BRRRR? DO I NEED CASH TO DO THIS?

Question

Hello fellow BP members,

I have just started reading the BRRRR Book and early on but my question is will I need cash in pocket to do this? Has anyone read the book?

Thanking you in advance,Forest

JD Martin · Answer

There's no such thing as "by the book" and this is a great strategy, especially when you are young or just starting out and have limited capital available. There's no easier way (if dirty and inconvenient) to rehab a house and increase the ARV by living in it while you are fixing it up, then refinancing, buying another and moving out and turning it to a nice rental. It is *exactly* what I would do if I were 30 years younger and just starting out again.

Curtis Rasmussen · Answer

@Forest Williams as is the case with most things, you can adapt strategies to work for your life situation. I consider myself a BRRRR investor and I did just finish reading the book by David Greene. However, I acquire my properties by living in them for a year and 5% down.  This is what works for me so far and what I am comfortable and knowledgeable with at the moment. But, I am still rehabbing, renting and refinancing if necessary.  After a few more, perhaps I will be able to do it “by the book” but for now, doing a modification on BRRRR is better than nothing.

Jim Hiler · Answer

You may need cash in the form of a HELOC, Private Lender offering to loan you the cash, Hard Money Loan or bridge type financing, partner with cash- but may not need the actual cash in your bank account. As in every case it all depends on the deal, how much rehab is required, who are you are buying it from (wholesaler - definitely cash or hardmoney) traditional seller off MLS financing possible. Typically in order to get the BRRRR method to work you have to buy a deeply discounted deal - which usually means purchasing with some type of cash- and then once rehabbed, rented out and cash flowing you approach a bank to obtain a cash out refinance. If this is done correctly (by not paying too much, completing the rehab, achieving market rent) you should be able to do a CASH OUT refinance of approximately 75 - 80% of the ARV (after repaired value) of the property. At which point you can pay off the higher cost financing (hard money, private loan, other HELOC, pay yourself back) and then take the money and repeat the process.

The caveat is that in that due to the current state of the market it's not easy to find deals where this works. I.E. if you pay too much for the property you may not be able to refinance enough to pay off all of your loans. OR after you refinance you will be left with little to no cash flow on your rental because your new mortgage payment is too high.

Wayne Brooks · Answer

Yes. You may a private lender for most of the purchase but you still have to renovate and pay monthly cost until you refinance.

Aaron Norris · Answer

Hi Mike, I would just be very cautious of negative cash flow in California. We are expecting a recession. In some areas, that can mean several things including lower rents, banks pulling HELOCs, and lower selling prices. I'm sure you could find lenders that will do a loan at this point. I'm shocked at some of the programs I see around town but I don't know anyone doing these non-QM loans with stated income. Most hard money lenders are staying clear of owner-occupant stuff but may do it if you have a business purpose for the money. If so, check out the California Mortgage Association. Do a search in the member directory by location. Chances of finding someone local means easier funding typically. You may have to qualify like you would a regular loan because of local regs. You can always also chat with your local credit union. they are typically far more flexible. You got equity and cash, that's a great start.

Michael Encoy · Answer

Hi Aaron,

On a similar boat as the OP.  I have $50K on hand, with a $120K equity on a home in LA area(previously occupied and being rented at neg $100 cash flow).  Is there a way to access this equity via HELOC or other lender vehicle for my next deal?

Thanks,

Mike

Jim Hiler · Answer

@Forest Williams Yes I was just referring to the overall real estate market in general from a macro economic view.  It was not say that can't have success in certain markets it just means you may have work harder to find better deals that you can BRRRR out of.

When we discuss "the market" - in can be discussed as the overall nationwide market or each local market - MSA , City, Neighborhood, etc. Real Estate operates in cycles as a whole and locally. In most areas things are on the upswing, possibly even nearing the top of the cycle - prices have increased, activity is up, demand is up and things have rebounded from the great recession however that's not always true everywhere. There are overall nationwide factors that affect the market - for example mortgage rates, lending programs, the current economy doing well - meaning more people have the money to buy houses and more investors have money for investing, demographics etc. There are also very local factors that affect each market, meaning the local economy, job growth, demographics, local lending, insurance costs, property taxes etc. and these have an equal or greater affect on prices, inventory, rental rates, etc. in each respective market.

For more info on the market cycle and what stage some of the major cities are in check out this article below:

https://joefairless.com/what-stage-in-the-market-cycle-is-your-target-apartment-investment-market/

Forest Williams · Answer

Thanks Wayne,

I have 125,000 in equity would this help? and "I say cash in pocket" I am saying do I need $20 - $30 k available?

I am just starting out.

Thank you

JD Martin · Answer

If you have $125k in equity that you can access as cash, you have more than enough to get started in most markets.

Michael Encoy · Answer

Thank you for your insight, Aaron.  I will definitely take a look at local options in my area.

-Mike

BRRRR? DO I NEED CASH TO DO THIS?

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