How to properly BRRRR

4 Replies

Hey all! I have found a lot of potential properties around a new casino in my area. Some need work others will rent as is. My question and I know it’s a broad question, so I expect broad answers. When I do a rehab on a property and the end result is worth more than what I can get in rent, do I refinance it to keep it at the 1% rule? Or do I refinance for the full value? Or if the numbers make enough sense do I sell it? Any and all advice is welcome. Thank you for your time.

Still waiting for my first opportunity but my plan is to buy & hold with a refi. If I can net positive on the BRRRR then I’m willing to have close to $0 cash flow from rent. I want to increase cash while building a positive asset portfolio.

I think the experience of holding v flipping is worthy, in order to have a better long term strategy.

In an ideal situation, the refinance, at a minimum, will allow you to recover all of the cash you put into it, and still have good cash flow. If the value is there to cash out more than you have into it, then you can balance how much additional cash you want vs. your cash flow comfort level. The decision to sell or hold is totally a personal choice. I wouldn't turn a BRRRR into a flip, unless there was major profit involved. Remember, flip profits are taxed at a much higher rate than rental income.

It is really up to you how much you want to pull out up to the LTV limit. My recommendation is make a decision based on your target cash flow and target equity. For me, the banks are loaning 70% LTV on my properties (currently duplexes) when I refi and personally I want to keep 30% equity in each property to protect for any market correction. This puts me at about the 1.2% rule on most of mine so they are producing some cash flow.

You may be able to pull out more but sacrifice cash flow, but you are trading risk for speed.  It's all about where you are comfortable.

One house is bank owned for an asking price of $30k needs about $30k in work. ARV would be between 115-120, but i feel for the area i can only get 8-900 in rent per month. This is based of the medium house hold income of 35k keeping rent at the 30% of income for the area. I have access to about 20k in reserves for any unexpected issues.

i was thinking of using private money to fund the rehab and refinance the property. Maybe for 90K and 1031 the remaining into another property, holding the property for 4-5 years and selling for the 115-130+ if the market goes up like i expect.   

I feel as if I'm over complicating things, but being my first purchase i'm trying to account for my inevitable mistakes. i would rather have cashflow over anything.