BRRRR no cashflow

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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BRRRR no cashflow

Franklin D.
None · Member since 2019 · 12 posts · 1 vote

Good evening,

I have come across a "discounted" property that needs relatively little work to be rented but there is no cashflow.

My market has very high property taxes and it is "impossible" to cashflow with todays rates and still tight with a lower rate in the future.

Purchase 140k

ARV 200k average

150k loan with 10k rehab included

Holding costs, closing costs, origination, 4 months (hard money) : 10,250

Refinance to 150k loan at 75% of 200k. 

Refinance closing costs 6k

Overall I would have to leave 24k in if it appraises at 200k and 16k at 210k . I am OK with that as I could do this a couple times with the money I have saved.

This property barely breaks even but the numbers are far better than anything else I have found. It would create immediate equity and eventually rents would catch up but that could be a few years.

With the new seasoning rules you have to wait 12 months from creation of your last mortgage to refinance and pull cash out. Has anyone found a way around this?

Am I looking at this from a wrong angle?

How do I combat high property taxes that kill every deal? (Besides out of state investing)

Is it worth it to leave 25k in to sell and receive 50k after selling costs more or less in 1-2 years and avoid "flip taxes"? If I put 25k into stocks and pulled out 50k 1-2 years later I would be more than happy.

This is my first deal and I am just trying to get over the initial hurdle of the first property.

*Edit*

Property taxes take almost 33% of the rent.

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Thomas Sbahtu
Member since 2023 · 5 posts · 2 votes
3y

If the property has no cash flow it is difficult to maintain the momentum of BRRRR. Basically, if you have good saving you better search great markets with rent/P.Price is great (about >1% of the purchase price). saying "My Market" would not be fruitful as the opportunity for BRRRR is dynamic.

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    3y

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.

    Podcast Guest on Show #121
    0Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Andrew Syrios:

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.


    Thank you for the reply,

    Property taxes are definitely insane. I have co-workers who have challenged the value and few have succeeded. The values are actually accurate to market rate of the houses. I am curious if the sudden high property tax values here will raise rents due to even less people being able to afford to purchase with high rates combined with high prop. taxes, and landlords having to compensate for higher property taxes. 

    I have also looked at purchasing with the plan to refinance whenever interest rates go down but that is unpredictable. It would also mean paying another round of closing costs. It would save 150 a month but take 55 months to "pay back" closing costs.

    0Reply
  • Simon Ashbaugh
    Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
    3y

    Maybe try looking into renting it section 8? Generally you can get slightly higher rents and if you screen the tenants well you can avoid the other issues that can come with section 8. 

    Another thought, if property taxes are so high there look up OZs in the area and only invest there. You may end up having to do more rehab but it sounds like it'd be worth it! https://opportunityzones.hud.g... Heres the HUD OZ map

    1Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    3y
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.


    Thank you for the reply,

    Property taxes are definitely insane. I have co-workers who have challenged the value and few have succeeded. The values are actually accurate to market rate of the houses. I am curious if the sudden high property tax values here will raise rents due to even less people being able to afford to purchase with high rates combined with high prop. taxes, and landlords having to compensate for higher property taxes. 

    I have also looked at purchasing with the plan to refinance whenever interest rates go down but that is unpredictable. It would also mean paying another round of closing costs. It would save 150 a month but take 55 months to "pay back" closing costs.


    Did the taxes just all of a sudden skyrocket? If so, yeah, rents will probably go up some. But if this has been a persistent problem, I wouldn't put any stock in that. I would challenge the taxes but if taxes are that bad, you may need to look elsewhere to find a cash flowing property

    Podcast Guest on Show #121
    0Reply
  • Thomas Sbahtu
    Member since 2023 · 5 posts · 2 votes
    3y

    If the property has no cash flow it is difficult to maintain the momentum of BRRRR. Basically, if you have good saving you better search great markets with rent/P.Price is great (about >1% of the purchase price). saying "My Market" would not be fruitful as the opportunity for BRRRR is dynamic.

    2Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Andrew Syrios:
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.


    Thank you for the reply,

    Property taxes are definitely insane. I have co-workers who have challenged the value and few have succeeded. The values are actually accurate to market rate of the houses. I am curious if the sudden high property tax values here will raise rents due to even less people being able to afford to purchase with high rates combined with high prop. taxes, and landlords having to compensate for higher property taxes. 

    I have also looked at purchasing with the plan to refinance whenever interest rates go down but that is unpredictable. It would also mean paying another round of closing costs. It would save 150 a month but take 55 months to "pay back" closing costs.


    Did the taxes just all of a sudden skyrocket? If so, yeah, rents will probably go up some. But if this has been a persistent problem, I wouldn't put any stock in that. I would challenge the taxes but if taxes are that bad, you may need to look elsewhere to find a cash flowing property

    Texas being a no income tax state they are constantly re-apprasing to get the most property tax they can. I agree somewhere else would be better, I just don't understand if I'm missing something that allows others to invest here.
    0Reply
  • Nicholas Covington
    Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
    3y

    As a lender that works with many investors, alot of my people are offloading their properties at this point just to get their cash. You're right it's very difficult to cash flow at this time with today's rate. 

