Can you really BRR in real life?

Louisville, KY · Member since 2018 · 23 posts · 14 votes

I am just starting out and met with a seasoned real estate investor this morning. I explained that my investment strategy was going to be to BRR single-family homes. He said that it was basically impossible to BRR because banks won’t appraise the houses the same as an independent appraiser would and so it’s a nice idea but not a real world practice. Banks have their own appraisers and they don’t want to do it. He referenced his experience plus the word from a bank VP he knows... Anybody else run into this “real world phenomenon“ or anyone who has done this successfully want to provide any insight on how they did it?

Thanks

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Jason D.

Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes

Buy low, renovate correctly and efficiently, know your rental market. I just finished a BRRR that i bought for $55k, put $45k in renovations, with purchase and holding costs I'm all in at $112k. I had $22k of my own money in the property. Appraised for $163k, I refinanced at $117,650 (72%), and got $19k back at closing. $3k left of my money in the property, cash flows about $200 per month, after reserves. It can be done and there are many here that have successfully done it.

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Jason D.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
8y
Buy low, renovate correctly and efficiently, know your rental market. I just finished a BRRR that i bought for $55k, put $45k in renovations, with purchase and holding costs I'm all in at $112k. I had $22k of my own money in the property. Appraised for $163k, I refinanced at $117,650 (72%), and got $19k back at closing. $3k left of my money in the property, cash flows about $200 per month, after reserves. It can be done and there are many here that have successfully done it.
7 Reply
Sarah Waskey
Rental Property Investor · Louisville, KY · Member since 2016 · 2 posts · 4 votes
8y
Great question, Joanna! I'm curious about BRRR's, as well. Has anyone in the Louisville, Ky market successfully completed a BRRR? If so, can you offer any tips?
2 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
8y
@Joanna Dennis @Sarah Waskey
It can be done for sure. I have done it many times right here in Louisville Ky. @Jason D. is correct you must know your market and buy right, control the rehab cost and be all in for the correct number. I will also say having a good relationship with banks helps. Today's market is a little tough as prices are up but you can still find deals. Network, network and network more. The days of "great" deals on the MLS are gone. It really comes down to how much you market and network. In short BRRR can be done here.
Hope that helps.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Joanna Dennis it can be done. What your investor friend is probably referring to is the fact that you usually (not always) To wait 6-12 months after purchase to be able to refinance at the new appraised price. Otherwise most banks will let you refinance at the rehab plus purchase price amount that doesn’t really help you. So it can be done but you need the right bank, with the right appraisers to make it easiest. If you do this at scale your financing terms will be commercial and less attractive terms then regular conventional
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Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y
Sarah, I did talk to a couple that works West End rehabs for rentals and it sounds like they were successful in their BRRs.
More input on other areas would definitely be valuable!
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Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y
Thanks @Jason D., @Jason James and @Caleb Heimsoth
Caleb, that helps. Yes, he is definitely over the commercial level of rental homes so that could very well be part of it.
Jason James, yes I've long ago given up on the MLS and am working on networking and creating my own lead funnels.
I have a good relationship with my bank but it’s a national bank, which I hear are less favorable to investors? I’ve heard local investors recommend River City. Do you have recommendations?
1 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
8y
@Joanna Dennis Yes River City is a good bank. Another I like is King Southern Bank. Ask For Heath Majors he's great. I am working with another bank right now on a large deal so we will see how they work out. If things go well i will give you their info.
One thing to remember is most banks don't like war zones or even borderline war zones. They want good assets in good areas. They have to protect their investment as well so keep that in mind. The cheaper properties are great for cash flow but may not help you with the BRRR method. Flip side is they are cheap enough that you don't really need the BRRR method. Just depends on where you want to invest, type of property and so on.
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Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y
@Jason James Well, the banks and I will get along just fine then. I understand that war zone properties cash flow really well but there’s a reason I’ve never been to war. Thanks for the recommendation
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Erik HitzelbergerPro Member
Investor · Louisville, KY · Member since 2011 · 331 posts · 278 votes
8y
@Joanna Dennis It can be done, but it's not as simple as some people may lead you to believe. As mentioned above, there are often seasoning periods (6-12 months). Large national banks are particularly challenging. I like River City, West Point Bank and Century Bank of Kentucky especially for the rehab portion. You can attempt a cash-out refi with them or try Republic/Stockyards/Central Kentucky Bank.
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Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y
Thanks @Erik Hitzelberger I will look into those banks as well!
Appreciated the contributions you and Bryan made to the rehabbing workshop this month. Really helpful with respect to property analysis.
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Erik HitzelbergerPro Member
Investor · Louisville, KY · Member since 2011 · 331 posts · 278 votes
8y
@Joanna Dennis - You are welcome. If you need any contact info, let me know. I can't remember if BP allows sharing in the general post, but you can (or anyone) is welcome to send me a DM
1 Reply
Redgy Saint-Germain
Rental Property Investor · Boston, MA · Member since 2017 · 241 posts · 135 votes
8y
@Jonna Weber
Yes it can be done for sure.
1- If you buy your property cash you can rehab it and use the " delayed financing" after 4 weeks allowing you to pull all your money back assuming you bought the deal right in the first place.
2- FHA you buy your deal with 3.5% down live in it while you're rehabbing it and refi after a year pulling your money out.
3- Conventional ( buy under 70% LTV) with 20% down, build equity then refi
1 Reply
Kevin Kessler
Rental Property Investor · Hamilton, OH · Member since 2018 · 2 posts · 9 votes
8y
@Joanna Dennis, I've had luck with BRRRR in the Cincinnati area. It takes analyzing a lot of properties to find a very few that make sense, but they eventually can be found. Regarding financing, I've had to wait a 6-month seasoning period. On one deal, I used a mortgage broker who found financing through BoA ... and the appraisal actually came in a little higher than I expected. It takes persistence in both finding the right properties and the right financing, but it certainly can be done. Best of luck!
1 Reply
Larry Fried
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
8y
Can be done, is being done all the time. I've done it as an out of state investor in Indianapolis. As others have said, it is not as easy as some would make out. There are almost always things that don't go as expected. Having the right team in place is critical.
1 Reply
Ryan Howell
Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
8y
Yes it can be done. I'm on my 3rd BRRRR deal. My issue is I'm doing it with duplexes so far and there are very few comps so it's a little more difficult that SFR in my area. Essentially, I end up with a little more cash in the deal than I could have with single family.
My understanding on the residential side, at least for banks that are selling the loans off, is they are required by law to use independent appraisers drawn at random. At least that is how the loan officer explained it to me.
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Account Closed
Property Manager · Alpharetta, GA · Member since 2018 · 163 posts · 117 votes
8y
This is great advice.

