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?
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.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Joanna Dennis sure it works assuming the property value has increased. The problem is some people buy mediocre deals, paint the place and expect to pull all their cash out. The bank appraisers know property values. If you put $5000 into a place, they will see the value as increasing $5000. If you expect to pull all your cash out in short order, then it needs to be a significant rehab or you need to buy at a steep discount to market. Ultimately comps need to support your price. It is not what you think it is worth, it is what the comps support.
The other thing is once you pull all your cash out, your payment will be higher. You need to make sure the property will cash flow taking the larger payment into consideration.
You also want to figure in closing costs for the refinance. That could be several thousand dollars. You have to ask yourself is it worth pulling out $10,000 cash if it costs you $4000 to do it. Just an example but you get the point.
BRRRR is preached so often on BP that some people believe it is the only path, which isn't the case. I purchase buy and hold that needs very minor rehab. I lock in long term financing day one. I end up leaving a little more equity in the property, but my cash flow is higher too. I save up that cash flow for the next deal.
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.
There are many ways to do this strategy using very little of your own money. I have used local banks to get the initial renovation loan, private money and hard money. Most of the deals I have done have taken up less than 30k of my capital at any time