Has the BRRR strategy gone cold?

[Nathalie Smith]

Is this strategy nonexistent with these intrest rates no-a-days? 

[John Woodhouse]

You just need a property below market value enough. 

[Eliott Elias]

They don't DSCR not but they work better than ever.

[Andrew Postell]

@Nathalie Smith not at all. We have been getting better deals now that a lot of people have left the market. Challenge = opportunity. And there's lot of opportunity out there. BRRRR is alive and well.

[Mohammed Rahman]

Hey @Nathalie Smith - I don't think this strategy is completely out of the picture. As with any other strategy, it boils down to the price & numbers. If you can get a property for a decent value, then you should still be able to utilize the BRRRR method. Although rates are rising, prices are cooling down.

[Caleb Brown]

It is harder but the bright side is buyers have more leverage. Overall I think it's a better time to do it

[JD Martin]

I'll be the stick in the mud and say it's going to be a lot more rare with the current state of things, at least in the short term:

1. Interest rates and the corresponding debt coverage will reduce how much you can take from the property where it can still cash flow;

2. Top of the market prices that have stagnated (or fallen in some markets) is going to result in a lot more unsatisfying appraisals;

3. Bank credit reluctance without leaving a decent chunk of equity behind is going to make the strategy make less sense.

I'd say if you go into it with the idea that you can pull some, but not all, of your cash out it's still doable. Or if you can get a real market steal. But yes, you are right in that it's going to be a lot less common. 

[Jonathan Taylor]

@Nathalie Smith the strategy has shifted. Most deals now leave cash in the deal on the refi. The other issue is 75 LTV on the cash out. Most of my client's deals do not debt cover as rates rose too quickly for rents to keep up. So cash left in the deal and lower LTV are what hurts the 100-200k properties since the margins as so thin.

The market is cyclical though so dont be discouraged. Just be ready to pounce when an opportunity arrises. 

Do you have any other questions?

[Steven Goldman]

@Nathalie Smith Of course all real estate is local. Nonetheless, I have lived through 4 of these cycles. At the beginning of a recessionary period interest rates rise and the housing prices are too high resulting in a squeeze on the investor. After a few months the market adjusts and prices taper off with pricing more in line with the interest rates. BRRRR is not dead. However, any deal you are considering during the adjustment period must be a great bargain. You must also make sure you have allowed for the potential increase in the refinance rates and lower LTVs. We are already seeing a decrease in purchase LTVs to 25 percent for funding companies and some DSCR banks. The greatest opportunities are when the market is in flux. Our cash buyer's are all getting liquid in anticipation of the impending buyer's market. Time is your most valuable commodity. you do not know how much you have so every day is precious. Work harder and smarter but keep pushing forward! Good luck.

[Jay Hinrichs]

Quote from @Jonathan Taylor:

@Nathalie Smith the strategy has shifted. Most deals now leave cash in the deal on the refi. The other issue is 75 LTV on the cash out. Most of my client's deals do not debt cover as rates rose too quickly for rents to keep up. So cash left in the deal and lower LTV are what hurts the 100-200k properties since the margins as so thin.

The market is cyclical though so dont be discouraged. Just be ready to pounce when an opportunity arrises. 

Do you have any other questions?

thanks for an honest answer from a Lender  appreciate it .

[Jonathan Taylor]

@Jay Hinrichs you're welcome. 

[Nathalie Smith]

No, this was amazing. Thank you All! 

[Jack Mawer]

Even though rates have been on the rise for the past few months, we are finally seeing some stability and hopefully we will see a decline in the near future. The BRRRR strategy is still existent these days it just takes more due diligence on the property of choice as well as the market. There are always deals out there that can have value added to them and still be able to cash flow with the current rates, it is just a matter of finding them! In addition, as others have mentioned, a below market value property would be the cherry on top.