Hey guys, I am a new investor and I have recently purchased a home subject-to, I have done a few wholesale deals, and I am currently halfway through my first flip! I have seen varying opinions on the BRRRR method (which seems to be most sensible and alluring to me) and the variance, to my understanding, comes down to the uncertainty of interest rates and DSCR loans. Would you do a BRRRR if the rental income breaks even with PITI and capital expenses? Can anyone chime in on this?
At this time, I would be using private money or hard money or a combination of both.
Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
3y
You can always ask the lender if they have interest only options to help with cash-flow for the immediate timeframe. DSCR lenders should have options for a 30 yr loan where a certain portion/duration of the loan is interest only, which reduces the monthly payment on the front-end of the loan. Typical structure is either for the first 5 or 10 yrs of the loan.
Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes
3y
Well, would a lender do it if you broke even, you may find some but you won't like the rates I don't think. The short answer is no, I wouldn't.
Let's say you invest in a stock that pays dividends quarterly. If I told you that for you there will be no dividend and you're only chance to make money is appreciation of the stock price itself. That stock all of a sudden doesn't look as appealing.
When scaling a portfolio, the monthly cashflow is the dividend. That's a return you get based on the capital you have invested and you get it every month. If you have a portfolio with 5 houses that total 1 Million in value and you cashflow positive 3,000 monthly that is a monthly return of .3% of the portfolio's value now annualize that and that is 3.6% annual return or about 36k in cash year over year.
Now what if I took that all away from the portfolio, it's a lot less desirable when you are just hoping and praying that the areas you invest in appreciate and don't depreciate.
Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
3y
You can always ask the lender if they have interest only options to help with cash-flow for the immediate timeframe. DSCR lenders should have options for a 30 yr loan where a certain portion/duration of the loan is interest only, which reduces the monthly payment on the front-end of the loan. Typical structure is either for the first 5 or 10 yrs of the loan.
Guys, thanks so much for your comments. I need to learn more about these numbers and returns. Question: is there a target annual return percentage you feel is optimal (obviously, he higher the better)? After analyzing the deal, is there a minimum criteria in which you need to do the deal? And, in your example, the 1 million in value is what the asset is worth, not necessarily your equity in it?
Real Estate Consultant · Wittenberg, WI · Member since 2014 · 572 posts · 572 votes
2y
Break even deals typically do not really break even because most people underestimate the actual cost of holding a property. I NEVER buy unless it cash flows because the last time I bought on appreciation (2006) I went broke.