First BRRRR Property

[Michael Rossi]

Hello All, 

I have recently acquired a 2/2 Condo in the heart of the Tampa Bay. Prime location, just inside Rocky Pointe. I am looking for general advice given the current market conditions. 

I have always wanted to build a real estate portfolio and I am working to clean up the property a bit (paint and small bathroom rehab) - and hope to put a renter in the property starting in Jan. 2023 on the higher end of rents (2.5K - 3K) 

Property is paid off, estimated appraised value: 265K

Given the current market conditions, would it make sense for me to do a cash out refi to get into another property within the next 6 months? Or should I just cash flow through 2023 and hold off until 2024? 

Thank you for your insight and direction. Its greatly appreciated. 

-Mike 

[Ash Hegde]

If the numbers work with a cash-out refi and you want to grow your portfolio, do it. There's no telling when rates will come down and you can refi to more favorable terms if they do. 

[Kristina Kuba]

@Michael Rossi

The only reason why you are cashflowing so heavily is because the property is paid off and you have untapped equity in there. A better calculation for your property is IRR …IRR is calculated using the same concept as net present value (NPV), except it sets the NPV equal to zero. Google search for an IRR calculator and it should be simple.

As soon as the condo seasons in 6 months, do a cash out refi and re-deploy the money to scale your portfolio. No one knows what will happen in 2024, something could happen in your personal finances and make you not qualify for a cash out refi later down the road. In your case, buy real estate and wait… don’t wait to buy.

[Andrew Postell]

@Michael Rossi to answer your question of would it make sense to purchase another property in the next 6 months - most of us try to buy properties at a deep discount. That's the point of the BRRRR method. So when is it easier to buy at a deep discount? When the market isn't going well? Or when the market is going well? Understand that as you progress in this arena you will buy at a deep discount in either market conditions....but right now people are getting some REALLY good deals out there. Just something to think about.

[Michael Rossi]

Thank you for your insight @Kristina Kuba - What are the more common financial constraints that would prevent one from obtaining a cash out refi? 

Thank you @Andrew Postell - I am working with my father who is a tenured appraiser in Florida to help identify under-valued properties. Hoping to leverage his market expertise to find excellent deals. 

Again, thank you both for your comments. 

[Jay Thomas]

When the real estate market is not doing well, it can be easier to buy properties at a deep discount because sellers are more willing to negotiate and accept lower offers. On the other hand, when the market is doing well, there may still be opportunities for discounts, but they may not be as substantial. Regardless of what the market conditions are, the BRRRR method is an effective way to purchase properties and build wealth. As you become more experienced with this method, you will be able to identify potential deals in any market environment. Right now, those who are familiar with the BRRRR method are finding some great deals out there due to a combination of favorable market conditions and their expertise in finding properties at deep discounts.

Ultimately, no matter what the market conditions are, it is possible to buy properties at a discount using the BRRRR method. The key is to remain patient and diligent in your search for deals, and take advantage of any opportunities that arise. With this approach, you can start building wealth even during challenging market conditions.

[Robin Simon]

Quote from @Michael Rossi:

Hello All, 

I have recently acquired a 2/2 Condo in the heart of the Tampa Bay. Prime location, just inside Rocky Pointe. I am looking for general advice given the current market conditions. 

I have always wanted to build a real estate portfolio and I am working to clean up the property a bit (paint and small bathroom rehab) - and hope to put a renter in the property starting in Jan. 2023 on the higher end of rents (2.5K - 3K) 

Property is paid off, estimated appraised value: 265K

Given the current market conditions, would it make sense for me to do a cash out refi to get into another property within the next 6 months? Or should I just cash flow through 2023 and hold off until 2024? 

Thank you for your insight and direction. Its greatly appreciated. 

-Mike 

Best course of action in my view is to sit down and run the numbers on what it would specifically take for you to make the new property work (what value, what cash flow, what metrics - ROI, etc.) and then be prepared to purchase another property only if a property becomes available which 100% fits your criteria.  Set a high bar, so that way you can take emotions and uncertainty out of it and methodically only purchase if you are sure its a great deal up to the high standards you have set

[Kristina Kuba]

@Michael Rossi

If you are doing a no doc, LLC loan you should have no issue with getting a cash out refi.

If you are going the conventional way and using your personal credit, if you have less income, a job change or loss could impact getting approved in the future.

Overall, I would not consider this to be a major factor in your decision. I would consider the opportunity costs of not doing a refi now and not buying another investment property now, while sellers are more flexible and buyers are increasingly having more negotiating power when it comes to price, concessions and repairs.

[Michael Rossi]

@Kristina Kuba I have not considered a no doc, LLC - that is an option I am reading up about now. Thank you for the suggestion.

@Robin Simon Great recommendation. You have a worksheet or resource that you recommend when running such numbers? I have my own little spreadsheet I built out that works well; curious what other tools you would recommend. I am a data guru, currently working in Corporate Finance, fun stuff.