All Forum Posts by: Justin Cummings

One option is a cash-out refi, which could help you tap into your 15% LTV to pay off the HELOC or fund new investments. If selling is on the table, a 1031 exchange could allow you to defer taxes and reinvest in properties with better cash flow or lower maintenance needs.

Since repairs are mostly handled, it might be worth reviewing your rents to see if there’s room to increases/ways to improve cash flow. Also, depending on your long term goals, transitioning part of your portfolio into more passive investments might help reduce operational stress while keeping your equity working for you.

Yes, I think we're going to cash out refi one of the properties once rates cool down a bit.

How would you suggest transitioning part of the portfolio into a passive investment?

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Quote from @Bryan Stengel:

That's great that you have 85% equity in this property already. While it does not cash flow, you are at least earning money by paying off that mortgage which is approximately 60% principal. You are definitely in a great position. From a tax reporting standpoint though, I am curious why showing a profit is even a concern. You mentioned that this a commercial property so I am hoping that you are using depreciation on this one, which could go for as long as 35 years with a commercial and 27 years on a residential. Now, I think the best exit strategy to avoid recapture tax continue to build on your portfolio would be to do a 1031 exchange. This will allow you keep the equity and maybe try a BRRRR with another property if that's why you specialize in. With 85% equity, maybe you can put all cash in on your next deal and really execute that BRRRR strategy that gives you some cash flow. Unless you are investing in a location that appreciates very well in which case it then doesn't matter as much.

Yes, we are "making money" by paying down the mortgage, but not seeing any of the profits at this point. Showing a profit is just a slight concern because it just adds to our regular tax burden from our day jobs. The properties are residential, but on commercial loans for an LLC.

I've done 1031s before for like kind exchanges. Can a residential rental be 1031'd to a syndicate or a NNN warehouse?

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Quote from @Tim Delaney:

Are you saying that even with only 15% LTV these properties don't cash flow?

One option is sell and reinvest into a more profitable deal. Another would be refinance and invest in more, but if they aren’t cash flowing now, then then won’t after a refi.

You could sell them on seller financing so you continue to get a monthly income for a period of time and spread out your capital gains.

They aren't cash flowing because we were leveraged pretty tight with equity from the other properties 7-10 years ago. Now we just have a lot of equity and the same cash flow (which is getting eaten up by repairs)

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Does anybody have an exit strategy for BRRRR setups?

In the 2010s we did the BRRRR thing not even knowing that the acronym existed and now we're are in a good, but complicated situation.

- The commercial mortgages (all under 5%) are going to start being paid off in the next 1-5 years. We also have a HELOC with a balance from repairs and an 8% interest only rate.
- Currently have around 15% LTV - so 85% equity.
- The payments are now 60-90%, principal, which is great, except for tax reporting purposes in 2023 showing a profit.
- 2024 almost much every possible repair imaginable was needed among the units, so the headaches and costs were compounded - now the properties are buttoned up for the most part and we'll probably show a loss for 2024 taxes.
- We don't cash flow at all because we were bullish on the BRRRRs and also did some flip rehabs using some of that equity and pocketed it years ago.

We haven't bought or sold anything since before Covid.

2 Votes

All Forum Posts by: Justin Cummings

Justin Cummings has started 1 posts and replied 5 times.

Post: BRRRR exit strategy or next steps?

Post: BRRRR exit strategy or next steps?

Post: BRRRR exit strategy or next steps?

Post: BRRRR exit strategy or next steps?

Post: BRRRR exit strategy or next steps?