HELP with BRRRR - Multi-Family in Bad? Areas

[Account Closed]

Hi Everyone!

I am considering a strategy that is basically a combination of the best of different worlds. My partners and I are considering purchasing small multi-families by making all cash offers, fixing them up if needed, and then refinancing our money out. BRRRR for multi-families! We would be purchasing for about 60-70% of the market value.

The only foreseeable issue is that we are exploring this opportunity in areas that are not necessarily experiencing any growth. Although the houses we are seeing are 45 minutes outside of popular areas, they definitely do not present a “ugly house in a nice neighborhood” scenario.

Assuming we can find a property manager to manage these investments, I see that a lot of our risks can be mitigated by purchasing with cash for a discounted price and keeping the building slightly nicer than what is expected for the area.

Any thoughts on this strategy?

James

[Marcus Auerbach]

Overall that is one of the best way's to start and grow a portfolio. It will be pretty tough to buy a property for 60-70% of fair market value in todays market, unless you meant after repair value. Cash offers are great, but I can tell you from when I am on the selling side, they are worth about $5,000 max to most sellers Seller - if the difference is bigger, they will often rather go with a finanaced offer and make more money. Often times you have to be equal. What would you do as a Seller?

The other issue is you have to consider the ratio of Rehab Cost / ARV. For a BRRRR to work your Rehab cost needs to be a quarter or less of ARV. Rehab cost is a function of condition and size, it does not chnage much with neighborhood. The other way round your ARV needs to be 4 x Rehab or better. Otherwise you will typically not have enough meat on the bone for a cash out refi.