The single most depressing aspect of getting started is the unsolicited, negative advice. The above advice is positive and constructive.
Also, this ain't HGTV.
The market is hot right now, all of the low hanging fruit is being picked by everyone. You really, really have to search for the right deal. Yes, banks use their own appraisers, but they all have the same license with the state. This is the same reason you can't have an appraiser in your pocket. "I'll give you 5K at closing if you appraise over 160K." There are mechanisms in place to challenge a banks appraisal.

Everyone above is right. This isn't going to be easy, but there is money out there to be made. You aren't pulling the wool over someone's eyes, the work you're doing IS increasing the value of the home. (Sometimes it helps to remind myself that).
Surround yourself with people you trust.
Ask a million questions.
Know they answer to most of your questions before you ask them.
Do the research
Do quality work.
Learn from your mistakes.
3 Reply
James Mabe
Investor · Winterville, NC · Member since 2015 · 47 posts · 93 votes
8y
Yes it can be done. As you may have heard the difficult part may be the refi. Your LTV may vary slightly between banks, but I think there are conforming guidelines. I just refi'd a paid off duplex. If the refi was on my primary, I would get 80%, if it was on an investment property 75%, but since mine was a duplex it was considered multi so only 70%.
1 Reply
Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
Originally posted by @Joanna Dennis:
I am just starting out and met with a seasoned real estate investor this morning. I explained that my investment strategy was going to be to BRR single-family homes. He said that it was basically impossible to BRR because banks won’t appraise the houses the same as an independent appraiser would and so it’s a nice idea but not a real world practice. Banks have their own appraisers and they don’t want to do it. He referenced his experience plus the word from a bank VP he knows... Anybody else run into this “real world phenomenon“ or anyone who has done this successfully want to provide any insight on how they did it?
Thanks
That is bad advice. I did that over 50 times. The majority of my properties I have less than 5% of my own money wrapped up, yet maintain a 60-70% LTV. In this market it will be more difficult to do. The financing part is actually the easy part today, it's finding a property that will allow you to refi, pulling your money out, while still cash-flowing.
I would meet with your local banks first to understand what you are able to accomplish. You may be able to start buying them with in your personal name (this will require a 6 month seasoning before refi). After you max out your personal credit, you can start getting commercial loans through your LLC. They still look at you personally, but focus more on your rental portfolio.
3 Reply
Chris Purcell
Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
8y
@Joanna Dennis
The appraiser on the bank end should be using the same comps that you used to buy your deal in the first place
Therefore your numbers should be lined up before you even consider the deal
1 Reply
Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y
@Chris Purcell
That's what I was thinking, but you know, when you start to introduce logic... lol
0 Reply
Rich Hupper
Broker / Investor · Tewksbury, MA · Member since 2008 · 1k+ posts · 351 votes
8y
Its all about buying the property at the right price for sure. You don't want to tie too much money up in the property once it is in service.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
Can it be done? Yes. Is it a strategy a beginner can execute? Unlikely.
The BRRRR is a capital intensive strategy. You need more capital to execute this successfully than other strategies.
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Chris Tran
Real Estate Investor · Irvine, CA · Member since 2013 · 24 posts · 24 votes
8y
Agree with most of everyone in this thread. Not that finding the right deal to BRRRR is easy, but the general concept should be relatively easy to execute.
The devil is in the details so get out and network, network, network. Find the right deal, build relationships with the right rehab team, and the right banker and you'll be able to execute your BRRRR.
Getting funding these days isn't hard, but getting quality funding is tough. Lending is a relationship business so get out there and meet lenders to find the ones that are experienced in executing similar plans.
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Joanna Dennis
OP
Louisville, KY · Member since 2018 · 23 posts · 14 votes
8y

Originally posted by @Russell Brazil:
Can it be done? Yes. Is it a strategy a beginner can execute? Unlikely.
The BRRRR is a capital intensive strategy. You need more capital to execute this successfully than other strategies.
Thanks @Russell Brazil
I don’t have a problem with capital. I just want to leverage effectively
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Craig McKee
Fruita, CO · Member since 2018 · 2 posts · 0 votes
8y
Can someone give an example of what the math looks like that enables you to refi and pull money back out after you have bought the property and rehabbed? I'm a little stuck on how that works.
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