Does brrrr make sense when ARV is higher than rental rates?

6 Replies

I have one SFH rental in this particular neighborhood that has performed well. I bought it below market value, put in $8k worth of work and have good cash flow + appreciation. In less than a year I have had $22k give or take in appreciation. Since I am wanting to grow and preserve my capital I want to brrrr going forward, but I'm not sure it makes sense.

In this market today we are at $160-$170k ARV for a completely done property and rents are $1,450 to $1,650, depending on square footage, etc. This area also has fairly high taxes $3k-$4k/yr. So the 1% rule doesn't work due to higher taxes, more like 1.25% here.

If I want to pull out 100% of my investment, or as close to it my net cash flow will be $0-$100/m at best.

I'd like to brrrr to 10 SFHs. Rent them out for 5-10 years. Realize some appreciation gains, then sell 5 and use those funds to payoff the remainder 5. With the ARV to rent ratio where it is at does this make sense to do?

It really just comes down to when you want the money. Selling now will give you some short term income; holding long term (10/20/30years) will create stable retirement that will last the rest of your life. 

It depends on what you want to do; if you want to own buy and holds which it sounds like you do, as long as the math you did when you purchased the property still applies you should be able to hold on.  If you want to be a flipper and do a similar project every couple of months the better option for you may be to sell.

@William S. , in your "$160-$170k ARV for a completely done property and rents are $1,450 to $1,650" market, if you've still been using an all-in "70-75% ARV Rule", it means it owes you say (only) $120k, which you'd get all back at refi, and you'd still cash flow positively.

Right? [My guess is though, you don't reckon you'll be all-in below 75% ARV?]...

After running some numbers it still works. Rehab budgets would be $35-$40k with purchase prices ranging from $80-$90k. I wouldn't receive all of my cash back. It would cost me roughly $17k per brrrr.

That's pretty tight cash flow, so it might be worth flipping it an using that equity to buy another property that will cash flow better, maybe a duplex or something like that. But if you think you can get to that $100/month cash flow, or at least close, I would probably hold on (I'm partial to buy and hold though, so you should know that).

@William S.

In a perfect BRRRR world you get 100% of your investment back and maintain your desired cash flow. However, we all know it is not always perfect. So figure out what your absolute minimum acceptable cash flow is. $100 per unit/per month? Then calculate what is the maximum Cash-out refinance amount that allows you to stay at or above that cash flow minimum. If it's 100% ... that's great. But, if it's only 80% then you have to decide if that is OK for your needs. Work to reach the 100% goal on the next deal.

It sounds like your primary goal right now is portfolio expansion. So using the BRRRR strategy as often as you can seems to meet your plan. If you continually only recoup 70 - 80%, then, your available cash amount will keep getting smaller. Unless you have other sources of cash.

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