Finding a BRRRR that checks all the boxes
Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes
Finding a BRRRR that checks all the boxes
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Real Estate Agent · Columbus, OH · Member since 2016 · 593 posts · 664 votes
3yIn this market with debt service taking so much of the revenue you have to add something to the box. Here are a few ways that you can force the numbers into working. I've done some form of all these in Columbus OH.
1.) Self manage - If you are local this can work well. I've even seen this done from people investing out of state too. Management companies push for lower rents which is a huge loss of revenue. Instead of getting $1,300 for a property you're getting $1,200 and they take 10%. So a difference of $220.
2.) Major rehab for high cap ex. If you use the banks money this works well. You can leverage this as a tax shield for other income you make and is the best of both worlds as you are still financeable to banks. Can also be amplified with a cost segregation.
3.) Tax abatements. With debt service being so high this is a good way to make sure you cash flow. In Columbus they have incentives where you can lock taxes at current rate for 15 years.
4.) Look at your pro forma year 3-10, especially if you're locking in long term debt. We've been doing 5/1 ARM commercial financing so years 6-10 could look different for us. Everyone wants immediate cashflow but REI is a long term game if you asked me!
Best of luck with your next BRRR
27 Replies
- Real Estate Agent · Member since 2023 · 91 posts · 80 votes3y
I don't think waiting is the answer. Imagine if rates drop again, then your needle will be in a much larger haystack.
You can definitely find good deals that are cash flow positive near me still. Taking appreciation into account the next few years will be rewarding. Tons of city projects and, Florida being Florida, are attracting all sorts of people to the area from New York, Wisconsin, Ohio etc. Most of my clients are relocating from out of state.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Your rent:value ratio has to be perfect, most markets do not check this box, unless you are in C-class neighborhoods. You can find other ways to cash flow like STR. Wether it is worth it or not depends on your strategy, every dollar you lose a month is tapping in to your equity.
- Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes3y
I understand your perspective. I live in Florida, and we've experienced rapid appreciation over the past three years. As a result, rental prices are well above the 1% rule, making refinancing a challenge. Even if you refinance and pull out equity, you may still face negative cash flow for a few years. Ultimately, you'll need to consider what's more important to you: appreciation or cash flow. If you do decide to refinance and access your equity, one option is to use some of that money to cover your negative cash flow until the property becomes profitable. Good luck!
- Investor · Houston, TX · Member since 2019 · 66 posts · 58 votes3y
@Ronald Fontenot Jr consider using creative financing to get into deals instead of conventional mortgages. I would never recommend buying a deal with negative cashflow. Betting entirely on future appreciation is not a great strategy in my opinion.
With rates and prices being high right now, numbers will just not work with conventional loans - especially on single family investments. There's several strategies you could employ to find a deal. Here's 2 creative ways to buy a property without using a conventional loan:
1. Subject To - Taking over the seller's existing loan at a lower interest rate
2. Seller Finance - Having the seller finance the deal using terms that cashflow
Feel free to connect with me and reach out and I can go into more detail, happy to help wherever I can
- Lender · 42 states · Member since 2022 · 27 posts · 5 votes3y
I'd like to take a look at your analysis. Generally if you pull one lever, you change the outcome, then you pull another lever, you change the outcome further. It's difficult for me to understand how you're getting negative cashflow if your all-in is 55% of ARV?
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3y
Quote from @Kristin Fleming:
I'd like to take a look at your analysis. Generally if you pull one lever, you change the outcome, then you pull another lever, you change the outcome further. It's difficult for me to understand how you're getting negative cashflow if your all-in is 55% of ARV? Feel free to contact me if I may be helpful to you.
Thanks for the reply! I'll give you an example. The address to this particular home is 620 Manor Dr, Angleton, TX. It's listed on Zillow for 140k. I figured to offer 130k. I have found several comps that would tend to support a 210-220k ARV. I figure the rehab to be 15k. I am a GC and can get things done at quite a discount and I also have a ton of material in my warehouse that I can use. Here is a link to the report that I've generated for it. I've done it many different ways and this is the best outcome I've found. Any way I did it whereby I could pull out my entire out of pocket investment makes it substantially worse.
https://www.biggerpockets.com/calculators/shared/2680294/3acb9919-99bf-4a52-95e1-abaebf6776ee
I'd value your opinion. Thanks! - 3yKyle MccawBusiness MemberProperty Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
@Ronald Fontenot Jr ya it's tough out there. With this property you have to think you're buying a long term asset, not so much a cashflow asset. If you hold it awhile it will come out great in the long run. It could also be a great play if you need to cost seg it to save on taxes.
