Asheville, NC · Member since 2016 · 23 posts · 2 votes
What is the difference in using the BRRRR Strategy vs. getting a deal on a home 70% off? The major difference I can tell is that it sounds like you have to purchase BRRRR properties with all cash, then refinance once the property is stabilized. That being said, is it still just as good of a deal if you buy a home that is worth $100K for $70K and putting $14K as a down payment and don't intend on rehabbing it to much ($5-10K roughly), or refinancing it? Cash flow wouldn't be that great on the home we are looking at as it's just above the 1% but curious to know the difference. Thanks!
Please disregard the $5-10K in rehab piece. This obviously would not make the property 70% off. Essentially what I am asking is this: is one strategy more powerful than the other? If so, what specifically? Thanks!
Thats a sweet combination IMHO. If I was buying a 100k property for 70k, I would cash out refi after 6-mo and pull out the 14k I initially put in, and then even a $1 cashflow is a good ROI.
I'd say the clear difference is the cap ex factor. If you redo part of the home then you essentially restarted the clock on the cap ex. For instance if you replaced the furnace in the BRRRR and you did not when you bought the place raw, then you will have to replace the furnace that much sooner. That and the maintenance could be higher as well. Lastly, I don't know - at least in my area you can't - find a fixed up ready to go property for a discount. If that is the case, then over time if others in your area do the same thing you just did, then your equity gets eroded because if 6 other houses that were worth 100 are now bought for 75 with no work, then all of those houses are not worth 100k anymore but rather 75. There was no work or value add so why would an appraiser appraise your property for a higher value. That is trouble I see in one of my target areas - investors bought ready to go investments and didn't update them and ran down the prices in the neighborhood. If you BRRRR then you are improving the value of the home but renovations and can make the case that you are improving the area and values. BRRRR relies on the valuations staying high and if you set a trend of value add in your area, other will need to do the same to get your valuations. I hope that helps a bit.
My question would be if it does not require any work and can be financed just like any other retail property, then why would it sell for 70% of retail market value? Why would they not just list it in the open market for 100% retail price in that case? What value are you adding to the property or transaction to justify such a price? If the answer is none, then is that a very realistic or sustainable investment strategy? Sellers typically don't just "give away" 30% of their equity for no good reason. If it appears that they are and you can't tell why, then perhaps you are missing some important factor(s).