Rentals Brrr strategy

[Rashad K.]

I have been thinking about the brrr strategy ( buy, rehab , rent, refi , repeat) . What are some ways to force appreciation with multi-family properties?  I understand the concept for single family homes but when it comes to multi families I become confused. For example say I purchase a multi family at a discounted price but not the 70-80 % market value that I'm looking for. Will a light rehab without raising rents ( already as high as it can be) give me a higher appraised value? thanks bp! 

[Jeff Kehl]

@Rashad K. It sort of depends on what kind of property you're talking about. I've usually only heard BRRRR talked about with single family houses. Basically for that I look at comps and look for something at a discount to those comps. Generally but not always means you do some rehab. For example, I have a 3br 2ba I paid $30k for. It needs a $15k rehab. Several comp houses within a few blocks have sold around $70k. I buy it rehab it and am in it for $45k. I place a tenant and go to a bank for a cash out loan. Hopefully they will get an appraisal for $70k and I take out an 80% loan for $56k. This gives me $11k profit plus a good cashflowing rental. In practice I find the appraisers around here will generally under appraise it and I may make less or break even but it's still a good rental for zero money down.

When you get into commercial it's the same thing basically but it's called 'repositioning a value-add' or something else. The key difference is your appraisal is based off of Net Operating income instead of comps so in a way it's more dependable. NOI is based on rents - expenses so you have to be able to change one or both of those. There are many books and gurus to tell you how to do that but basically you need a property with undermarket rents or that is not being managed well. Good luck because everyone else is looking for that as well :)