BRRRR strategy: A Love Hate Relationship

[Tyler Haskell]

Does anyone else see the same major flaw of the mystical BRRR strategy? At the end of the day, arguably the most important element or phase of the BRRR process is the refinance to get your exit money. And the appraisal from the lender of your choice is the single event that tells you whether you successfully complete the BRRR. Along every other step of the journey YOU have control. You research the ARV of the property, you project the rehab costs, you pull comps, you negotiate purchase price, you oversee repairs, you rent it out, and then likely, you wait for your purchase to season and then initiate the refi and hope to get your cash back (assuming you purchased with someone else's money, otherwise it's immediate). This is where suddenly the control and your fate is pulled away from you and put in the hands of an appraiser. These appraisers are most likely not investors, and most do not even understand the concept of buying discount properties. So while I prepare a nice packet for them with my rehab, how I acquired it discounted, and what I think it's worth, at the end of the day you have to hope that they will agree, other wise your coming up with the difference in the 75% LTV. I understand you can order a re appraisal and try to get it fixed, but at the end of the day this is still a wild variable that you really cannot control, only influence to the best of your ability. And the experience will be different every time! Anyways, I do it, I still think it's one of the best investing strategies out there, but i wanted to see if anyone shared the same nerves I get when ordering these appraisals for a refinance!

[Jacob Murphy]

@Tyler Haskell

Great insight here to the struggles of BRRRR investing. I do feel the same way, you are at the mercy of the banks at the end of the day. My first BRRRR killed me because the appraiser didn't consider 1 of the 3 bedrooms to be legal since it was too small. That put me with the 2 bedroom comps of the area which were pathetic! I had to leave 20K of my own money in the property. Totally knocked the wind out of my sails.

The only solution I have come to is to work with a small local bank that only uses 1 appraisal company. I then have that appraisal company come out before I do any rehab, tell them exactly what I plan on doing, check what they recommend for the highest ARV. From there we have an understanding of what I want to do and what types of comps I will be compared to. When it comes time to do the cash out refinance, I specifically ask for the appraisal agent that consulted me before doing the rehab. I bring him/her out before the tenant moves in (just in case they want something else done for best appraisal) and hope that they appraise close to what we agreed to before the rehab.