Completing a successful BRRRR, which means that you’ve essentially acquired a cash flowing property and left zero of your working capital on that deal, can be a huge confidence booster for real estate investors.
While a little bit of confidence goes a long way for real estate investors, too much confidence too soon can lead you astray, and that definitely happened to me. Today’s post will cover three mistakes I made during BRRRRs that you should learn from and avoid repeating:
Three Mistakes I’ve Made While BRRRR’ing
By the time I was offering to buy my fourth rental property, I thought I was an expert in everything related to property. It had been 24 months since I had closed on my very first deal, which almost tripled my money, and I was feeling like the wind was on my back. For that reason, I made an offer which waived the inspection contingency. I thought I knew enough to identify any“major issues” a property could have. Boy was I wrong!
What actually ensued was nearly $25K worth of maintenance issues that I had no idea existed, and therefore could not leverage during negotiations. A certified inspector would have caught at least half of these problems. In my opinion, any and all information that can be unearthed about a property should be used during negotiations, and that includes information from a professional real estate inspector. In waiving this right as a buyer, I potentially opened myself to an unlimited number of maintenance issues.
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Lax General Contractor Oversight:
Another mistake that I made (also on my fourth property) was trusting that my general contractor would follow through everything with minimum oversight from me. I had used this contractor once before and was somewhat satisfied with his prior work. Then, I closed on the 4th property soon after my second child was born, and life got extremely busy. I relied heavily on pictures from my contractor when issuing payments for service, and pictures can easily tell false stories. You can imagine the outcome: shoddy work, unfinished details, and a bit of embarrassment because I didn’t discover any of this until my new tenants were only two days away from living in the property. In the future, I will not issue any final payments until I (or someone I trust) can personally review the work that was done.
Avoidance of Hard Money:
I have bought four properties and zero of them have been purchased with any kind of creative financing. All of my initial acquisitions and cash out refinance loans have been through a conventional lender. In my opinion, this is a hindrance to my expansion plans. While there is nothing explicitly wrong with conventional loans, as I have benefitted from excellent service and great rates, this lending model has undoubtedly slowed me down. Traditional mortgages are great, but they are slow, often taking 45-60 days to close on a property. Had I utilized hard money lenders for my initial purchases, I could have shaved months of processing time from my deals, which may have helped me get a fifth property before interest rates changed the investing landscape.
Sometimes Twitter makes you seem like an expert, and hopefully you can see from my amateur mistakes that I am far from one. Mostly importantly, though, I also now know that I still have a lot to learn. I look forward to continuing to share my story with you all as I seek to expand from 4 to 15 properties!
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Frugal Mogul 🏡 (@RealFrugalMogul) / Twitter — twitter.com
Building wealth one property at a time. Showing you the way by live tweeting the ups and downs of real estate investing. Buckle up and follow the journey!