This is my first BRRRR deal. I am getting 10k more back than I put into the home after all expenses and costs. The only issue, if it is one, is that I am going from $600 cash flow per month to now $50 per month after all expenses.
I am an avid Bigger Pockets listener and reader and I am fired up about a small but 'infinite' cash-on-cash return - just wanted to check with anyone willing to share if they have had similar experiences and how you have handled them and any feedback.
I plan on using the money to pay off a HELOC I used to rehab my primary home and keep cash for the next deal. The cash flow is great but this is a for the future venture for me and not my primary job so the cash flow is not critical at this point.
Any thoughts or feedback are greatly appreciated. Being new to this, I feel I have already learned a lot from people here and greatly appreciate you all.
I'm not entirely following you, @Jake Peetz . Did you buy cash and that's why you have the $600/month cash flow now?
@Jaysen Medhurst No I bought it seller financing and was able to cash flow 600 per month.
Is that note coming due, @Jake Peetz ? What are the terms? How much cash do you have in now?
Why not just refinance for less, so as to have a little more cushion on cash flow? Nobody says you have to borrow as much as you can.
@Anthony Wick . I have thought of that. Maybe taking 70% and not 75%. Thought the idea was to get all or as much out but it takes away the cash flow.
@Jaysen Medhurst . I have 25k down and 15k in renovations. The note comes due in January so I have a little time.
@Jake Peetz. I have been paying 5% interest so the rate isn’t bad by my refinance will be 3.99% on a 30 year.
I believe the idea is to take out as much as you can, while still making a profit (Cashflow). Getting 100% of your money out to buy another deal is damn good! It makes that property “free”, and profitable every month.
I just refinanced two duplexes. I did not take out as much as I could. I set the limit on what I wanted cash flow to still be, while also pulling out about $40k.
@Jake Peetz everyone has their preference when choosing more or less leverage. You have to make the decision what would be most beneficial to you, $50/mo cash flow and $10k or $150/mo cash flow and only $5k. I would personally choose $50/mo and $10k. Despite the low cash flow you still have a great deal. You have no cash in the deal, your net worth increases by the amount of equity in the property, you earn $50/mo and you have cash to fund another deal.
@Jon Kelly . Thank you for your response. I am planning on maximizing my money out to fund more deals and gain equity in the property but have little cash flow in the near term. I believe rents will increase in this area which will increase the cash flow in time.
First of all, congratulations on the completion of your first BRRRR and especially on successfully completing the project by pulling $10k out and still cash flowing. Looks like a win to me at every possible angle.
Secondly, I suspect you'll find that your 2nd and subsequent BRRRRs will lead to similar if not better results so you are well on your way to a successful real estate investing career.
The question I have for the group is what Return on Equity do you look for on your properties if you are using the BRRRR technique. I think that is probably a better measurement of success after completing these projects?
I personally use a HELOC to purchase BRRRR projects as well, and I'm trying to determine what the best ROE should be for me. I don't have an income problem and I'm more concerned about long terms net worth growth over time.
Also, from a tax standpoint, does it ever make sense to create a slightly negative cash flow situation to help offset W-2 income if you are right on the verge of going into another tax bracket?
@Randy Smith my lender who has 25 doors of her own pays double into her mortgage to shorten time line on fully paid off investments by the time she retires. She doesn’t need the cash flow right now. And from my understanding you are correct in assuming a deductible tax expense if you are “losing” money by paying more into mortgage.
@Jake Peetz if you are correct and you do experience rent appreciation then your cash-flow will increase over time and you will be fine as long as your finances are healthy and you have some solid reserves to protect your ability to hold the property. You will be even sharper on your next deal. Congrats on getting started. Way to go!
I would refinance for less so you have cash flow to cover maintenance, CapEx, and vacancy losses. You'll still have a great return and you'll be able to pull out some cash. If your cash flow is greater than the interest only payments on your HELOC (assuming that's all you have to pay as of now), then it sounds like a win and you can go look for the next deal where you can pull out more capital to pay back your HELOC.