Is Anybody Doing BRRR Strategy for Long Term Rentals?

Question

If you have any success or experience with the BRRR strategy I would love to hear about it!  Do you like it, what are the challenges? Thank you!

My situation:

I'm having a hard time understanding the refinance (last step) of the BRRR process. For example, if I put 20% down on a 100k property with a 30yr fixed mortgage, fix it up with an extra 10k out of pocket, rent it... what happens next? I put in 30k  total to get this investment property, when I refi into another 30 yr fixed I'm not sure what is happening logistically. Am I getting 30k back?

Joe Villeneuve · Answer

The strategy works best when you are buying all cash, and the process works like this:

1 -Buy (all cash)

2 - Rehab (all cash)

3 - Rent

4 - Refinance (to get all of your cash for B/R back out...and maybe more)

5 - Re-invest original cash (see step #4) again on next deal

6 - Repeat until tired...or you arrive at your maximum # of loans you can refinance

7 - Recruit Credit Partners to continue the refinancing with, and share the wealth.

Joe Villeneuve · Answer

The best, and only place in my opinion, to use the BRRR(RR) option is AFTER you've established a group of "all cash in" simultaneous flips, whereby you buy holds with the profits, and then you use credit partners to do the refis at the back end.  Used this way, the BRRR(RR) option works fantastic.

Joe Villeneuve · Answer

...and, take it a step further.

If you have 30 properties, and you refi only 2 per year (every 6 months), and you set up your payoffs starting 15 years from the first refi (with every refi getting paid off in 15 years), ...then starting the process all over again, you have a retirement plan.  If you are buying each of these using cash, that means if you don't re-invest the "loan" (see income), you can keep it...as income (see loan).

Even better, you can start the refi process 6 months after you buy your first property in this system.  So, as you can see, it doesn't take long (or many houses) to retire early.

Oh, and you are still getting positive CF from all of the rentals too.

James Masotti · Answer

In the middle of my Rehab step on my first BRRRR right now. Working with banks to secure commercial financing for when the rehab is done and a lease is signed with the tenant. I'll try to keep you updated how it goes, but in the mean time I'm sure others will be able to respond back to this who have completed it. I believe that Brie Schmidt from the podcasts did a bit of this when she was starting out. Maybe she can chime in.

Brent Coombs · Answer

@Alan R., one slight variation. Instead of: "In this situation the home is now hopefully worth 150k, I put 30k in to buy it at 150k, so I would be able to pull 80k cash out in the refinance", it would more read like:-

"In this situation the home is now hopefully worth 150k, so I would be able to pull $32.5k cash out in the refinance as my FREE deposit for my next similar deal".

ie. $150,000 appraisal x 75%, less what you already owe:- $112,500 - $80,000 = $32,500. Free!

So then you have a loan on each property: $112.5k on your first one; $80k on your second one.

Six months later, refi the SECOND property in the same manner. Etc, etc, etc...

The beauty is: never needing to use any more of your own money!!!

Brent Coombs · Answer

@Alan R., here is a previous thread about your same question:- https://www.biggerpockets.com/forums/50/topics/287...

(Although, you are also waiting for responses from those who are already successfully achieving Refi's for the purpose of REPEATING the BRRR, R. Surely, some will?).

But yes, as Ryan mentioned, the mandatory idea is that its APPRAISED value after rehabbing is significantly more than you have into it. Aim for at least 30% equity, usually obtained by buying somewhat under market value to begin with, and also adding MORE value than its rehab costs. The amount you can then refi cash-out becomes your FREE* deposit down on your NEXT Buy! Cheers...

* FREE because it's your TENANTS who pay it back - not you!

Paul Falardeau · Answer

This is a great thread.  I'm brand new and the BRRRR method seems great, but the thing that worries me is my lack of income.  I have the cash for my first deal, but I have not had a "job" or a real income for almost three years.

I'm a bit worried that once I acquire my first property I won't have the ability to pull my money out in a refi to purchase my next property.

Are there lenders who would refinance someone like me?

Brent Coombs · Answer

Congrats on your 3 rentals so far. Have you done recent appraisals on them to see what equity you may already have? And, analysed them to see if you would (still?) get positive cash flow if/when you refi'ed them? If you CAN start BRRRR, no time like the present! Cheers...

Joe Villeneuve · Answer

Q1a:  Assuming I want to hold the equity 100% in my portfolio:- How would you structure the agreement?A1a:  You mean if you would rather be greddy than profitable? You probably wouldn't partner since you would have very little to give them for their participation.

Q1b:  - What terms or type of return would you offer the private investor to still make it attractive to them? (period of time, % interest, etc)Q1b: That depends on what the partner is bringing to the table.  Cash, Credit, etc...?

Q1c:  - How long would you tie up their money before refinancing the property for the ARV?Q1c:  Depends on what our goals were for the money we would be getting out of the refi.  Are we using the refi funds as income?  Are we going to re-invest the refi funds in another property?  Are we going to...?

Q2:  Assuming I want to share the equity /w my investor.Q2:  I don't see any other way to do it and expect the Partner to agree to the partnership.

I know the answers above may seem evasive, but the answers above are true.  None of the questions above have straight forward answers.  They all depends on many variables...on all sides, to set terms for the partnership.

Examples (for us):  If we have a cash partner come in from the beginning

1 - The cash partner gets a % of the equity as well as cash flow.  The percentage is smaller once the refi pays the cash partner back, but they continue to receive their returns.  Why?  The deal never happens without their cash.2 - If the cash partner comes in as a private lender (not as a partner), they get the loan interest as their return.  We will usually do a 5 year balloon, at 10% simple interest, interest only payments.  This is a business loan to the LLC, and not collateralized.  The terms work out better for all.

Darren Horrocks · Answer

Can we discuss the Private capital or credit partners a bit more?

Assuming I want to hold the equity 100% in my portfolio:

- How would you structure the agreement?

- What terms or type of return would you offer  the private investor to still make it attractive to them? (period of time, % interest, etc)

- How long would you tie up their money before refinancing the property for the ARV?

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Assuming I want to share the equity /w my investor:

(Same questions as above)

Is Anybody Doing BRRR Strategy for Long Term Rentals?

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