All Forum Posts by: Johnson Yu

But the population is not growing for 10 years and so are the jobs not increasing. 

Which neighborhood/cities are up and coming? 

 That's what I'm trying to figure out as well!

Hi @Johnson Yu, 

How did you go about finding the highest appreciation rate neighborhoods? 

@Johnson Yu, to summarize Whitney and Joe in another way: you run risks in the rehab as Joe mentioned, the rent as both mentioned, the refi as alluded to Whitney, and the repeat. 

Rehab: cost overruns and timeline
Rent: your projected rents are offer and also the common risks of being a landlord in general.  Prolonged vacancy, unexpected capital needs, tenant issues, etc.
Refi: If you ARV is off, OR equally common, you get a low appraisal. Since there is no arms length transaction, appraisers tend to skew very conservative on your valuation. I generally take the comps I think are best and knock at least 10% off those, when assessing ARV just to be safe. And I am not looking for top of market comps.
Repeat: If you take your money out through refi, but cannot find another good deal to reinvest in, you are paying interest for nothing.  

@Johnson Yu I wrote about the major pitfalls here and here. Yes, BRRRR removes equity from the property and reduces cashflow as Joe pointed out BUUUTTTTT, if you ran your numbers right, the remaining equity is not yours (rather the forced equity in the property) and the rents should more than cover the expenses and give you breathing room for market adjustments. In the end, it should be no different than if you purchased the property retail, only that you have $0-little of your own money in the property, thereby reducing the risk to your capital greatly!

BRRRR investors get in trouble when they don't run their numbers right and miss on the ARV or construction. And when they shoot for infinite cash on cash return, when their cashflow after expenses is only $25. This is a horrible situation to be in. I write how to avoid these underwriting mistakes in this market here.

The downside is that BRRRR strips equity out of the property and reduces cash flow. The could be a problem if rents drop, you experience prolonged loss of rents or if you are forced into a situation where you need to sell the property. If you have cash reserves, this risk can be mitigated.

Other risks of BRRRR can happen earlier in the BRRRR process. Underestimating rehab costs or overestimating after rehab value, can result in less cash out during the refinance. It is not uncommon for properties to appraise lower than expected.