRRRRs tend to focus on addressing maintenance and upgrades without excessive spending.
Both strategies aim to generate equity in the property and profit over time. For those flipping in a B neighborhood, luxurious stone countertops and tiled accent walls may be worth it. However, for those renting in the same neighborhood, such upgrades might prove unnecessary. After all, if you plan to rent for an extended period, you can always add those upgrades later when selling becomes a possibility.
Weighing the Pros and Cons
The BRRRR method, if executed correctly, provides a continuous stream of funds indefinitely, in contrast to the one-time profit of a flip. Nevertheless, both strategies offer opportunities for quicker cash and potential leverage. The goal remains the same: to create equity and capitalize on that profit.
Factors to Consider when Deciding
When determining whether to sell or keep a property, consider the following considerations:
1.Cash Flow: An ideal BRRRR situation involves an investment of 75% or less of the property's after-repair value (ARV). If you can generate at least 25% equity, you can refinance and recoup your initial investment. Not meeting this threshold doesn't necessarily mean the property should be sold, but it may require leaving some personal funds in the deal. However, this shouldn't be the sole criteria you rely on, unless you have special circ*mstances.
2. Monthly Cash Flow: If a BRRRR property generates enough income to cover its costs on a monthly basis, that's a good starting point for deciding whether to keep it. The desired cash flow is subjective, but if the property is situated in a rapidly appreciating market, it may be worthwhile to endure lower monthly profits. In contrast, properties in a C area require strong cash flow to withstand unpredictable challenges. Over time, these properties can become more efficient and lucrative.
3. Market Conditions: Depending on the region, selling might be a wiser decision if the market traditionally experiences low appreciation. By capitalizing on the equity from the property, it can be reinvested into more promising projects. Just remember to budget for the necessary taxes on the income generated.
The Unexplored Potential
It's interesting to note how many real estate investors specialize in a single strategy without exploring other avenues. Chronic flippers, for example, often overlook the possibilities of keeping properties as rentals. With so much diversity in real estate investing, it's crucial to have a comprehensive understanding of different approaches and their respective pros and cons.
Unlocking the Hidden Tax Benefits of Real Estate: A Stepping Stone to Financial Independence
Discover the untapped potential of your real estate investments and revolutionize your approach to taxes. Many individuals have been shelling out vast sums to the IRS due to their achievements in house flipping. But what if there was a strategy that could minimize your tax burden and maximize your returns? Introducing tax strategy and cost segregation—the game-changers that make paper losses more appealing than a cash-on-cash return.
Flipping houses may seem like a whirlwind of constant activity, where buying, renovating, and selling properties becomes second nature. However, this high-energy approach also means being taxed as an earned income or wage. Don't worry, flipping does have its merits—especially for those starting out or seeking immediate capital. There are properties that shine as flips but would crumble as rentals.
There's a time and place for flipping, and that's where our team comes in. We collaborate with flippers, bringing them deals and even purchasing their properties as turnkey rentals once they're done. However, if you're reading this, chances are you're on the hunt for financial independence and passive income—flipping houses can be a stepping stone, but it's not the ultimate destination.
For newbies, grasping the tax benefits of buy-and-hold investing can feel like cracking a code. But once you experience it, your life can be transformed. Strictly flipping homes means missing out on these life-changing benefits and actually increasing your tax liability. Sure, paying taxes on substantial earnings isn't a terrible thing, but wouldn't it be objectively better to make a fortune while paying little to no taxes?
By considering the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy for flips that make sense, you're giving yourself future freedom. Imagine repeating this process and transforming your family's financial future one gift at a time.
Flipping houses is undoubtedly an excellent way to kickstart your real estate journey and build capital. However, if long-term wealth and financial independence are your goals, it's time to shift your perspective. Take a fresh look at the BRRRR strategy and analysis, as what may not seem like a lucrative deal today could be a game-changer in five or ten years. Remember, once you sell a property, it's gone forever.
In the realm of real estate, true wealth is accumulated through patient persistence. Hold onto your investments, allow time to work its magic, and savor the passive fruits of your labor in the not-so-distant future.
JESSICA HUFF
(703) 346-0962
[emailprotected]
jessicahuff.jacobsandco.com
JACOBS & CO. REAL ESTATE, LLC.
12923 Fitzwater Dr. Nokesville, VA 20155
(703) 594-3800 | jacobsandco.com
