Does BRRRR work in low-appreciation markets?

[Pete Abilla]

I'm looking at cash flow markets (ex: Cleveland) & have a few BRRRR opportunities in Class C neighborhoods. In low appreciation markets, how effective is BRRRR? I'm particularly curious (concerned) about the refinance step.

For example, suppose a house in a class C neighborhood sells for $50,000. Then Rehab of $10,000 with an avr of $60,000. 

In class C and a low appreciating (but high cash flow market), will that property appraise for a meaningful amount above ARV? Enough to get my initial capital of $50K out? Or even all of it?

[Alexander Felice]

the key to BRRRR is to create equity.

If you're buying retail and not creating the equity then save yourself the headache of the rehab. So BRRRR would never work with the example you gave, the ideal BRRRR involves you creating 25% equity in the combination of purchase and rehab. You need to pay far below market value for the deal, bring an efficient rehab process to the project, and have your total all-in cost to be considerably less than what it's value is.

Buying in an appreciating market is better than buying in a non-appreciating market, but buying BRRRR for cash flow in a non-appreciating market is a lousy way to go if you're also paying retail. You want to own for 75% or less of the value.