BRRRR Method Confusion- How does it Cashflow??

[Whitney Breedlove]

Hey guys! I'm a little confused as to how a rental property acquired by the BRRRR method ends up cashflowing after all expenses are taken out. Of course this depends on the numbers so let me give you a common example with numbers that I encounter in my market quite often.

Purchase price: $90k

Repairs: $8k

ARV: $140k

Rents: $1400/mo

This deal meets the 70% rule and also exceeds the 1% rule so it looks like a great deal! BUT once you go and refinance with the $140k ARV at a 70% LTV ratio at 5.5% interest over 30 years your cashflow is only around $100/mo after conservative expense estimates (I assumed $3k in taxes/year, this is typical for my market, $1k insurance a year, and 5% cap ex, 5% repairs, 10% property management, 5% vacancy, and only $50 yard services.)

As I said, this is just a common example, but the cashflow is even WORSE as the ARV gets higher, unless you can charge a ton for rent, but typically it's hard to get over $2k in rent in my market without getting into luxury housing.

I'm confused! How do yall make the numbers work on these BRRRR properties?

[Brent Coombs]

Originally posted by @Whitney Breedlove:

Interesting. Thanks for the input guys! As soon as I feel like I have a good grip on things, I run the numbers on a deal like the one above and get discouraged when i see the cash flow. I am happy though that I’m at least on the right track in thinking that a deal like the above isn’t that great despite hitting the 1% and 70% rule. Wasn’t sure if I was missing something. 

To put what Joseph posted into perspective, if by using the BRRRR strategy, a person can recoup all their outlay quickly by scaling their buys over time, then $100/m per property will soon be massive cash flow! [No doubt, David Greene's 2-3 properties per month requires dedication].

And the main point of BRRRR is: each property ends up costing you none of your own money!

So, even if you're only getting $1 per month (forever), for zero cost to you, that's infinite returns!