To get the cashflow we have been focusing on the tertiary markets just outside the core metroplex. For the properties in the "city" we just have to wait long between deals.
McCaw Property Management4.4905 Reviews - Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3yThanks Kyle. Yeah that's kind of what I'm thinking. It's going to be a long term hold. This is just an example of the type of deals I'm finding. Interest rates are killing them, or making them at least negative CF for a year, two or three. I didn't actually get this property, but I've identified a lot of them with the same outcome, some better than others. I'm definitely expanding my search beyond the city...actually not even interested in Houston proper at this time, but rather in the suburbs that are experiencing growth and potential. Gonna keep on looking! Thanks again!
Quote from @Kyle Mccaw:
@Ronald Fontenot Jr ya it's tough out there. With this property you have to think you're buying a long term asset, not so much a cashflow asset. If you hold it awhile it will come out great in the long run. It could also be a great play if you need to cost seg it to save on taxes.
To get the cashflow we have been focusing on the tertiary markets just outside the core metroplex. For the properties in the "city" we just have to wait long between deals.
- Rental Property Investor · NY · Member since 2018 · 126 posts · 42 votes3y
Absolutely not on ever going cashflow negative. That means you're making an appreciation strategic play. That takes foresight and expertise. If you aren't finding cash-flowing deals you either need to spend more time learning underwriting/creative financing. Or you need to expand your search parameters. I know that may take your edge away b/c the further you go from your team the harder it is. If you only want to stay in your area in may just not be the time to buy. You may just need to wait for the market to catch up to the interest rates.
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3y
Quote from @Chad Kastel:
Absolutely not on ever going cashflow negative. That means you're making an appreciation strategic play. That takes foresight and expertise. If you aren't finding cash-flowing deals you either need to spend more time learning underwriting/creative financing. Or you need to expand your search parameters. I know that may take your edge away b/c the further you go from your team the harder it is. If you only want to stay in your area in may just not be the time to buy. You may just need to wait for the market to catch up to the interest rates.
I can appreciate that advice. Thanks! I would rather stick around my locale since I'm I'm a newb to this. Having long-distance rentals right off the bat doesn't seem like a good idea. I'm still getting my people together and making plans. Trust me, I'm in no hurry to jump into anything I can find just to do it. It might just be a wait, search and see for now. I know there are deals out there. Seems like flips are probably the way to go, at least for me, right now. We will see. Again, thanks for the advice. It's well taken.
- Lender · 42 states · Member since 2022 · 27 posts · 5 votes3y
Quote from @Ronald Fontenot Jr:
Quote from @Kristin Fleming:
I'd like to take a look at your analysis. Generally if you pull one lever, you change the outcome, then you pull another lever, you change the outcome further. It's difficult for me to understand how you're getting negative cashflow if your all-in is 55% of ARV? Feel free to contact me if I may be helpful to you.
Thanks for the reply! I'll give you an example. The address to this particular home is 620 Manor Dr, Angleton, TX. It's listed on Zillow for 140k. I figured to offer 130k. I have found several comps that would tend to support a 210-220k ARV. I figure the rehab to be 15k. I am a GC and can get things done at quite a discount and I also have a ton of material in my warehouse that I can use. Here is a link to the report that I've generated for it. I've done it many different ways and this is the best outcome I've found. Any way I did it whereby I could pull out my entire out of pocket investment makes it substantially worse.
https://www.biggerpockets.com/calculators/shared/2680294/3acb9919-99bf-4a52-95e1-abaebf6776ee
I'd value your opinion. Thanks!I think your cost assumptions are pretty accurate. Your insurance and taxes seem a little high to me, but I am not familiar with the typical costs in that market. I agree with those that have commented that it is unwise to go in at a negative cash flow. Are you quite certain about the rents? $1700 sees a bit low to me on a $210,000 property, but again, I don't know that market. I have seen other investors say that with this rate environment they are looking for 65% of ARV for their purchase plus rehab to make a successful BRRRR.
