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?
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
7y
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.
Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
7y
Hi @Mike Lock -- I'm doing the BRRR right now in Cambridge, MA. That being said, we got a good deal and the numbers have been ugly (we knew they would be) over the last few years as we've addressed deferred maintenance, almost gutted units and added an additional apartment. We have run the full gamut, from exterior pain, to residing portions of the house to going through the zoning board to do the development. As you can guess, all of these activities are highly capital intensive.
We bought when interest rates were lower than today. Something that is not talked about often, is that the BRRR method presumes that interest rates stay steady. When you are dealing with very expensive properties, a new mortgage that is a quarter point more expensive can really change your evaluation.
In my opinion, if budget is a concern, look outside of the immediate Boston area. Despite the fact that Boston is expensive, it area becomes more affordable quite quickly as you move out of the city. The south shore still has a many deals. @Charlie MacPherson often chimes in with info regarding the south shore.
The bottom line -- in Boston and Cambridge you're not going to get rich quick. You will have a wonderful pool of extremely high quality tenants.
Rental Property Investor · Boston, MA · Member since 2019 · 12 posts · 3 votes
7y
@Elizabeth Miller, thanks very much for the tip. I’m thinking about small multi-families for my first deal (urban duplex or triplex). I most certainly do NOT have $2MM to invest so I’ll definitely need to get creative.
Rental Property Investor · Boston, MA · Member since 2019 · 12 posts · 3 votes
7y
@Christian Nachtrieb, thanks for sharing! Those numbers look excellent and actually quite encouraging for this area, I’m surprised the rehab wasn’t significantly higher. Well played keeping the costs down. Is this a stand-alone single family or a condo in a multi-family unit of some kind?
Rental Property Investor · Boston, MA · Member since 2019 · 12 posts · 3 votes
7y
@Dan K., great insight, thanks! I definitely get the trade offs you’re talking about. One thing I haven’t done is compare interest rates on traditional products like a 30-year fixed or 7-year arm vs a hard money loan. You make a good point about the quality of tenants, I’ve been thinking about that as well.
Rental Property Investor · Boston, MA · Member since 2012 · 257 posts · 139 votes
7y
@Mike Lock -- In my opinion, another key to making BRRR work is to lock into a long-term loan as an owner occupant. For residential mortgages there are rarely early payment penalties, so I prefer a 30-year for ultimate flexibility. Once you no longer occupy a property, if you refinance, you will be looking at less favorable rates.
Hard money can certainly be more flexible and the underwriting process is very different compared to a traditional product, but for the most part you will pay more for hard money.