How to determine if a market is good for BRRRR?

[Chintan Parikh]

Hi!

I'm new to real estate investing and am slowly learning. I'm interested in the BRRRR method. How do I determine if a market is good for this method? I assume I should be looking for markets that have high cash flow - is this just the ratio of rent prices to sales prices?

Thank you!

[Chintan Parikh]

Sorry I didn’t mean to post here! If a mod could move to Getting Started that would be much appreciated :)

[Brett Tvenge]

@Chintan Parikh any market could do, it has to be the right deal..

[Chintan Parikh]

@Brett Tvenge I see. Let me be a little more specific in that case. I have 30k saved up that I could use to invest. Let’s say I go with a hard money lender. Given that amount do you know which markets might work for me?

[Jason D.]

@Chintan Parikh look for markets where rental rates to purchase price ratios are high.

Generally, the midwest is the best market for BRRRRing, from a cashflow standpoint

[Chintan Parikh]

@Jason D. Thank you!

[Frank Geiger]

@Chintan Parikh you'll also want to consider property taxes and HOA. Places like Chicago or New Jersey have higher rents but also higher property taxes. Common BRRRR locations are Ohio, KC, Alabama, Florida, etc.

[Tom Shallcross]

@Chintan Parikh - agree with what's been said but also want to chime in that you can't make your decision slowly based on a spreadsheet.  High rent to lower acquisition point is a huge factor, but please don't ignore all the other factors - net migration, income growth, path of progress, job diversity, legislation, taxes, personnel in the area to build a successful team....etc

I heard on a podcast the other day that your internal team is like your golf swing and the area you choose is the golf club you select.  Meaning you can't be way off on the club, but it's much more important to spend effort on perfecting your swing. 

He ended his analogy with asking would you rather have Tiger Wood's swing, or his golf clubs?  

[Chintan Parikh]

@Tom Shallcross Thanks Tom! This totally makes sense and I definitely plan to build out a great team. Just trying to figure out which market to focus that team building on first!

[Brandon Sturgill]

@Chintan Parikh Not intended to scare...rather, inform:

 BRRRR Sucks. Here's Why:

[Lee Ripma]

@Chintan Parikh

It’ll work on properties with favorable price to rent ratios. The most important thing is finding a deal it will work for. I do this in Kansas City, which is a market where you can find properties this will work on. However, most properties it won’t work on. Why? Because most properties are overpriced and don’t have good upside on rents. You’re looking for properties where you can raise rents a lot, increase property value, then do a cash out refi of most of your money and still cash flow. In order to do this you’re going to have to do rehab and fix problems that most people would be unwilling to fix. So it’s not so much the market as the property. However, the more affordable markets have more favorable price to rent ratios where it is more likely to find a property this will work on.

[Crystal Smith]

I'm interested in the BRRRR method. How do I determine if a market is good for this method? 

@Chintan Parikh here's my criteria:

1. Buy- Are there enough properties available at a discount in the neighborhood you're exploring. For us, enough means 3 or more properties that have sold "AS IS" in the last 6 months or are currently on the market "AS IS" The B part of BRRR only works if you can buy at a discount. (I guess it can work if you pay market rate but Rehab suggests you're paying below market rate)

2. Refinance- After Repair Value (ARV) - Have enough properties sold within the last 6 months with values that are high enough to support the 3rd R in BRRRR, otherwise you may not be able to pull all of your cash out of the property when you refinance.

3. Rent- Do market rents in the area support your cash flow objectives. 

4. With regard to the Rehab part of BRRRR, that's property dependent.

[Chintan Parikh]

@Crystal Smith This is great. Thank you!

[Shawn Mcenteer]

@Chintan Parikh stay the path, you will find any market is good.