Phoenix, AZ · Member since 2018 · 15 posts · 4 votes
In BP episode 327, they make the point that if there are flippers in a market, then BRRRR will work. Is this appropriate thinking?
For example, let's assume you BRRRR perfectly and refi all you cash invested out of a deal. Market stats: The ARV is $200K and rents are $1,400. At 80% LTV, 5.5% interest rate, $1,600/yr taxes, and $800/yr insurance, you get a PITI of about $1,108. Assuming 8% vacancy and 8% capex, you get cash flow of $68. That's barely breaking even. Yes, you got the equity, but without cash flow would you consider this a workable deal? So does BRRRR really work anywhere flippers can succeed, or do we also need that sweet sweet cash flow?
Phoenix, AZ · Member since 2018 · 15 posts · 4 votes
7y
Thanks for the heads up @Michael Noto. That still only gives you about $100/mo cash flow if you do your own PM. Do you think the deal is worth it for the equity, or should a BRRRR investor stick to markets where rent is at least 1% of ARV to make the cash flow work?
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Sean Larsen, that popped out to me as well! I do not agree with that statement. If you're in a HCOL where homes are $300-400k+, there may well be flippers working on those high-end properties, but it's very difficult to cash flow a $300k SFR. To even hit the 1% rule, you have to get $3000/month. Problem is, if a person can afford $3k rent, they can easily afford a $300k house. So, you have an incredibly small tenant pool.
Your example above doesn't include management or repairs, which would put you underwater by about ($370), by my calculations.
Auckland, New Zealand · Member since 2018 · 80 posts · 36 votes
7y
Cashflow always seems to get left out of the Brrrr explanations.
I got extremely hyped about David Green’s story and examples, I’m determined to model my growth on his, but what is holding me back on a lot of my deals is the cashflow.
I can buy the equity easy enough, but the rents are so low I can’t afford to hold them.
Phoenix, AZ · Member since 2018 · 15 posts · 4 votes
7y
@Ryan Spearman Agreed. I think the market needs to work for rental cash flow first and foremost. Then you need to find the fix-up properties. In order to get good cash flow and cash-on-cash return, you will always need a solid rent-to-value ratio. In my market you're hard-pressed to find a $200K home that rents for at least $1,600 a month, but there are certainly flippers making money because they just need to improve a home's value beyond what they paid without regard for rents.
Rental Property Investor · Honolulu, HI · Member since 2018 · 335 posts · 251 votes
7y
Ultimately its up to you and your goals. If cashflow is important to you, not every market will work for you as a BRRRR. But if you are just trying to build wealth, consider this. Even if you are break-even cashflow after the BRRR, you are building up equity horizontally by accumulating houses for "free". If you had 10 houses renting at 1400 worth 200k that "just" break even (of course have the reserves to cover bad months), you are building equity at $14,000 a month in the loan paydown, and you now have $500,000 in "free" equity that you have accumulated. (25% of $200k x 10). Once you are ready to retire, trade that $500k of equity plus the equity you are building at $14k a month for high cashflowing assets for the monthly cashflow.