- 3yLinda LabbePro MemberInvestor · North Bay, Ontario · Member since 2015 · 709 posts · 262 votes
It depends where you are looking we invest in Ohio and Michigan and are still finding properties that Brrrr out its just a matter of shopping and fining the right deals and yes creative financing helps a lot
.. it can make things so so much easier more then willing to chat with anyone who wants more info
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3yYes insurance and taxes are horrible here in the Houston area. So much of the area is flood or wind zone and FEMA is ruthless with their rates. Rents are all over the place too, depending on where the property is. Hard pressed to find anything other than a teardown for 65% arv. There are some, but they get snatched quickly by the bigger players who wholesale them. Then there's not enough meat left on the bone to make a deal work, at least by BP parameters, and I'm a GC who can get work done for cost!. In this environment I'm dead set on not making a rash decision into a bad deal. It's tough here for the little guy. But I'll not let that deter me. Gonna keep pounding the pavement until I find one that works. Thanks for the reply!
Quote from @Kristin Fleming:
Quote from @Ronald Fontenot Jr:
Quote from @Kristin Fleming:
I'd like to take a look at your analysis. Generally if you pull one lever, you change the outcome, then you pull another lever, you change the outcome further. It's difficult for me to understand how you're getting negative cashflow if your all-in is 55% of ARV? Feel free to contact me if I may be helpful to you.
Thanks for the reply! I'll give you an example. The address to this particular home is 620 Manor Dr, Angleton, TX. It's listed on Zillow for 140k. I figured to offer 130k. I have found several comps that would tend to support a 210-220k ARV. I figure the rehab to be 15k. I am a GC and can get things done at quite a discount and I also have a ton of material in my warehouse that I can use. Here is a link to the report that I've generated for it. I've done it many different ways and this is the best outcome I've found. Any way I did it whereby I could pull out my entire out of pocket investment makes it substantially worse.
https://www.biggerpockets.com/calculators/shared/2680294/3acb9919-99bf-4a52-95e1-abaebf6776ee
I'd value your opinion. Thanks!I think your cost assumptions are pretty accurate. Your insurance and taxes seem a little high to me, but I am not familiar with the typical costs in that market. I agree with those that have commented that it is unwise to go in at a negative cash flow. Are you quite certain about the rents? $1700 sees a bit low to me on a $210,000 property, but again, I don't know that market. I have seen other investors say that with this rate environment they are looking for 65% of ARV for their purchase plus rehab to make a successful BRRRR.
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3y
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3yI wish I had the cajones at this stage to venture out of state. I look in other places and run the numbers just to entertain the thought, but I just need some experience under my belt first...I think. I could be wrong. But rather be safe right now. Thanks for the reply...I appreciate it!
Quote from @Linda Labbe:
It depends where you are looking we invest in Ohio and Michigan and are still finding properties that Brrrr out its just a matter of shopping and fining the right deals and yes creative financing helps a lot
.. it can make things so so much easier more then willing to chat with anyone who wants more info
- Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes3y
I think it is important to remember that even if you are cash flowing only $100 a year, if you pulled all of your cash out, meaning you have zero cash in the deal… the ROI no matter what the cashflow, is infinite.
The Angleton area has me excited over the next 10 years. As does Santa Fe, Alvin, Algoa. As Houston expands these areas are going to develop and appreciate
- Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3y100% agree. South of Houston makes the most sense. Just have to watch those flood zones. Santa Fe to Alvin is already experiencing high values. I still like those areas though. Thanks for the reply!
Quote from @Karl McGarvey:
I think it is important to remember that even if you are cash flowing only $100 a year, if you pulled all of your cash out, meaning you have zero cash in the deal… the ROI no matter what the cashflow, is infinite.
The Angleton area has me excited over the next 10 years. As does Santa Fe, Alvin, Algoa. As Houston expands these areas are going to develop and appreciate
- 3yJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Linda Labbe:
It depends where you are looking we invest in Ohio and Michigan and are still finding properties that Brrrr out its just a matter of shopping and fining the right deals and yes creative financing helps a lot
.. it can make things so so much easier more then willing to chat with anyone who wants more info
I can attest to this! Definitely still lots of deals here in Ohio, I am an investor and agent in the Columbus Ohio area and was able to get my client a 26% CoC deal just two weeks ago!
