A piece of advice if looking into BRRRR method

[Brandon Penn]

Just wanted to give a little advice to anyone starting out in their real estate investing career if looking to use the BRRRR method. First off BRRRR stands for Buy, Rehab, Rent, Refinance. One of the major pitfalls that I personally ran into was with the refinance. I had bought these really junk properties, and made them absolutely beautiful. We redid everything from electrical, plumbing, kitchens, baths, and the list goes on and on. I was able to get rents that are an average of $100 higher than anywhere else in the immediate area, and they always rent out within a couple of weeks of being vacant. Everything is perfect for the refinance right? Well the major mistake I had made was thinking that the appraisal would go off of the income. While appraisers are supposed to take income into consideration, with any property with less than 5 units they will stick mainly to the comparable approach meaning they go strictly off of what other places with similar unit counts have sold for in the area. This means instead of my properties being worth easily over 100k with the income approach (basing value off of net operating income) they are only worth around 70k in the appraiser's eyes.

So moral of the story if you are looking to buy and refinance a property, make sure you are using the same method that the appraiser is. Less than 5 units, look at comparables, more than 5 units look at income approach. While this was a big hit to me in the begining of my career however, I didn't give up. 4 years later and I now have 117 doors and growing. I hope this helps a lot of people avoid the mistake that I had made, and if you have any questions feel free to send me a direct message.