Is the BRRRR strategy still feasible?

Question

I have been looking into the BRRRR strategy for awhile but with interest rates where they are, is the BRRRR method still possible to benefit from?

I am still learning how to go about doing it and would appreciate any insight!

Jack Mawer · Answer

Even though rates have taken a hit over the course of the last six months, we have seen stabilization/decline over the last 60 days - it is definitely still possible to benefit from the BRRRR strategy. If you find an asset and can add significant value to it and then have run the numbers and it will still cash flow as a rental with today's rates, I would say go for it. Marry the property and date the rate and you can always refinance down the road.

Scott Trench · Answer

All strategies work in any environment, but yes, BRRRR is particularly challenging right now. Rising interest rates and falling property values work against BRRRR investors in the near-term. I bet, however, that more BRRRR opportunities will re-emerge at by the end of the year.

In the meantime, consider the following strategies:

- Assumable mortgages, subject-to, and seller-financing. Assumable mortgages and subject-to consist of you, the buyer, taking over the seller's existing financing, which may be at very attractive low interest rates. Seller financing, of course, consists of working out a deal with the seller directly where you negotiate financing terms direct.

- Consider buying properties all in cash if you have the means.

- Consider lending - higher interest rates means... higher interest rates for the lender and better returns.

If you are set on BRRRR-ing, then make sure you find a fantastic deal, and have many mitigation strategies to bring down costs, and exit options (renting the property even with high interest rate debt in place still produces a positive cash flow).

Andrew Syrios · Answer

Possible? Yes. More difficult than before? Sure.

(Although it is a bit easier to find motivated sellers than before.)

Kevin Woodard · Answer

The math will always work. Whether the variables are right will depend on the investor.

You need your purchase price coupled with required construction to be a percent of ARV (typically 60%-75%).

The total project cost as a ratio of the ARV will depend on the market, your experience, and your investment strategy.

Corby Goade · Answer

There is never a time or place that BRRRR doesn't work, it's all about finding the right property. Heck, I've BRRRRd plenty of times of of the MLS in crazy markets, up markets, down markets, etc.

If you want for rates to come down- you might be waiting forever. And if they do come down in any signifcant way, competition for those properties will be the next barrier that you are worried about.

Taking action and reasonable risk are the only things that will help you win in REI.

Best of luck!

Olivia Grabka · Answer

@Ace Kaspar. Yes, but your purchase price has to be about 50% of the after renovation value.  Your purchase price is the key.

Jack Seiden · Answer

In most markets and i’m sure there are some exceptions, as labor has increased it’s literally cheaper to buy turn key. The cost of purchase plus Reno’s usually puts you over the cost of just buying turn key. In general a lot of the real estate strategies that make have worked pre 2020 simply don’t pencil now. Buy and hold in a good area is still a great strategy though!

Eliott Elias · Answer

Yes, in markets where price to rent ratio is strong. Usually sub 200k

Riaz Gillani · Answer

It's absolutely still feasible. But you are right to have some uncertainty. Tier 1 Markets are especially tough with the increased cost of money.

But a silver lining of increased rates, no matter the prevailing market conditions, trends, backdrop, etc. is decreased demand. I used to be unable to 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 is harder to justify a BRRRR than 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 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, french tiles etc.

A good BRRRR is always a good flip. But, a good flip is not always a good BRRRR. Be ready to do either.

Is the BRRRR strategy still feasible?

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