    Regarding the 12-month rule, you can get a DSCR loan that is offered for rental properties. Most lenders require normally 3-6 months instead of 12.

    0Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Nicholas Covington:

    As a lender that works with many investors, alot of my people are offloading their properties at this point just to get their cash. You're right it's very difficult to cash flow at this time with today's rate. 

    Regarding the 12-month rule, you can get a DSCR loan that is offered for rental properties. Most lenders require normally 3-6 months instead of 12.

    What do you/they see as an alternative? I would prefer to keep my assets local to me. Real estate by far has the most benefits, the only option I see to stay local is to ride out barely scraping by until rents surpass my mortgage costs.
    0Reply
  • Gugu DubePro Member
    Member since 2018 · 4 posts · 2 votes
    3y

    Why do you want to stay local if numbers don’t make sense. I think you should look at other markets such as Detroit or Cleveland; cash flow is important 

    1Reply
  • Jack Lee
    Member since 2022 · 22 posts · 4 votes
    3y

    I can definitely feel you in terms of insane property taxes. I just got my two appraisals, one is up 18% and another one is up 25% year over year. I'm in the process of protesting both of them. I will keep you posted on how that goes. As per my property manager, better to go with a professional tax solutions agency who specializes in these protests. Most of them are paid on a commission basis (e.g. they only get paid if they can get you a lower appraised value). 

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y

    flip it...renovated or unrenovated

    1Reply
  • Jacob Stevenson
    Insurance Agent · Sioux City · Member since 2020 · 83 posts · 41 votes
    3y

    Taxes are doing the same where we invest.  Rents have increased substantial amounts as well though so rentals still cash flow.  What is keeping rents low in your area?

    0Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    3y

    @Franklin Dowhower If you want to stay local keep analyzing deals and wait a little longer. I’m starting to see more properties come on the market in my area and some are good deals and some aren’t. It’s all a matter of analyzing 100 deals to land 1 that you buy.

    Some of the sellers that bought in the last year or so and are still looking to make top dollar for their flips are now listing again and those aren’t the good cash flowing options.

    I just closed on a great property that I was persistent on and does need repositioning and new, solid management. It will take a bit of time to get it where it needs to be but it will be a great BRRRR. To get that one property I probably looked at 35 others and analyzed another 20 besides that.

    The deals are out there, you have to keep looking. And if your market isn’t working, go to the BIGGERPOCKETS bookstore and get the book on long distance investing and look to some of the markets the others mentioned.

    0Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Jacob Stevenson:

    Taxes are doing the same where we invest.  Rents have increased substantial amounts as well though so rentals still cash flow.  What is keeping rents low in your area?

     They aren't super low rents, mostly super high taxes, but likely income.

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y

    Man, property taxes in Texas can be so rough sometimes 

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    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    @Franklin Dowhower

    Been there done that. And I'm in Texas too (DFW area). I've been in your situation a few times and it's rough breaking even at first after leaving 20-30k in a BRRRR. However, market rent has been coming way up here due to rising property taxes and insurance. There's not a ton of buy n hold investors in Texas for this reason so rental inventory will remain low. Most people flip and make their 30-70k after a few months and repeat flipping. I like to hang onto my properties and after a few years they've been looking like home runs. But at first, they're all base hits. If you don't need cash flow right now, then I'd plant that tree and wait for a few years to refinance or sell and do a 1031 exchange to scale up. Patience is the key if you can afford to wait.

    2Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @John Morgan:

    @Franklin Dowhower

    Been there done that. And I'm in Texas too (DFW area). I've been in your situation a few times and it's rough breaking even at first after leaving 20-30k in a BRRRR. However, market rent has been coming way up here due to rising property taxes and insurance. There's not a ton of buy n hold investors in Texas for this reason so rental inventory will remain low. Most people flip and make their 30-70k after a few months and repeat flipping. I like to hang onto my properties and after a few years they've been looking like home runs. But at first, they're all base hits. If you don't need cash flow right now, then I'd plant that tree and wait for a few years to refinance or sell and do a 1031 exchange to scale up. Patience is the key if you can afford to wait.

    This was exactly what I was looking at. Would like but don't need cashflow, flipping taxes are hefty so holding and renting for a few years avoids that and then 1031 into something bigger. Appreciation looks good here on the right property.

    Thank you for your thoughts.
    0Reply
  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    3y

    You may not be able to BRRRR right away, but get the deal now, and do the refinance in 1-2 years after rates start to drop down

    0Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y
    Quote from @Franklin D.:
    Quote from @John Morgan:

    @Franklin Dowhower

    Been there done that. And I'm in Texas too (DFW area). I've been in your situation a few times and it's rough breaking even at first after leaving 20-30k in a BRRRR. However, market rent has been coming way up here due to rising property taxes and insurance. There's not a ton of buy n hold investors in Texas for this reason so rental inventory will remain low. Most people flip and make their 30-70k after a few months and repeat flipping. I like to hang onto my properties and after a few years they've been looking like home runs. But at first, they're all base hits. If you don't need cash flow right now, then I'd plant that tree and wait for a few years to refinance or sell and do a 1031 exchange to scale up. Patience is the key if you can afford to wait.

