BRRRR - RE market crash before you get to refinance

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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BRRRR - RE market crash before you get to refinance

Kim LeduffPro Member
Member since 2020 · 39 posts · 17 votes

Hi BPers!

For those who BRRRR or plan to BRRRR, how do you account for the risk associated with a possible real estate market crash during your rehab stage? For instance, if you take out a 100K short term loan (to cover house purchase plus rehab costs) with comp ARVs of 160K, and the ARV drops to 70K because of a crash.

Is there any protection against that potential loss of value? how do you pay off the short term loan, worst case scenario?

best,

kim

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
what you described only happended once in my 45 years at this and that was 08 GFC meltdown. 

the way you protect yourself though is having the cash to cash out the short term lender if things got bad.
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  • Clint G.
    Rental Property Investor · Corpus Christi, TX · Member since 2019 · 306 posts · 176 votes
    4y

    @Kim Leduff

    Buy right, then...

    I'd say pick a project that isn't too intensive that you can finish fast, so that you can BRRRR before anything happens.

    Also, I don't personally think a crash is right around the corner.

    1Reply
  • Clint G.
    Rental Property Investor · Corpus Christi, TX · Member since 2019 · 306 posts · 176 votes
    4y

    @Kim Leduff

    Buy right, then...

    I'd say pick a project that isn't too intensive that you can finish fast, so that you can BRRRR before anything happens.

    Also, I don't personally think a crash is right around the corner. but

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    what you described only happended once in my 45 years at this and that was 08 GFC meltdown. 

    the way you protect yourself though is having the cash to cash out the short term lender if things got bad.
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  • David Kelly
    Lender · Nationwide Lender · Member since 2019 · 391 posts · 140 votes
    4y

    There is no protection in this scenario.  All you can do at that point is figure out what lender will take your loan with the best terms.  

    1Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    4y

    @Kim Leduff

    Santeria

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  • Abdul Lateef
    Los Angeles, CA · Member since 2017 · 37 posts · 9 votes
    4y

    @Kim Leduff crashes take years from peak to trough, back in 08 it took 5 years from peak to trough, and only some markets dropped 50% (pheonix, vegas, and some parts of california), some markets actually didnt crash at all like Pittsburg and hunstville.

    BRRRRs in my opinion shouldnt take more than a year, which wont gives you alot of time before you lose that much value, especially if you are in affordable markets that is a trait of markets that disnt crash more than 20% in the span of 5 years.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y
    Originally posted by @Jay Hinrichs:
    what you described only happended once in my 45 years at this and that was 08 GFC meltdown. 

    the way you protect yourself though is having the cash to cash out the short term lender if things got bad.

    And even then, it didnt happen fast enough to mess with a rehab timelime. It took 3 years for values to go from peak to valley.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Originally posted by @Abdul Lateef:

    @Kim Leduff crashes take years from peak to trough, back in 08 it took 5 years from peak to trough, and only some markets dropped 50% (pheonix, vegas, and some parts of california), some markets actually didnt crash at all like Pittsburg and hunstville.

    BRRRRs in my opinion shouldnt take more than a year, which wont gives you alot of time before you lose that much value, especially if you are in affordable markets that is a trait of markets that disnt crash more than 20% in the span of 5 years.

    Ya but from 08 to 2011 non owner occ investors loans were very tough most people could not get one.  credit froze.. so even though values held in some markets refinances stopped.. I know I had 450 loans out that 90% got frozen and we had to do work outs or my clients lost all their equity selling..   this was GA AL MS MO IN  so not all markets were immune.. I like to throw this out there.

    How many 75k SUV s would be sold and what would the prices be if you had to pay cash ????  thats what happened to the investor loans in the GFC they froze solid.

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