How many has quit doing the BRRRR?

Question

With the hike in interest rates for  non-QM loan products it has definitely slowed  down this particular model for us personally. Has anyone found a workaround?

Steven Goldman · Answer

Hi Joe, while Elliot Elias's answer was short and sweet it was also spot on. I have been in real estate since 1981. There have been good and bad markets. The savvy investor continues despite the challenges in a bad interest rate or value market. It is all in the buying. You must be very discriminating and only buy devalued properties. You must strictly control your rehab. costs. You need to factor in a bigger spread between total acquisition and, rehab. costs and the ARV. That is where the buying comes in. You need the spread to buffer against rising costs of materials and interest rates.

Here s the good news. In a challenging market contractors and subs are willing to work at smaller profit margins to keep their crews busy. Homeowners are willing to accept less for their properties. Material costs will recede when demand falls off. It's all how you look at it. Our strongest investors are ramping up for the down market in anticipation of buying properties at lower values. They are refinancing and creating a cash fund to work from.

Finally, you may want to  only work in markets that you have experience or a strong connection with eliminating the possibility that you operate on faulty or old outdated information. If you are going to buy further from home, you need to have a strong team including a great real estate agent, crafty, experienced mortgage specialist and a thrifty property manager. The same ingredients that apply to a good market apply to a bad market. Happy hunting!

Riaz Gillani · Answer

A silver lining of increased rates, no matter the prevailing market conditions, trends, backdrop etc. is decreased demand. I used to be unable to even review an off market deal let alone underwrite it because someone else had already wired the EMD before I opened up excel. In most areas, this is less so the case. And I'm relieved.

But, it definitely is harder to justify a BRRRR versus a flip when you're using raised capital for acquisition or Reno (let alone acquisition and Reno). The capital isn't as cheap and the spreads just aren't wide enough. And, unlike in the past 2 years, you're far less likely to have the market / an appraiser bail you out for a project that went over budget or beyond the estimated timeline.

I'm approaching all my properties as flips with a more generally appealing design aspect so that if I do choose to BRRRR - I don't end up regretting granite countertops or french tiles etc.

Eliott Elias · Answer

I'm still doing it, just with a lot more conservative numbers

Nicholas L. · Answer

@Joe S. I did one and am looking for my next one.  Just has to work based on a conservative analysis as @Eliott Elias said.

And I'm OK with not getting 100% of my cash out if ( 1 ) it cash flows and ( 2 ) I am happy with owning the end product.

Joe S. · Answer

Please share an example of the numbers as well as the loan product you are using. :-)

How many has quit doing the BRRRR?

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