    This was exactly what I was looking at. Would like but don't need cashflow, flipping taxes are hefty so holding and renting for a few years avoids that and then 1031 into something bigger. Appreciation looks good here on the right property.

    Thank you for your thoughts.
    And I have O’Connor and associate fight my property taxes every year for me. They do a great job and it’s automatic every year. If they can save you money (which they do almost every year for me) then you pay them 50% of whatever they save you in taxes. 
    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    3y
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.


    Thank you for the reply,

    Property taxes are definitely insane. I have co-workers who have challenged the value and few have succeeded. The values are actually accurate to market rate of the houses. I am curious if the sudden high property tax values here will raise rents due to even less people being able to afford to purchase with high rates combined with high prop. taxes, and landlords having to compensate for higher property taxes. 

    I have also looked at purchasing with the plan to refinance whenever interest rates go down but that is unpredictable. It would also mean paying another round of closing costs. It would save 150 a month but take 55 months to "pay back" closing costs.


    Did the taxes just all of a sudden skyrocket? If so, yeah, rents will probably go up some. But if this has been a persistent problem, I wouldn't put any stock in that. I would challenge the taxes but if taxes are that bad, you may need to look elsewhere to find a cash flowing property

    Texas being a no income tax state they are constantly re-apprasing to get the most property tax they can. I agree somewhere else would be better, I just don't understand if I'm missing something that allows others to invest here.

    Yeah, I have some friends in Texas who complain a lot about the property taxes, especially since they reappraise on sales, which I've seen completely ruin a pro forma or two

    Podcast Guest on Show #121
    0Reply
  • Jordan Woolf
    Flipper/Rehabber · Huntsville, AL · Member since 2019 · 117 posts · 57 votes
    3y

    @Franklin Dowhower I am changing my strategy to only BRRR properties in desirable location and selling everything else. Once I reach my gross rental income I am going to shift into paying off those properties.

    Someone else mentioned trying section 8 to increase the cash flow. That is a good idea as well.

    0Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Andrew Syrios:
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:
    Quote from @Franklin D.:
    Quote from @Andrew Syrios:

    Those property taxes sound brutal. But I assume the loan costs are tough too. It's really hard to BRRRR in this rate environment. You'll probably have to leave some money into the property. Although you should challenge the property taxes with the county I would think. Perhaps they have the house valued way higher than it should be.


    Thank you for the reply,

    Property taxes are definitely insane. I have co-workers who have challenged the value and few have succeeded. The values are actually accurate to market rate of the houses. I am curious if the sudden high property tax values here will raise rents due to even less people being able to afford to purchase with high rates combined with high prop. taxes, and landlords having to compensate for higher property taxes. 

    I have also looked at purchasing with the plan to refinance whenever interest rates go down but that is unpredictable. It would also mean paying another round of closing costs. It would save 150 a month but take 55 months to "pay back" closing costs.


    Did the taxes just all of a sudden skyrocket? If so, yeah, rents will probably go up some. But if this has been a persistent problem, I wouldn't put any stock in that. I would challenge the taxes but if taxes are that bad, you may need to look elsewhere to find a cash flowing property

    Texas being a no income tax state they are constantly re-apprasing to get the most property tax they can. I agree somewhere else would be better, I just don't understand if I'm missing something that allows others to invest here.

    Yeah, I have some friends in Texas who complain a lot about the property taxes, especially since they reappraise on sales, which I've seen completely ruin a pro forma or two

    The biggest issue with property taxes is they're unavoidable. Where as with income tax you write off losses.
    0Reply
  • Franklin D.
    OP
    None · Member since 2019 · 12 posts · 1 vote
    3y
    Quote from @Jordan Woolf:

    @Franklin Dowhower I am changing my strategy to only BRRR properties in desirable location and selling everything else. Once I reach my gross rental income I am going to shift into paying off those properties.

    Someone else mentioned trying section 8 to increase the cash flow. That is a good idea as well.

    I was running the numbers on a good BRRRR and leaving more money in the property on refinance. A big issue is I meet my numbers on the mortgage and taxes but repairs and cap. exp. kill it.
    0Reply
  • Jordan Woolf
    Flipper/Rehabber · Huntsville, AL · Member since 2019 · 117 posts · 57 votes
    3y

    @Franklin Dowhower I’m sure I will get backlash for saying this but I typically put very little towards capEx and repairs on my BRRRs. I make sure to take care of any capEx issues on the initial rehab. I typically don’t have any issues with tenants either.

    That really depends on how old the property is and how long you plan to hold them. I plan on trading up in a short amount of time.

    0Reply
  • Account Closed
    Columbus, OH · Member since 2023 · 427 posts · 254 votes
    3y

     I wouldn't force a deal that doesn't make financial sense just because other deals you're coming across aren't great. With these rates, you have to be patient and find a good deal.

    0Reply
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