To BRRRR tenant occupied or buy section 8 tenant occupied?

Question

I'm having a hard time deciding if I should BRRRR a tenant occupied property after the tenant leaves or buy section 8 tenant occupied?

The BRRRR property is $115k with an ARV of $180k. This is tenant occupied till April, rent is at $1200 a month bringing in negative cashflow of $225 a month. After the lease ends, I'm looking at least $25k for rehab and will be able to increase to $1800-$1900. So that's about 9 months before I can cashflow. 70% of ARV is $126k - $25k for repairs is $101k. I would love to start getting into BRRRR and start getting infinite cashflow but this seams it my not be the right property to do that with.

The section 8 tenant occupied property is going to cost $100k-$105k and is rented for $1800 a month that cashflows $625 a month.

Which property should I pursue?

Jessie Dillon · Answer

it sounds like the post-BRRR cashflow would be about 500/mo, right? IF your monthly debt service cost is the same after the refinance. some things to note:

- consider annual appreciation for each property if long term wealth-building is a priority for you

- consider how easy or challenging it will be to manage each property based on location, neighborhood quality, etc

- consider whether or not you can handle the 9mo of negative cashflow with the BRRR

- consider how much money you truly have to start with right now and if either situation will leave you feeling strapped

- consider than renovations usually take twice as long and are twice as expensive on your first try

- consider that there are other deals out there you could BRRR better, so it's not one or the other, it's one or the other or neither/wait

- consider that lots of banks will allow you to do 80% LTV for the BRRR refi, but you'll also be paying closing costs

Alex Bekeza · Answer

@Haaroon Malik I practice the BRRRR to Section 8 concept myself which I love and my only slight buyer's remorse has been on the two properties that I bought as "turnkey" because after effectively doing BRRRRs those turnkey 20-25% down payments just felt like stagnant cash to me. The turnkeys have delivered as promised you could say because issues have been minimal but I guess I'm just feeling like I'm at a stage where I should be more aggressively scaling by focusing 100% on value add (BRRRR/FLIP).

I'm finally about to exit a BRRR that took way, way longer than it should have because I underestimated the difficulty of getting the occupant out. This was a purchase made at auction and I figured it would be a simple cash for keys type of scenario. Unfortunately, they simply refused to communicate with us so it took 5 months, multiple court dates, and eventually a sheriff. That being said, I lean in the direction of BRRRRs that are vacant (more likely to have room for value add anyway).

Zach Edelman · Answer

Echoing Blake's point above. Can you not BRRRR with the property being rented to a section 8 tenant? Seems like the best of both worlds here.

Blake Alan Quarrie · Answer

From a methodology standpoint, I would buy/rehab an empty property first first then choose to either Section 8 or rent to complete the BRRRR. Buying a tenant occupied property can be a bit sticky because you didn't choose that tenant, so you could be stuck with a possible eviction.

If you're set on that specific property, I would list concurrently on the HUD website and your normal listing platforms. Prospective Section 8 tenants go through a normal application process, so it wouldn't be advisable to miss out on quality renters just to secure a Section 8 renter as this could increase your vacancy cost. There's also the approved amount that the voucher will be valid for, so it's a bit more difficult to predict your pro forma with a Section 8 property.

Section 8 can be great tenants, but I would also suggest a higher vacancy reserve just to protect yourself in case of the worst case scenario if you go the Section 8 route.

To BRRRR tenant occupied or buy section 8 tenant occupied?

To BRRRR tenant occupied or buy section 8 tenant occupied?

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