BRRRR - Good Cash Flow vs No Money In Deal?

[Liam Maher]

I was running some numbers and it seems to me that when you're doing a BRRRR you have two choices: you can either pull a lot of money out in the refinance, which then helps you scale up quickly, but then you leave yourself with a high mortgage payment, and little to no cash flow. OR you can take a smaller loan and leave more money in the deal to increase your cash flow due to the lower mortgage payment.

How do you guys navigate this? Would you rather have higher cash flow with more money in the deal, or less cash flow with less money in the deal? Is there a right answer?

[Jake Baker]

@Liam Maher

We do 20 Flips/BRRRRs per year in Jacksonville FL and we use a hybrid approach. It is also very hard to "perfect BRRRR" here. We BRRRR 8-10 per year and the flips supplement the money left in the BRRRRs. How do we choose which ones to BRRRR? - Location. It is not about how much is left in the deal for me. It is about the long term appreciation of the asset.

I look at Cash Flow and Forced Appreciation as a hedge against market corrections. Cash flow (in my portfolio as a whole) covers my expenses. Forced Apperception (BRRRR or buying at a discount) allows me to build in equity from the beginning of the investment in case I need to fire sale the property for an unforeseeable reason. Market Appreciation is where you will make the most money over a 10-year period but is the least predictable. However, real estate values (on a national average) have never gone down over a 10-year period.

[River Sava]

Hey Liam - It most cases it boils down to your strategy in terms of investment goals and associated risks you are willing to take. Opting for a larger loan and pulling out more equity in the refinance can accelerate your ability to scale up quickly, but it may result in higher mortgage payments and reduced cash flow. 

Conversely, choosing a smaller loan and leaving more money in the deal can increase your cash flow due to lower mortgage payments, but it may limit your ability to expand your portfolio rapidly. There's no one-size-fits-all answer, it ultimately depends on your individual circumstances. Some investors prioritize rapid growth and are willing to accept higher mortgage payments intially, while others prefer to make cash flow king and opt for smaller loans to mitigate risk.

[Jack Schwartz]

Hi Liam, 

BRRRR is designed to help you expand your real estate portfolio rather than simply cashing out a small profit that could hinder your growth. While opting for a smaller loan and retaining more capital in the deal can enhance your cash flow by reducing mortgage payments, it may also impede your ability to quickly expand your portfolio.

Good luck on your journey,