How to continue BRRR when interest rates go up?

Question

I'm looking into my first investment property, and I would like to do BRRR with the same. Since I have a hard time finding a distressed property, I'm trying to get a property that I could at least rent. However, if I do - I'm not sure how long it will take to build equity so I could refinance. Any tips /advice appreciate

Ron Brady · Answer

@Anna Bee

From scratch, we've done 5 BRRRRs in the past 3 years. Our two cents:

1. If you've not yet read David Greene's Bigger Pockets book on BRRRR, it is well worth the purchase price.  It offers a clear and readable overview and detail of BRRRRing.

2. Finding distressed properties now is very difficult, at least it is in our area.  Candidly, it is REALLY hard right now for someone just starting out try to BRRRR right now as the kinds of deals that have enough wiggle room for a new investor to make errors and still yield a financial return are limited. We share this not to discourage you, but to make you aware that finding the right deal will take patience and will require you to move fast once you find it. Thus, you should make sure you have your purchase and renovation cash ready to go.

3. In your post you said, "I'm not sure how long it will take to build equity so I could refinance." Most BRRRR refinances we've done have occurred at around the 6-month post purchase date, as this is when we will have completed renovations and have rented the property.  With these done, the property has appreciated, by virtue of the renovation, to the point where we can refinance.

Good luck to you!

Marcus Auerbach · Answer

@Anna Bee - your questions are right on. It is much harder now than ever to find a distressed property that has "the right things wrong" and is not a total money pit.

But on the flip side, you have a market that creates equity just by length of ownership. Market appreciation makes up for what we have lost on negotiation power on the front end.

It is more important to buy a deal, than to find the best deal. Pretty much every seasoned investor wishes they would have known that when they started.

Interest rates would not concern me - we've been burring for over 12 years now and most of the times rates were much higher than they will be in 2022 - forecast consensus for Q4 is 3.7%. That won't make much of a difference.

Anna Bee · Answer

Thank you so much, Ron & Marcus! Your answers put my anxiety at ease...