BRRRR. What am I missing?

[Dean I.]

I primarily flip houses at this point, but I also need to pick up some rentals for the depreciation and of course the passive income. That being said, I do not want to have my money tied up into rentals, when I could be using that money to flip houses. This is why I am trying to work with the BRRRR strategy, but I can't seem to find a property where this actually works. When I look at a property initially, I make sure that the property will satisfy both the 1% rule and the 50% rule, after refinancing the property for what I have in it. Once that happens, I dig into the numbers and calculate all my expenses to include, CapEx, repairs and maintenance, vacancy, insurance, property management, taxes, HOA and other misc expenses that my be associated with the property. Each time I do this, my expenses blow the 50% rule out the water (expenses are usually twice as much or more) and the 1% rule looks more like a 1.5% rule and thats just to make $100 per door. Of course, I always hear people say things like they buy houses for 75% to 80% of the value of the home, in order to buy a home that cash flows, but with rents in the areas I have been looking in, you would have to purchase and rehab the home for close to 50% of the homes value.

Let me give you an example for a 1200 sqft, 3 bed/2bath home.

Home is worth 100k with a maximum refinance of 80k with a LTV of 80%

If I am lucky, I can purchase and rehab a house with an AVR of 100K, for around 75k (which as a flip, would yield me around 10K profit).

I can then rent this property for around 850, which satisfies the 1% rule.

But here are my calculated monthly expenses for a property like this

$200 For CapEx (which I calculate based on the age and replacement cost of each major item, not just some random number or %)

  $22 For repairs and maintenance at 5% of rent

  $68 For vacancy at 8% of rent

$438 For mortgage. 30 Year Amortization, 5.75% interest

  $70 For insurance

  $85 For Property Management at 10%

$110 For Property Taxes

Total Expenses: $1013, which is over 100% of the mortgage. 

So basically, I would have to rent the property for around 1200 (which is about $350 above what the market can bear in these areas), in order to get $100 cash flow per door.

Am I doing something wrong? Am I just looking in the wrong areas? It's kinda driving me nuts, because I feel like I am doing the math right, until I get to the end . . . I should also note that these properties are in areas that are good for buy and hold rentals, according to investors on this forum.

[Alexander Felice]

yeah this is about what my deals look like, and I'm killing it.

what's the problem?

75K all in for 100K arv - you just made 25K

75K loan means you have zero invested = $1200 a year for free

You're also not accounting for amortization, appreciation, equity gain, or tax benefits.

you're accounting for too much Capex when you just refinished the property.

by the time you really start having major Capex again will you be able to raise rents?

you keep saying 50% rule but, is that what your normal expense ratio is? mine is more like 45%. (with PM)

What if you vacancy or maintenance is low?

You're banking on all worst case scenarios, then complaining it only makes you a **** ton of money, not a double **** ton.

That greed will keep you from making ANY money if you try to make every unit a homerun. you don't need homeruns, you need 50 singles.