HERE IS WHY THE BRRR METHOD IS NOT WORKING FOR ME

[David Hendry]

HELLO ALL,

I know I am not a vocal member on BP Community. However, I havnt missed a Podcast. I jumped into my first rental 3 years ago. Im up to 4 now. I cant tell you how many times Ive heard Brandon say he uses the " BRRRR" method, I know I added another R. Here is why this method is not working for me. It doesn't account for closing cost, time, and rehab fees. Not to mention to get a loan you can only get 75% of ARV.

So lets first address time. It takes at least 6mos for your property to " season" so you can get a refinanced loan on it, for my first 2 it  took a year. This is an extremely slow process. Im not complaining but at this rate, Im not going to reach my number till im 85. Hearty laugh.

For my first property, I took a HELOC loan on my primary residence. Now after 4 properties heres where im at. The first I purchased cash $47k I cash out refied at 75% of ARV of 56k, giving me $42k. Loss of 5k. Im ok with that because its cash flowing $1000 a month, minus mortgage and ins 600. So -5k. Second property I bought for 70k then 23k in repairs. It cash flows $1150 but is work 120k now. However when I Refi I got 75% of 80k or 56,000. So -14k, add in repairs $-27k. The last 2 properties have not been seasoned yet and I bought cash with the remainder of the HELOC $67k and 70k respectively.

Now I have a maxed out HELOC, 2 properties with 30yr mortgages and 2 under the HELOC. I have 6 mos seasoning on one that I cant yet get a loan on. The other will not be seasoned for 5 months.

So you can see how this can easily add up.

My agenda of this post is to not point a finger or even complain but to make BP newbies like myself aware. Hey, there are costs to loans, you can only get 75% back out, and this takes time...

Fortunately, Im a medical professional. I have some disposable income, but Im having a hard time seeing a light to the end of the tunnel.

[Roy N.]

@David Hendry

The amount you are able to pull out of your property when refinancing is going to vary by location and lender.  Here we can pull out anywhere from 70 - 80% depending on the lender.  We also do not have the seasoning restrictions often read about in the U.S.A.

The forced appreciation play - buy, renovated, refinance - was around long before Brandon and BP started saying BRRR.

The "Buy" step should entail your entire cost of acquisition and not just the agreed price of the property itself.  Inspection costs, realtor fees, Closing costs, etc. are all under this umbrella.

The "renovate" step is where you include your holding costs and, naturally, the cost of the retrofit/renovation itself.

The "refinance" step is where you place a mortgage in exchange for a note.  There may/will be appraisal, registration, legal fees associated with this activity as well.

I'm not seeing the problem with the approach - w/ or w/o the slick acronym - but you might want to tighten up on your numbers and incorporate all of the periphery costs in your deal analysis.