Where is the Cashflow?!

Nashville · Member since 2019 · 56 posts · 21 votes

Hello BP! I've been on the hunt actively for 7 weeks. I'm an impatient person (super high D if you're a DISC person) so I know I just need to keep looking. I've been outbid on 5 houses and most by a significant margin. Most of those houses weren't "home runs" but the numbers worked for BRRRR. Most cashflowing around $200/mo and leaving at most a years of cashflow in the deal after refi.

Over the last 3 days I've evaluated 3 houses and came up with the same issue. The houses have been well below market value. Comps are good and are able to pull out cash and reno costs after refi. However, they aren't cash flowing! They are basically breaking even. What am I missing? Is the market rent too low? Are my lenders numbers too high? Any advice would be helpful!

Below is a property I evaluated this morning for reference.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

@Matt Hudson my friend your drinking the BRRRR cool aid.. that's a very slow way to scale lets run the math.

you have 250k that buys you two properties.. you look and you look it takes you months to find them maybe more ergo your frustration.

you finally find the two pearls.. takes you about 30 days for a normal cash escrow.. now it takes you 30 to 90 days to do the rehab.. and then another 3 months to season in MOST cases to refi.. then your refi takes another month.. and of course your refi appraisal comes in low and you end up leaving money in the deal anyway ( this is quite common but not talked about.) so your going to grow at 2 homes per 7 to 8 months..

now lets say you put 20% down or 25k on each house and financing them you can buy 10 in a matter of 6 months..

your going to be 3 to 4 years getting to the same scale.. and if you saved 250k then while you making money on rentals and saving again you probably buy 1 to 2 a year after your first slug of 10... ???? so in my mind BRRR should have another R for RISK.. risk that the rehab goes wonky and way over budget. Risk that refi does not work he way you think or hope it will.. and of course 2 to 5 years from now maybe you don't get the great rates you get now if you just go out and buy 10 homes in the next 90 days at historic low rates and lock those in for 30 years.. your risking rates being 50% higher and cash flow not as good.

So that's the other side of the coin.. think about it.. and maybe you really want to buy a 750k mutli family and bunch the whole SFR idea.. if its rental income you want.

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Lorenzo WrightPro Member
Rental Property Investor · Member since 2019 · 105 posts · 121 votes
7y
@Michael Ealy isn't that pretty much the definition of BRRRR???? Just on an MFR scale?
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Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
7y
Originally posted by @Lorenzo Wright:
@Michael Ealy isn't that pretty much the definition of BRRRR???? Just on an MFR scale?

Yes and no.
Yes - because I buy the apartment, I renovate the units, rent them out, and refi (or sell).
However, the difference is, when I buy apartments, I am already making money on the cashflow because I only improve the units that are vacant or when they become vacant. With houses, you have negative cashflow while you're renovating them.
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Dustin P.
Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
7y
@Matt Hudson Why don't you pick a property like this one and flip it rather than trying to find the perfect BRRR that probably doesn't exist in your market?
Especially if you haven't done a deal yet, you'll learn a lot from your first flip. How to run contractors, what your estimated repairs vs. actual remodel budget looks like, how to deal with appraisers, agents, it's really a great learning experience.
Even if you break even, you just got a great education that people pay companies like fortune builders $40k for without ever doing a deal. If you make some money on it, consider it a bonus!
Just my 2 cents
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
Originally posted by @Matt Hudson:
Hello BP! I've been on the hunt actively for 7 weeks. I'm an impatient person (super high D if you're a DISC person)
We are a film strip, not a screenshot. We can all work on what we're not. Impatience in landlording serves nobody well.
Mainly wanted to comment because the deal you proposed will have equity capture of $32k. I'd take that any day of the week. Equity capture is the name of the game in appreciating markets. How many houses do you need that cashflow $200/mo to build up to $32k?
You're jumping over $32k in pursuit of $200. Just wanted to point that out. For me, yeah, cash flows great and all but it's been the equity that tipped me into Napper status. YMMV.

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Calvin OzanickBusiness Member
Property Manager · Janesville, WI · Member since 2017 · 708 posts · 297 votes
7y
Matt, I feel that you are looking in the wrong area if these are the kinds of numbers you are seeing. Southcentral Wisconsin is showing a consistent cashflow for numerous clients which I work with and I would encourage you to explore the possibilities in Rock County, WI, mainly Janesville or Beloit areas.
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Tim Hall
Flipper/Rehabber · Tallahassee, FL · Member since 2014 · 462 posts · 237 votes
7y
@Matt Hudson don’t follow the crowd just keep doing what you’re doing and eventually you’re going to get one. People go broke by paying too much for a property. Maybe start looking further afield or partnering with a GC to keep your costs down. Don’t mess with the numbers, be conservative and it’ll work out.
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Brent Crosby
Rental Property Investor · Farmington, UT · Member since 2018 · 171 posts · 148 votes
7y
@Matt Hudson RIP Cashflow... 2012-2017
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Matt Hudson
OP
Nashville · Member since 2019 · 56 posts · 21 votes
7y
Hello All - I appreciate all the feedback and insight! I'm definitely taking note.
Here is another property I evaluated this morning. 2x - 2/1 Duplex in Nashville. Same deal - well below comps yet doesn't cash flow. It will be banking $499.50 worth of Capex, Vacancy (it's currently occupied on both sides) and Repairs each month. The $208 is asking and will likely go for more.
A few people said buy for equity - which makes me as nervous as investing more money in stocks. Or just put 25% down and get a loan for 30 years - then I'm out the $52k in hand. Hmmm...so many options.
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Dustin P.
Realtor · Tempe, AZ · Member since 2017 · 541 posts · 442 votes
7y
Originally posted by @Steve Vaughan:
Originally posted by @Matt Hudson:
Hello BP! I've been on the hunt actively for 7 weeks. I'm an impatient person (super high D if you're a DISC person)
We are a film strip, not a screenshot. We can all work on what we're not. Impatience in landlording serves nobody well.
Mainly wanted to comment because the deal you proposed will have equity capture of $32k. I'd take that any day of the week. Equity capture is the name of the game in appreciating markets. How many houses do you need that cashflow $200/mo to build up to $32k?
You're jumping over $32k in pursuit of $200. Just wanted to point that out. For me, yeah, cash flows great and all but it's been the equity that tipped me into Napper status. YMMV.

Great post, I'd take 32k any day
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
Originally posted by @Dustin P.:
Originally posted by @Steve Vaughan:

Great post, I'd take 32k any day

I agree, Dustin. Here's another example that would be skipped by cash-flow only metric chasers: BRR equity capture was $55k. I 'lose' $200 per month in net cash-flow, but the mortgage pays down $560 per month. Another crummy deal I should have passed on based on cash--flow. Total return has many factors that come into play.
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