Buy, Rehab, Rent, Refinance, Repeat - got them all with questions on refinance/repeat

BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Buy, Rehab, Rent, Refinance, Repeat - got them all with questions on refinance/repeat

Pixel Rogue
PA · Member since 2013 · 137 posts · 19 votes

Been in apartment rentals for about 20 years. Mortgages are all below 4.5% - no intention of changing those. Have a few arms due in about 5 years..those I will finance to fixed rate as rates lower. 

Buy - Rehab - Rent - that has been the bulk of the work. I am not clearly following the the refinance bit. I have refinanced (rarely mind you as there are costs that take years to recoup on a refi) and am happy to see equity build as the mortgage shrinks. It is my understanding that people refinance and then use those funds other ways (personal living, investing, some to buy another property) as a means to minimize tax obligation. To me I'm not seeing this as clearly as those who are deep into the BRRRR philosophy.

ELI5

Also, the rehab part gets old after a while...rehab and maintenance never ends.

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River SavaPro Member
Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
1y

Hi Pixel, 

Check out this article about how DSCR loans play into the refinance part of the BRRRR method. Happy to send over more info ig you'd like. Feel free to send me a dm to connect.

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

[email protected]
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  • Jonathan GreeneBusiness Member
    Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
    1y

    BRRRR was easy to win at when all the books were written and when it became popular. It makes less and less sense in a market with low inventory and high interest rates. So, it's still a viable way of investing, but does not have the same scale of success in today's economic environment in higher appreciation markets.

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  • Chris Barrett
    Investor · Madison WI · Member since 2021 · 177 posts · 103 votes
    1y

    I certainly hope people weren't refinancing to go on vacation :-D But you would refinance to get the cash needed to buy the next property. It doesn't work as well now because it's hard enough to be cash flow positive with prices + rates and where rents are at. 

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  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    1y

    Hi Pixel, 

    Check out this article about how DSCR loans play into the refinance part of the BRRRR method. Happy to send over more info ig you'd like. Feel free to send me a dm to connect.

    https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

    [email protected]
    3Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    @Pixel Rogue The cash out proceeds should be for business purposes such as investing in another RE project. Most people are refinancing a BRRR because they are in short term debt (like 12 month hard money used for purchase +rehab financing) or own the property free and clear (they bought all cash) and would get a higher return on equity by leveraging the property and reinvesting the cash out proceeds of the loan to scale the portfolio.

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  • Jake BakerBusiness Member
    Flipper/Rehabber · San Diego, CA · Member since 2020 · 1k+ posts · 696 votes
    1y

    @Pixel Rogue

    I agree with @Jonathan Greene about the difficulty of BRRRRs these days. It is still viable if you pair it with other strategies. (example - STR on the back end to increase cash flow)

    To me, forced apperception (BRRRR or buying at a discount) is a hedge against market corrections. Forced appreciation allows me to build equity from the beginning of the investment, so if I need to firesale for an unforeseeable reason, I will not be underwater.

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  • Pixel Rogue
    OP
    PA · Member since 2013 · 137 posts · 19 votes
    1y

    Wish ( knew about DSCR a few years back. Everything worked out and see DSCRs in the future. Do DSCR loans qualify if purchasing through 1031 w/debt-carry-forward requirements?
    (relinquished property has mortgage of 200k, so need mortgage of 200k+ for acquired property?

    Have 3 loans to refinance in the next few years and DSCR's are added to the option list. Interest rates atm seem quite high so will ride this out a bit longer (and ratios will continue to improve over time.) 

    @River Sava ~ Keep me in mind if you see DSCRs dropping below 5%. Reach out w/best interest rate and qualifiers for said rate. 

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  • Erik EstradaBusiness Member
    Lender · Los Angeles, CA · Member since 2022 · 7k+ posts · 1k+ votes
    1y

    As of lately, the traditional BRRRR is not working with the higher rates and low inventory as, others have mentioned.

    I do see many investors incorporating a similar strategy with new construction builds, heavy rehabs, or in instances where the property was bought far below market value (usually a wholesale type transaction). It is not uncommon to get 100% of your costs back on a refi, if used strategically. 

    Lately I am seeing many investors (new and experienced) feel the hit of the market conditions. Many appraisal in several locations have been coming in low, which can either kill the deal altogether or make the borrower come in with more funds to close. This is more common in highly leveraged deals. 

    But to answer your question, yes you can use a DSCR loan on a 1031 exchange transaction. Can you clarify what you mean by debt carry forward requirements? Are you saying the current property being exchanged has a debt of $200k and you need an additional $200k to purchase the new property?

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