BRRRR Pitfalls newbies fall finto.

[William Brennan]

Interested in amassing a list of the many pitfalls Im likely to encounter with my first investment.

[Stuart Udis]

I live and invest in Philadelphia. At any given time, there are countless properties listed on the MLS where I could successfully execute the BRRRR strategy. By that, I mean I can acquire the property, renovate it, complete a cash out refinance, and recover most or all of my initial investment. However, the majority of these are poor investments. The BRRRR method works because it is easy to manipulate the renovation scope to achieve a favorable appraisal while leaving major building systems nearing the end of their useful lives and the $750 appraisal that's relied upon to complete the refinance doesn't take this into account.

In many lower-value neighborhoods where it's easiest to manipulate the numbers, rents and property values simply cannot absorb the realities of today's opex and capex meaning once the refinance is completed. Money that's returned is forced back into the property cover the continued operations, cover vacancy, and management costs. 

So the biggest pitfall many make is framing whether an investment is good or bad dependent on whether the BRRRR method can be completed. When return of capital is prioritized over all else, you lose sight of the real estate fundamentals that are most important and the fundamentals are what support long term property performance, not whether the initial capital can be returned.