BRRR - Willing to sacrifice?

6 Replies

My first home I purchased in 2010 as a foreclosure. I renovated and had my roommates move-in with me. A few years later I decided to refi and was able to take a significant amount of equity. My first BRRR without realizing! I have been looking for property for almost a year now for either multifamily or another BRER. I've been struggling but recently I started to ask myself: Am I willing to take less margins if it meant doing a BRRR and creating enough sweat equity to get all my capital back? Anybody with experience?

Hi Kenny,

So you're asking yourself "Am I willing to take less margins..." vs. what? A BRRR where you do all the work yourself, or a different opportunity? Or are you saying do all the work yourself vs. less margin if you hire out the work?

This seems like the setup for the classic "best and highest use of time/capital" discussion that's prevalent on the BP forum.

What do you like to do? That's one factor. What will make you the most money? That's probably another factor. Just weight them appropriately for what your long term goals are and do it :)

Best of luck and glad you had a great experience with your first BRRR!

Hi @Kenny Dahill

I'm not following what you are asking. Are you looking to do a rehab that you live in but you cannot find a good deal?

I apologize if I didn't provide enough on my original post. I did it on my iPhone and the screen was making it tough to write. Anyways...

People who have completed a BRRR, what strategy did you take on the refi?

1) Take a max loan at appraisal value, decreasing CapRate but getting capital back and increasing your cash-on-cash ROI

2). Take a loan for the amount of total invested asset value (purchase + rehab costs). This will increase CapRate and COC ROI but potentially tie up more capital

3). If appraised high enough, take a cash-out loan while essentially having no capital invested. This will decrease CapRate and ROI is obviously unlimited. Either taking out cash as well or enough to pull all capital.

In a BRRR something has to give; capital, CapRate or cash on cash ROI. So which one are you willing to sacrifice and why? I'd love to hear about people who have completed multiple and even tried multiple ways.

@Kenny Dahill

We like taking the approach where we minimize our LTV ratios within our loans, regardless of whether or not we COULD take out additional cash during the refi. I like sleeping well at night knowing that if the market values dropped 10%, we could still liquidate or refi again and be fine. Maximizing LTV on EVERY loan seems to be counter-productive. Just my two cents.

We will continue to BRRRR, but will only refi out to the total amount that we have in the project (purchase + rehab + soft costs) tempting as it is, we like having additional equity built into the projects as a "reserve" of sorts, but also as a safety cushion in case things go bad. That way we are covered on all ends. Hope that makes sense.

I'm about to do my first cash-out refi on a property I purchased 8 months ago.

My plan is to get as much capital out of it as possible (hopefully more than I put into it for purchase and rehab). 

right now I am in acquisition mode, so want as little money tied up in the properties as the bank will allow.  Once I get 10 properties, I will start concentrating more on cash flow, and will probably only take out 50% when I refinance.

I'll take all the cash I can get.  Like @Tim Lindstrom , I'm in acquisition mode.  My goal is to fully cash out of every property I buy (plus more if possible!) while making sure the property still cash flows $200+ after total expenses (no property management factored in that).  

I should mention that I'm managing the property myself.  This is a cash-saving measure (I have more time than money), but its also a skill-building decision.  I am eager to get some experience in both rehabbing and property management.  

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