Is the BRRRR method sustainable during a market correction?

Question

My current strategy has been simply buy and hold rentals, but I'm very intrigued by what I'm learning about the BRRRR method.

I have what may be a silly question, but I'm wondering if the BRRRR strategy is sustainable during a market correction or market crash.

The key element being the ability to refinance, wouldn't it be much more difficult to refinance, and get the ARV and rates needed to make this a profitable strategy during a correction/crash?

I know that nobody can say exactly when the next correction will happen, but if we’re due for another one in the near future, would it be wise for me to go all in on this strategy at this time?

Jay Hinrichs · Answer

for sure in the GFC investors loans went the way of the dodo bird you could not get one.. keep in mind folks on this site did not invest much prior to 2010 when loans started to slowly come back.so yes if we have global recession again and capital dries up then yes the first thing to go is going to be small investor loans which are more risky than larger type loans with proven operators.. IE mom pop investors..that's how I ended up owning 200 rentals the first go around. I foreclosed on 200 BRRR investors who could not refi.. So as long as your using your own cash to buy up front... that mitigates the refi risk you may have to just own it for a while.. but you wont lose it.. I think what your seeing now with many who do BRRRR is that rates have gone up a tad and appraisals are not what they imagined.. and while they should be creating some equity its not the theory in the book.. when I provided capital for this from 2002 to 2007 I did well over 2000 BRRRS in 12 states.. it was the last 6 months of funding that fubared us no one could refi.. also in those days it went like this.1. LA based investor ( most were or Bay ARea) would get with turnkey out fit.2. I would provide the loan for the investor and a lender would already have them prequaled for the refi even the appraisal was done so we knew the end value.. just needed a 442 .. I as the lender had controlled draws and knew the ground teams this protected the investor from fraud and loss on the rehab side.. your one little investor trying to do one rehab.. you can get taken in a heart beat.. Me I am doing 5 a month with a Vendor who is making 5 to 10k per deal on them they no fool with us.. :)3. the deals were good enough that I could do a HML at 65% ARV ( appraisal in hand remember) the borrower got their 75% refi with cash out and would usually do 2 to 4 at once.. so they would get 3 to 5k cash back at close so not uncommon to have NO money in the deal or very little.and within that 65% was my fees was the flipper in the markets fees ( turn key operator) and the refi fee's on the new loans.. plus many used turnkey sales outfits who got their cut.. you know who those are we see them on BP a bunch.. that's how it worked.. end of the day investor had money in their jeans tax differed .. and 100 to 150 a month cash flow.. but then the GFC hit and in the markets we worked the values dropped like a rock vacancies went up and many of the investors were not properly capitalized and lost the properties to the banks.. and of course the ones who could not refi I had to step in and finish them.. So today while in theory BRRRR works and it sure works better if you live there.. out of area is massive risk.. to what in low value property maybe make 10 to 15k in equity.. not sure its worth it.. well for me it would not be not given the risks of getting ripped off..

Mike Dymski · Answer

Whether you refinance or not, adding value in current market conditions is a must. It insulates against a downturn.So, you can either purchase a buy and hold with no value add and no option to refinance OR BRRRR and refinance...or no refinance if conditions don't allow but you have downturn insulation from the added value.

Taylor L. · Answer

The best investors are successful in all environments. But they're not glued to one method of investing, they change their strategy when the times change.There were lots of BRRRR investors who lost out during the last recession. Nobody can predict when the next downturn is going to happen, or how deep it's going to be.Making sure not to be overleveraged on individual properties and your overall portfolio is always important. Stress test the numbers and be comfortable you can withstand a period of falling rents.