Flaw in the BRRRR strategy?
Watched your webinar last night and, perhaps I missed it if you mentioned it @Brandon Turner, but one important consideration for me when I use the BRRRR strategy is price point, not only of the purchase price, but more importantly, of the ARV.
In my model at least, the BRRRR strategy will only work on properties with an ARV of at least $100K because when you go to do the cash-out refi, banks typically aren't interested in doing loans for any less than $70K. There just isn't enough money to be made from loans smaller than that.
Consequently, since most banks only offer a cash-out refi of 70%-75% of the property's ARV, the ARV's going to need to be pretty close to $100K to meet that $70K threshold. So, that limits my acquisitions to properties only in the range of $60-$80K, with a $10K-$30K reno budget + hopefully a small market appreciation to push me to the $100K ARV mark.
This is something I think is important to mention to newbies who may be thinking about buying the cheapest property possible, say $40K, and then sinking $25K into a reno, and now have $65K invested and can't find a bank that will give them a cash-out refi. Now, they're dead in the water and have all their capital tied up and will likely be forced to flip it, unless they go to private lenders or perhaps pay a very high rate at a bank.
Now of course there are plenty of other creative refi options available, but I'm just not experienced enough yet to be able to use them. ;) Gotta watch more webinars!!
BTW-- I also got lucky on my last deal since I was able to find a bank that would give me an immediate cash-out refi, although at a 1/8 point higher rate and at only 70% of ARV rather than the 75% I've achieved on another property. Although that cut slightly into my cash flow and locked-up a bit more cash (as equity) than I wanted, the numbers still worked. I just couldn't wait six months or a year in a rapidly appreciating market like Tampa, FL.