What do you do if you can no longer BRRR?

Question

I bought my first property in February of this year with the intent to utilize the BRRR strategy. I acquired the home as a primary residence while house hacking for the year at a 6.25% interest rate. With the increased interest rates it wouldn’t make sense to refinance and pull cash out. So in my situation do I simply wait until rates lower or are there other options for acquiring my second property aside from just saving up more money?

Leo R. · Answer

@Darius Wade why not wait until you've owned the current house 12 months (at which point you'll be eligible for another mortgage on a new primary residence), and then buy a 2nd property and house hack again?...rinse and repeat--do that once every 12 months, and you can build up a solid portfolio. At each property, occupy the least valuable space in the house, and rent out the most valuable spots so that you maximize your income to qualify for the next mortgage. If you don't qualify for enough to buy a turn-key property, look for a fixer and put in some sweat equity.

You've already gained some house hacking experience from the first property--why not tap into that experience and house hack again? (and again, and again, and again until you can't stand living with housemates any more--at which point, you should have enough equity and cashflow that you can get your own place).

House hacking is one of the BEST strategies around, and I've written numerous posts on the forums describing the specific benefits of house hacking (take a look at those posts for more info).

Good luck out there!

Benjamin Aaker · Answer

Hi Darius,

You should consider the difference in interest paid. Moving from 6.25 to 7.5 is going to be a small monthly increase on a 210k property. The bigger problem you will run into is that you only have 41k in equity right now. You'll only be able to take out a few grand in your new mortgage, so your BRRRR is not yet ready to move to the next phase. You've only owned it for a few months anyway. You need to wait, not because rates are too high, but because you need to build up more equity.

V.G Jason · Answer

This site pushing millionaires overnight, drop your W2 instantly. It's started to curtail that mantra last 4 months but it was a strong push from late 20 to early 23. Everyone's doing it for a quick buck.Real estate is an active, physical, long-term investment. Requires more patience, more capital, and more protection than you expect. You also really need to vet who you're working with. Tons of scammers. Agents out here with no knowledge, coercing people to buy stuff to get their commission(not in light of this new case, speaking in general), contractors bidding very competitively but offering no warranty, property managers lying about work bandwith(saying they can take more when they got 700 rentals + with a team of 5 people).Dip deep into what you're doing.

V.G Jason · Answer

You need to wait. Not sure why you did a BRRR in February, hoping to get out intra-year, if we knew rates were going up. Let alone do it in q4 '24 with such seasonality pressure.

You'll have to sit it on for some time to do it right. 6.25% right now is a good rate, lots would fight for that.

Tyler Nelson · Answer

@Darius Wade with a HELOC you are accessing additional equity in the house and it becomes a second lien. However, your debt to income (DTI) is still taken into account. So if you’ve maxed that out then you’re a little stuck. I did a HELOC to start my investing and then switched into DSCR loans. HELOC rates and DSCR rates are high right now but I’d be happy to talk through my process. Feel free to send me a connect invite if you want. No strings attached.

Julien Jeannot · Answer

@Darius Wade

A word of caution on waiting for rates to come down:

- Maybe they will, maybe they won't, timing is always uncertain

- We are in a short supply environment with quick fix. When the rates come down, buyers will flood the market and push price up. With pricing increasing, the downpayment increases accordingly.

Personally, I'm looking to 1031x part of my portfolio before the rates come down.

Darius Wade · Answer

Thank you all for the input. The information is very helpful. I will be patient continue to build the equity in this property and house hack into the next property.

Kerry Baird · Answer

@Leo Ray has outlined the method we grew, which allows best down payment and interest rates and allows the first property to season a bit.  It needs some debt pay down and/or some appreciation.  This is the path I recommend, because there isn't enough equity to tap with a HELOC at this time.

Julien Jeannot · Answer

Got it. That makes sense.

Jake Andronico · Answer

@Darius Wade

I know, it's boring. Just my opinion :)

I wish you the best of luck man!!

What do you do if you can no longer BRRR?

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