Hello! I’m looking forward to buy my first rental property using brrrr this year. I’would like to heard some experiences and advices from people who ere already its doing it. How your deal when?
Hi, Felix. What type of property? A SFH that you'll be renting out rooms in or a MFH that's 2-4 units?
Hello thanks for reply, I would like to build a Rental SFH porfolio.
So the biggest thing I can recommend is to buy your property “right”. Meaning you can’t buy a property at market rate whatsoever.
In our area remodeled houses sell for about $150/sf. For BRRRR's you are probably going go want to be between $60-70/sf to make a BRRRR work here. (Substitute numbers for your area)
If you bought a 1666sf house for $100,000 ($66/sf), and did say a $60,000 remodel to bring it up to a $150/sf sales price of $250,000 you would be able to cash out 75% of your ARV Equity ($187,500). So you are into the property for $160k, and get $187,500 back at refi - less all the expenses of the refi which might be $5,000 or so. But this shows you the discount you have to get the property for to make a BRRRR work really well... about 1/2 market value or less.
If you paid $150k ($90/sf) for the same property you would be in it for $210,000 after remodel and your refi cash out would still be $187,500 - so you would have to leave $22,500 of your money in the property.
Another way to approach the situation is slightly longer term - less BRRRR - but still a money maker: Maybe put a renter in the unit for a year, build some appreciation, then remodel and BRRRR or sell. This has worked well for us - especially with how fast RE has been appreciating lately. Point being that market appreciation can juice your appraisal to help out your BRRRR valuation.
Because we have the number of rentals we want to self manage, we have been selling properties as of late. We have sold 3 properties in the past 3 months from our rentals and netted $70k - $100k on each after accounting for remodel, sales expenses, and capital gains. By buying right, doing a limited remodel, and market appreciation from holding the rental through at least one rental cycle. This has a side benefit of cutting your capital gains taxes as well.
All the best
Randy I appreciate you taking the time to give me such a good information.