Jimmy Lieu, Red 1 Realty4.9120 Reviews - 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Ronald Fontenot Jr if you read stuff by hardcore investors, they all state that you may have to write 100 offers, at amounts that make your numbers work, to get one acceptedl
How many offers have you made so far?
Logical Property Management4.9458 Reviews - Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes3yAbsolutely. I've been in the game for a little over three weeks just yet trying to read, learn and get advice from everywhere I can. So far, I've made two offers, one declined, one not sure yet. I've ran the numbers on at least a hundred to see if they're worth even messing with. But I'll caveat that with the fact that I'm on vacation now and not making any moves while away. Back in the saddle next week and I'm cranking back up. Just need to get some family time out of the way. Thanks for the reply and the advice!
Quote from @Drew Sygit:
@Ronald Fontenot Jr if you read stuff by hardcore investors, they all state that you may have to write 100 offers, at amounts that make your numbers work, to get one acceptedl
How many offers have you made so far?
- Chicago, IL · Member since 2016 · 27 posts · 11 votes3y
Well to be honest don’t even look at the % to market value. That’s great in theory but literally you have to look at the real numbers. Especially if you actually know exactly what the rehab is. What I do is I have my searches setup, off market is waaaaaay better but harder to find, I have a general idea of arv, I put the address into rentometer find my rent. Then I take my arv take 70% of that to get my equity that must stay in for cash out refinance (by the way I hear in April you will have to own a property for 12 months to cash out ona freddie and fannie loan) subtract that 70% number from the offer price and that’s my rehab budget. Pop my rent and my loan into a cashflow calculator and make sure my cashflow is 500 or better for safety because nothing is perfect until it’s set in leases and completed. So if I cashflow 500 or better and the rehab fits into the frame I go for it. But keep in mind holding costs closing costs etc. I burned what should’ve been a 30k profit at the end to leaving 10k in out of pocket by not counting those costs and doing more than I should’ve on the rehab. But rents and market values are not meshing well so you gotta look at a lot of deals when it’s all said and done. They are there just don’t expect them quick unless you are getting off market deals.
- 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Ronald Fontenot Jr WRITE MORE OFFERS!
If a property has been on the market for more than 90 days, write an offer with a price that makes your metrics work. You never know how motivated the seller is to accept.
Enjoy your vacation!
Logical Property Management4.9458 Reviews - 3yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
Every real estate investment strategy comes with benefits and risks. The BRRRR method is no exception. Let's take a closer look at the pros and cons of the BRRRR strategy.
3 pros of the BRRRR method
Earn passive income: BRRRR provides a repeatable framework for real estate investors to earn steady, passive income.
Build equity: Holding onto properties rather than selling them allows BRRRR investors to build equity continuously.
Repeatable process: It creates the potential for investors to build wealth exponentially.
3 cons of the BRRRR method
Not for beginners: The BRRRR strategy requires a lot of real estate knowledge and experience. Investors must accurately assess market values and rehab costs and manage budgets and timelines. It’s not for everyone.
Costs of rehab: Anyone who’s ever watched a house-flipping show on HGTV knows unexpected expenses always pop up, and the timeline always gets extended. It can be quite costly and stressful to rehab a property.
Property management: Being a landlord isn’t for everyone. It takes a lot of work to find renters and manage properties. The work only compounds as you add more rental properties to your real estate portfolio.
Is the BRRRR method right for you?
Well, it depends on your real estate industry knowledge and risk level. The BRRRR strategy has a lot of benefits and downsides.
BRRRR can be very lucrative for investors who can assess market conditions accurately, set budgets, and manage rehab timelines. However, it can be costly and takes time to realize the total return on investment.All the best!
NETWORTH BUILDERS5236 Reviews - Member since 2021 · 64 posts · 68 votes3y
One way that your numbers could be made to work is by considering a short or medium term renting strategy. AirBNB-ing isn’t as easy now as it was during the first days of Covid, but it’s still doable depending on area and property differentiation/uniqueness. Or if you buy near a hospital, think travel nurse/doctor renting for 30ish day stays. Either way there are some tools to help (airdna, etc.). I’m working on a Columbus rehab right now in a C- neighborhood that should be B-C in. 3-5 years if trends continue, and it’s within a couple miles of a large hospital. So I’m planning to practice what I preach here haha. Good luck, I admire the hustle it’s clear you have.
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