BRRRRing multi-family or single family?

Question

Hey y'all,

I am just getting into real estate investing and I want to try out the BRRR method. However when I talked to my agent he told me not to BRRR multi-family properties, only SFR. He cited the kitchen/bathroom renovation cost and multi-family appraisal is not evaluated as high as single family. Is that true? I thought multi-family properties would have a higher value compared to single family.

Jesse Thurston · Answer

Zhi,

Since I don't know your agent or the conversation that took place. Remember that multi-family values that are more than 4 units are considered commercial. These properties are valued based off more the income. So that means based off your renovations on multi family units how much can you raise the rent to justify to the bank the new value to refinance. The BRRRR method for multi family buildings is a thing and I have clients that do go that route. The major difference on it is usually you will not be able to pull out as much on the refinance as you're getting more of a return in the next x amount of years from those renovations. These projects are also more expensive due to the building costs, amount of units to renovate, and time. Technically he's right, but it's very much doable in the apartment world. I would recommend starting out in single family to get a hang of it. The larger commercial multi family buildings can come over time once you get the experience and capital. The plus side to the larger multi family buildings in my opinion is having to find less deals and you get a great cash flowing asset (of course if the numbers are right) in the end. My last thought is that if you want your original investment to last longer single family will be the way to go as you're likely to get more back in the refinance.

Good luck!

Zhi Li · Answer

Thanks for the detailed explanation! It actually makes a lot of sense about multi-family BRRR. Although multi-family is definitely my favorite, BRRRing them requires a lot of capital, which I do not have... I think this would be better tested with small SFR first as you mentioned.