Rental Property Investor · Boston, MA · Member since 2019 · 12 posts · 3 votes
Hi Everyone,
Thanks for reading. I’m brand new on my journey and exploring rental income strategies. For my first deal I’d strongly prefer to stay local, but my market (greater Boston) is expensive and overheated.
I'm intrigued by the BRRRR method but the required up front capital is a bit daunting and the cash yield seems thin, even with rents as high as they are.
Has anyone had success with the BRRRR method in expensive markets? Are there other strategies I should think about or do I need to look to other markets?
BRRRR works better in expensive markets. Every $1 of NOI increase can result in a $20 increase in value vs a $10 increase in value in a less expensive market.
Hello Mike! one of the best ways to get started is with owner financing where you ought to get in for no money out of your pocket. I agree you should have a project within a hour drive. Successful people say that there are deals everywhere, you might just have to try harder and show the owner on paper how they could win. If they require a down payment or cash for other reasons just take out a second loan from a lender that will do that and satisfies the Owner's need. They may do that for little interest and a shorter time that you will eventually benefit from. Just help them solve the biggest problem. You might consider a Hard Money Loan and refinance it after you add some value because that loan is typically 12 months long. Just look at value add solution. Take it Subject To or a Lease Option that the owner can provide but keep it secret from the bank or other existing finance provider. With those methods you can make the existing owner paid off when you sell.
It mostly depends on how much the owner trusts you. Who the hell am I to make this presentation? I was a licensed Texas Realtor for about 30 years and I was also a construction manager for about 30 years. I have lived in Dallas County my whole life except when I went to college. I also learned from my brother and father who have been into real estate for about 40 years. Good luck to you!
BRRRR works better in expensive markets. Every $1 of NOI increase can result in a $20 increase in value vs a $10 increase in value in a less expensive market.
@Mike Lock you absolutely can BRRRR in an expensive market like Boston, which is what I'm doing right now. I'm finishing the rental on my first deal then will be refinancing while I close on my second. I'm not sure I'll get every penny back but hopefully close. The key clearly is the B. You have to buy a deal so there's immediate equity once the reno is done to get cash back. That takes some effort to find in this market but it's well worth it.
@Michael Lee thanks for the response! I’m not familiar with some of these financing options you’re taking about but will definitely look into them further.
@Brian Garrett thanks, that was my suspicion, especially with all the deal specifics discussed on the podcast having numbers that simply don’t translate to my market. Do you stay away from expensive markets altogether or do you have different strategies that you apply?
@Mike Dymski, thanks I appreciate the perspective. When you say “increase in value” are you talking about appreciation of the market value of the property?
@Zac Ballin great stuff, thanks for the response. I currently own one rental, a condo I lived in before moving and I hung into it. I wasn't thinking about any of this when I first bought it. The cash-on-cash is only 3.5% but it is positive and appreciating nicely. If you have any specifics of your first BRRRR you're willing to share that would be great, if not I totally understand. I'm curious about how you found a place with enough delta between ARV and total cash invested to make it attractive, as well as enough rental income above your refi cost.
@Mike Lock Hey Mike, welcome to the forums. I agree Boston can be incredibly tricky to find solid BRRRR deals especially if you're just starting out. It took me a little while to find my first two, they are located in Dorchester Center and I love that area. There's still some pockets that are up and coming, I generally am looking around Peabody Sq and Codman Sq. and am in the middle of a rehab down there. Next time around I'm going to be working on a strategy for hunting down off-market deals because pretty much anything on the MLS will be prohibitive for refinancing and pulling cash back out.
@Christian Nachtrieb is exactly right. Network off market for great deals. That being said, I'm buying my second one right off MLS. So I'd just say hit all the fronts.
@Christian Nachtrieb, thanks for the note and congrats on your properties in Dorchester! I'm a big fan of that area as well. I'm still curious about the cash yield on these areas after you refi, can you still get a good return after you're doing a cash out loan for 75% of ARV?
I suggest looking into the condo market. In the Bay Area, some parts of it still make sense for condos. If you tried to BRRRR in this area it can certainly work but you run into 2 major issues. 1 construction costs are at an all-time high and finding good competent workers to complete the job in a timely manner is very hard. 2. Finding the deal is ultra-competitive. BRRRR, in theory, make sense if you can complete the job and under budget to make it worth your time and energy
@Frank Wong thanks for the insight. I’m definitely interested in the condo market. Good point about construction costs though, they are insanely high right now.
I suggest looking into the condo market. In the Bay Area, some parts of it still make sense for condos. If you tried to BRRRR in this area it can certainly work but you run into 2 major issues. 1 construction costs are at an all-time high and finding good competent workers to complete the job in a timely manner is very hard. 2. Finding the deal is ultra-competitive. BRRRR, in theory, make sense if you can complete the job and under budget to make it worth your time and energy
Hi @Frank Wong,
I am currently looking in east bay and south bay , do you have any pointers or had a good experience with any wholesalers in bay ?
I suggest looking into the condo market. In the Bay Area, some parts of it still make sense for condos. If you tried to BRRRR in this area it can certainly work but you run into 2 major issues. 1 construction costs are at an all-time high and finding good competent workers to complete the job in a timely manner is very hard. 2. Finding the deal is ultra-competitive. BRRRR, in theory, make sense if you can complete the job and under budget to make it worth your time and energy
Hi @Frank Wong,
I am currently looking in east bay and south bay , do you have any pointers or had a good experience with any wholesalers in bay ?
Focus on the East Bay, South Bay is tapped out. I don't work with wholesalers so I don't have a contact for you.
Off market is going to be the best option for you. One of the main reasons is it eliminates competition on the terms side. What I have seen, is that on a market deal that is priced well I am not willing to do a no inspection, cash, close tomorrow deal. Some are, I just don’t like that risk. I would rather take it through a portfolio/traditional lender, really inspect the property, Take my time and come up with a solid plan.
@Kai Van Leuven, thanks very much for your input. A lot of people are saying off market is the way to go so it sounds like that’s a good way to pursue this.
Yes seems to be usually for rentals over 30 days. I don’t have experience doing it but it seems like it could be a good strategy for markets that are tough to cash flow .
What some in L.A are doing is partnering with landlords rather than buying the units .
Off market is going to be the best option for you. One of the main reasons is it eliminates competition on the terms side. What I have seen, is that on a market deal that is priced well I am not willing to do a no inspection, cash, close tomorrow deal. Some are, I just don’t like that risk. I would rather take it through a portfolio/traditional lender, really inspect the property, Take my time and come up with a solid plan.
Hey Mike, how are you currently finding off market deals? I am interested in doing the same.
@Mike Lock I'm in Cambridge and I totally understand how frustrating it can be. I market for off market opportunities and come across multi families occasionally, however I cast a wide net. My suggestion is to partner with another investor or get a wholesale assignment for BRRR. A lot of investors in the metro area do condo conversion to make the numbers work unless you have $2M to invest for a hold you will have to get creative.
@Christian Nachtrieb, thanks for the note and congrats on your properties in Dorchester! I'm a big fan of that area as well. I'm still curious about the cash yield on these areas after you refi, can you still get a good return after you're doing a cash out loan for 75% of ARV?
Absolutely. I ran the numbers a ton on this current remodel. Purchase price was $225k for a 3br/1ba with 1063 sq. feet. Budget for the remodel was about $35k, I'm over by about $2k so call it $37k. Based on comp sales in the area I'm seeing between $350-$400 per square foot for a finished and redone unit, and rental rates for a 3br are very comfortably between $2300-$2600/mo.