BRRRR risk in market crash

[Arhum Nomani]

Hi all,

I have been using the BRRRR method to grow my portfolio. One question I had was - Regardless of location, what happens if the market goes south due to political / cat event / bubble activity… and house valuation decreases. Even though you may be able to overcome the gap with constant renters, you run the risk of being over leveraged if you have 70-75% LTV on multiple properties. Usually, the lending is in the same country  as the investment, so in this instance, it could be the bank or lender being in trouble causing you to have your margin called. 

Just looking to get some feedback on this as I have been mulling over "worst case market home prices crash scenario" as I continue to grow my portfolio through BRRR-ing

Thanks in advance!

Arhum

[Derek Adkins]

In my case, as a farm & ranch portfolio lender, as long as the loan payments continue to be made and do not default then we will not call on it. Of course there is a higher risk due to drop in value, but until a payment is missed you would be fine in our eyes. I think this scenario really depends on what type of lender you have and what your loan conditions/documents say. Another worst case scenario I would be worried about is the market "crashing" when you're trying to do a cash out refi.