Updated almost 8 years ago on . Most recent reply
will using the brrr method cut into cash flow?
Getting ready to start my real-estate investing journey but trying to get my questions and concerns answered before I start. So this is a very elementary question (sorry)! If you use the BRRR method of investing for buy and hold, won't it cut into your cash flow for that property? For instance once you rehab and then go to refinance you will end up paying a higher mortgage due to the fact your borrowing more correct? ex: buy property for $100,000 mortgage $568 (roughly ) cash out refinance say for $140,000 new mortgage $757 (roughly ). Pros and cons? Again sorry for the elementary question. Thanks
Most Popular Reply
You are buying a business, not a property. Similarly, you are improving a business, not {just} an asset.
When you purchase your business for $100K (or $1M) it will be producing $X in revenue and $Y in free cashflow.
When you improve the business, you are not merely renovating the property to make the units more attractive, you are taking measures to lower operating costs (ie. improving the building envelope; putting utilities into the tenants hands, upgrading lighting to LED, etc) and to increase revenue (higher rents, ancillary streams, etc).
When you are finished, not only should your property appraise for {say} 40% more, but your cashflow should have increased by a considerable amount (ideally 30 - 40% ... but, perhaps only 10 - 20%).