BRRRR is how to invest in real estate in 1955
Posted by John Reed on
I never heard about BRRRR until I joined the Reddit group months ago. I bought a copy of the BRRRR book by Brandon Phillips to read it.
Uh, it seems to be written by a recent immigrant to the US for whom English is a second language that he has not yet mastered. There is nothing wrong with immigrants, but understanding U.S. real estate investing requires a certain amount of experience with it. One guru had a guy from New Zealand telling us Americans how to invest in real estate. One of his recommendations was to paint the roof of your property.
I have been to New Zealand, I have several bank accounts there. Great people. But different roofs. They are into catchment—saving rain for home use. Most roofs here are asphalt shingle. Painting an asphalt shingle roof would be very strange and ugly. I have only seen it once. Very bad advice.
There is no “about the author” in the BRRRR book—an odd omission for a how-to book on a technical subject. None on-line either except to say he is a real estate agent in WA and likes to watch the sunset.
Many of the sentences in the book are simply incoherent—not regarding real estate investment—but regarding the English language.
The last name “Phillips” suggests he is from the UK or a former British colony like Canada, the US, or Australia. But the book reads like it was written by a not-yet-fully-English-speaking person. Reminds me of tech support guys in Pakistan who tell you their name is “Steve.”
The first name “Brandon” suggests he is young. I don’t believe there any Brandons when I was in K-12 or college and maybe grad school.
But the book seems to have been written by an old person who did not notice that real estate in America has changed since the 1950s. The main virtue of young writers is that they are incapable of making such mistakes. They were not around for the 1950s.
I was around for the 1950s—albeit in elementary school. There have been four radical changes in US real estate investing since then.
• Around 1970, prices leaped upward in relation to the income of the property. Stated technically, capitalization rates before 1970 were double digits. After, they went to low single digits. That means no positive cash flow since unless your loan-to-value ratio is around 50% or below or you are buying a property in the slums.
• Thinking of real estate as a tax shelter became popular in the 1970s—some logic had to replace the cash flow that disappeared as a reason to own residential rental property. Then in 1986 the passive loss limits in the Tax Reform Act of 1986 blew real estate tax shelter of salary or business income off the face of the earth. The Real Estate Securities and Syndication Institute, a subsidiary of the National Association of Realtors®, was the main seller of rental property tax shelter. They promptly closed their doors.
• Real estate investors from the 1950s would be shocked and horrified by the thousands of extreme anti-landlord laws and litigation trends since land-use regulation went nuts in the 1960s. They would also be shocked that anyone was still in the landlord business with so many such laws. That anyone is still a landlord shows the effectiveness of the salami slice method of imposing radical, unacceptable change. If you do it gradually enough, landlords do not notice.
• Home buyers from the 1950s would be astonished and delighted by the explosion of low interest mortgage rates, almost continuous appreciation, low conventional down payments, the $250,000 per spouse capital gains exclusion for your home, HECM loans that let you cash out and make no payments, and property tax discounts for homeowners and seniors and police and teachers, etc.
Residential rental property cash flow on mortgaged homes went away in 1970 except in slums. Tax shelter went away in 1986. Being a landlord has almost become a per se crime since the 1960s. Homeownership has gone in the opposite direction, almost becoming a new class of adult spoiled children financially since the 1960s.
The Reddit discussion group has, to a large extent, been taken over by BRRRR, LLC-forming, duplex buyers. What an odd thing considering its stuck-in-the-1950s mindset and poor English-speaking author-leader who refuses to tell you his qualifications to advise you on real estate investing in the United States in 2021.
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