Using the BRRRR method with tenant-occupied properties

5 Replies

Hi all,

Can the BRRRR technique work with multi-family buildings that are already occupied by tenants? If so, what does that look like in practice? Or does this method only work with vacant properties? I find that most duplexes, triplexes and quads in my Class C area already have tenants in them. They're undoubtedly in need of work, but they're rented.

Thanks,

Mike

BRRRR

Buy rehab rent refinance repeat

If there is already a tenant in the tenant you simply wait until the lease is over and move them to another unit or let them go on their way. 

Rehab doesn't have to happen day 1 if the property is cash flowing. 

The idea behind the strategy is to get into the property below market value. 

I hope this run down helps. 

Originally posted by @Mike R. :

Hi all,

Can the BRRRR technique work with multi-family buildings that are already occupied by tenants? If so, what does that look like in practice? Or does this method only work with vacant properties? I find that most duplexes, triplexes and quads in my Class C area already have tenants in them. They're undoubtedly in need of work, but they're rented.

Thanks,

Mike

I think this is the challenge with BRRRR. The point of BRRRR is not just to buy properties under value; the point to increase the velocity on your money. One can also raise rents substantially but I have personally never felt good about this strategy.

Also on multifamily make sure that your rehab will get you higher rent values.

@Ryland Taniguchi , I've understood BRRRR to be more about increasing the VOLUME of your money (with no further outlay other than your original deposit), rather than the "velocity" (quickness of increase). Which means to me, it IS mostly about buying properties under value (as well as ensuring that they will cash flow), so that the Refi stage can be accomplished as soon as the seasoning period is over - but it does take time. [Was that just terminology semantics]?

So in @Mike R. 's examples, being tenanted is GREAT, but for BRRRR to work, his purchase prices need to be super bargains, so that even if rehabs aren't required, the Banks' appraisal/s in 6 months time will come in at ~30% more than he bought them for! Each Refi gets him ALL of his money back for the next; next; next;... Next; next; next... Next; next; next...

@Mike R. I have used this strategy with a 3 unit. I purchased with one vacant unit and as tenants moved I turned their apartments around and upgraded the property and tenant base as well as doing capital improvements such as roof replacement and heating system install for one of the units. 

The challenges are renovating the property with occupied units. Tenants do not want to be constantly around construction projects.

One of the benefits is you can use cash flow to help fund the renovations.

Like others have mentioned...you make your money when you buy. If you can build 25-30% equity while brining in income to offset holding and reno costs it can work. You will most likely upgrade your tenant base in the process.

I am lucky enough to have private funding on this property so I have time on my side which may not be the case for you if using shorter term funding. Things don't always go smoothly.

With all of that said, my next one will be vacant so I can quickly turn it around and put quality tenants in place and if I did it correctly will have little maintenance and cap ex expenses. Hope this helped.

Thanks, all!

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