BRRRR with tenant occupied property

[Jason Chen]

Looking to implement the BRRRR strategy on my next investment. I am wondering can you do BRRRR with this kind of property that is currently occupied by tenants? Do you evict the current tenants and do the rehab and rent again with a higher rent amount? What if the current rent is already inline with the market rate? The point of doing BRRRR is to bring up the home value, so you can refi to get the money out again and reinvest to another property. Does that mean you will always kick out the current tenant to rehab the property?

[JD Martin]

It's pretty difficult to properly rehab a property with someone in it. I've done a bathroom before, and outside work, but beyond that it's pretty disruptive to the tenant. Aside from that, most of the time BRRRR is going to work on basket cases, not houses that have pink walls, because you are going to buy it at a distressed price because of the scope of work that needs to be done. The houses I've done it on, just as examples: major basement flooding issues; no heating system; needed full replumb/rewire; gutted to the studs from an ex-hoarder; ETC. I suppose it's possible that a few pure cosmetics will give you enough value add that you can refinance, but my experience is that you are taking a house that's not really habitable, making it habitable, getting a renter, and then refinancing it, proving that it has market value by virtue of looking decent and having renters. There needs to be a decent spread between what you paid & spent rehabbing and what you refinance it at in order for this to work. If you buy a house for $100k, spend $5k to put up some paint and new appliances, and replace a couple of busted doors, you're not likely to refinance this for $140k unless you got it at a super steal for some reason.