The BRRRR method is a great strategy, but I have a concern. Does the BRRRR method maintain itself during recessionary periods with high unemployment. When you refinance and move the funds into the next property, it appears to me that you are building a house of cards. If too many tenants cannot pay rent due to market conditions (ie. 2008-2010 high unemployment), how do you pay the series of mortgages.
I have not heard anyone talk about retaining 6-months of mortgage payments in liquid assets. Otherwise aren't you at risk of a potential cascade affect of mortgage foreclosures if several tenants cannot pay their rent.
What is the recommended BRRRR strategy to full-proof your investments, regardless of the economy?
I think it's a good idea to take caution and keep cash reserve for rainy day (also gun powder dry to get cheap property in down turn). if your portfolio is sfh then you going to have a bit harder time. If you have multi family, i doubt everyone would moved back to their parent house. People need a place to live. If your multi family is vacant, it's not market condition. More likely you fail to adjust to market rate. Unless you invest in place with only one major employer that close up shop, invest in major employment hub with multiple employer will reduce your risk.
If you buy value added property and can refinance cash all of your investment out then does it really matter if the market is up or down?
It's a good question.
Rental property analysis and BRRRR included does have a vacancy % factor in the analysis. That factor would need to be decided by the investor based on local stats.
You have to know your rental market. If you invest in an area that is prone to vacancies during downturns due to the job market or renters moving out to buy homes, then you have to be prepared for longer vacancy periods and increase the factor in the analysis.
Most areas don't have this issue. Construction has been behind when it comes to rental properties. So, a downturn doesn't necessarily mean less people needing to rent since there aren't enough rental units to go around in most places.
In fact, real estate and the economy aren't on the same cycle. Real estate is on a 18 year cycle. The economy tends to be on a 10 year cycle. Real estate lags behind the economy. The downturn in the economy takes awhile before people are willing to pickup roots and leave an area.
There are some real estate areas that tend to be very tied to jobs. Manufacturing areas come to mind. Oil and gas fields come to mind. Tourist areas come to mind. For the rest of the country, you would need a prolonged depression before people picked up and left.