BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Unique BRRR Situation
I have a question about a negative cash flow BRRR, a year into the deal. I have a unique situation as I have lived rent free most of my working years, at a boarding school that provides housing. I decided that I wanted to take advantage of this benefit by buying a property to eventually rent out (after meeting the 1 year primary residence restrictions). I bought a log cabin in an up and coming area of western NC. I have lived in and value added in this home for the past year (minor cosmetic renovations, furnishings, etc.) I've known the market for awhile, and I worked with a realtor to find a deal on this cabin. It is a vacation/wedding destination town and a retirement haven. The local community is growing as people move out of the city and into the mountains. A lot of younger families coming in and exciting growth, so I am expecting significant appreciation over the years in addition to the equity I bought. Similar homes go for about 50-75k more than what I bought mine for. I got a 3% mortgage, and closing costs covered. I originally thought about doing Airbnb, but now I am considering mid-term and even long-term. However, with mortgage rates being so high when I bought, I am worried I will have some negative cash flow (approximately 200-300 per month as a long term). It's possible it achieves positive cash flow as an Airbnb but I worry about the down months and other risks associated. As such, I am asking for your thoughts and advice as I consider my options. I thought there's good potential as a flip, but perhaps not in this market and after capital gains (this is far from my hopes anyways). I got into this as a long-term investment, with the hopes of my expenses being covered while I live rent free and watch my equity build over time. However, with this potential for monthly loss, even though it is a minor dent to my income, I am wondering if I made the right decision. Many might say that I should've put all those savings towards other investments, but I understand real-estate, enjoy the entrepreneurial process, and believe in the potential for long term wealth building. My goal is for this house to be paid for over the long term, refinance to pull money out, and do it again in another nearby, yet different market (BRRR). I would love any thoughts. Thanks again!
@Nathan Cox You bought a cabin and put 3% down. What were you expecting?
"I originally thought about doing Airbnb, but now I am considering mid-term and even long-term." - Without any numbers for these strategies it's just an idea, not a plan. Focus on the numbers and see what actually pencils out. I'm not in your market but we would never rent a cabin just to lose $200-300 per month. Even if the appreciation happens (unpredictable) the risk out ways the reward.
"Similar homes go for about 50-75k more than what I bought mine for" - How did you create $50-75k in equity? Or did the market? There's a difference.
How much time do you have? Operating an STR is a full time job. You're chasing 5-star reviews. Airbnb rewards the "unique stays" now days. It's more challenging than a LTR in every way. Keep that in mind if you're remodeling this property.
If you turn this property into a STR - do you have a budget for design, amenities, and furnishings? As Jaron mentioned above, average homes aren't performing well and the unique, experiential homes are hitting and exceeding revenue targets.
What research have you done to convert it into an STR?
If you choose to self operate, it is a lot of work no doubt, but some people enjoy it. It really depends on what kind of investor you would want to be.
The "2 out of the last 5 year rule" in real estate allows homeowners to exclude up to $250,000 ($500,000 for married couples) of capital gains from the sale of their primary residence if they lived in the home for at least two out of the five years before the sale. This exemption can be used every two years.
Consider living it for one more year to give yourself this option down the line. Pluse you can save more to have reserves when you make the next move.
