Thought of the week – BRRR method for real estate investment
I have come into this book that talked about BRRR method used for real estate investment. BRRR stands for buy, rehab, refinance, repeat. The concept is that you have enough capital for your first property and focus on getting the most ROI (return of intern) which means cash flow the rents your collect in this case. The property doesn’t have to be expansive but whatever fits your budget and has great rent appreciation potential. Other than growing your wealth passively like any other types of investment, you get to practice your skills in making deals. When I buy stock shares, I don’t like to interact with other people but making careful choices. For setting up each property to start generating cash flow, you need to find good agents for great deal and lower the cost for rehab which can increase the property’s value for sale later. In general the more you deal with the same mortgage entity and the same group of agents, the easier you may get better deals such as exclusive lower interest rate and obtain perhaps inside information within the community. I am sure you can treat it as a training ground for making dealing which I believe is a transferable skill to businesses. On the other hand, the way to earn profit is simple. You maximize you ROI, refinance to retrieve your invested capital, buy another property, and repeat. You can imagine one property is equal to one share of stock and the price of one share of stock is the down payment of the property. However, similar nature in any investment, there is certain risk involved such as economy crashing like the 2008 global crisis which the bank forecloses your mortgages and your are forced out of the game with less in your hand in total. Another downside for real estate investment even with the attractive concept using BRRR method, there are still complexities involved such as hiring good agents, fixed period of tenet occupation, cost for rehab, and many tiny costs here and there. We may actually end up not gaining as much as we expect not to mention the assets are not liquidated. Thus, for some people it may make sense to just invest in REIT or even just big cap ETF such as S&P500 which doesn’t include any handling fees and transaction fees. In conclusion, as long you can manage your risk well, you can do however you prefer.
Summary of random news
Unequal economic recovery
A lot of people were laid off and started new careers. There is a K shape growth in term the current economy, wealth building on wealth and labors continuing to suffer. Lots of businesses such as gyms live on government loans and it will take months after pandemic to regain tractions. Once when people lose the habit of going to gyms, it will take some times or the customers will never even come back. Service jobs that require physical contact and collaborations will remain seriously affected and both workers and customers have switched to focus more and more virtual services. Once customers and workers succeed in transitioning to the new normal, the old normal will be gone forever.
Income and Spending Gains Are Latest Sign of Economic Recovery
Spending in Goods has raised 5.8 percent but only 0.7 percent in services. Expert stated that citizens have put their money in saving a lot more compared to last years for the past few months. For the people who have no where to spend their money, when the pandemic situation gets better which has already started, the economy will experience an expected surge to bring the whole US even global economy back to pre pandemic level. On the other hand, yields on government bonds, the basis for mortgage rates and corporate borrowing, have risen sharply this month as investors anticipate a quick pick up in growth.
Powell Focuses on Economic Need at Key Moment in Markets and Politics
The Federal Reserve chair Jerome H.Powell has been answering public questions regarding inflations and Fed’s strategy in helping the US economy. Mr Powell stated that the Fed has been doing everything it can to support the economy but he expected to see more improvement than we have seen lately. He also eased investors’ nervousness and concerns regarding inflations being out of controls by estimating that there may be some popping in prices but won’t result in substantial increase in the long term. He also pushed back on the idea that government spending is poised to send prices rocketing out of control. Still, he declined to weigh in on how much more government support is appropriate. Another highlight is that Mr Powell has stressed that the labor market is crucial because it helped those living on the margins. That’s why the central missions included returning to a strong labor market, like the one that preceded the pandemic.
How investors are valuing the pandemic
Market for ex unicorn companies have behaved differently even going through similar situations. While DoorDash dipped in stock prices but Airbnb raised to an surprising level. In general, these companies look forward to restoring the old normal and anticipating a stabilized market with pre Covid healthy conditions.
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