Is 25% after Brrr Risky in Case or Crash?

Question

I’m a big fan of the Brrrr strategy and am studying to use it, but if after I refinance a property for 75% and am left with 25% equity, is that enough cushion for a big market crash? I don’t know how bad they historically can be.

Gil Segev · Answer

What we most care about in a case of a crash is having sufficient cash flow from rent and being able to wait it out.

The amount of equity you have shouldn't really matter as long as you have a positive cash flow..

James Moore · Answer

@Kristin Feerst That’s the fear I was having. Thank y’all for the help!

Kristin Feerst · Answer

As long as its cash flowing and you can weather the storm then equity doesn't matter.  That said, here's some things to think about (i.e. what keeps me up at night)...

In downturns people lose jobs, that could mean increased vacancies or below market rents to keep the property occupied.  Is your market more recession proof than others?  Do you have a good cash flow cushion?  Are you financially able to weather out a couple years at break even or negative cash flow?

On the flip side a downturn it could mean more renters and less buyers.

What is the HUD fair market value for rent of your sized property?  If you can cash flow at the HUD FMR you can explore the option to go section 8 during a downturn and Bernie will pay the bill!  Look it up.  https://www.huduser.gov/portal/datasets/fmr.html

James Moore · Answer

Although come to think of it, buying a home traditionally would give me even less equity. But still, I was wondering how safe that number really is? Thank you all for any help. This is a wonderful community.