Cash Flow vs Equity vs Net Worth: Is BRRRR worth it?

[Elliot B.]

Hey BPers -

I just listened to the excellent podcast show #327 where @David Greene lays out all of the details of the BRRRR strategy. It is clearly a powerful strategy that has worked well for him and many others but I'm still questioning how it builds wealth.

Here is what I'm struggling with...

If you execute the perfect BRRR, you are left with a renovated, rented asset with none of your cash left in the deal. The property has been refinanced at about 75% LTV at the maximum appraised value.
The issue I see is that rents track home values. So while you're trying to maximize your appraisal to get your cash out, you are effectively also killing your future cash flow. And when you're only cash flowing a couple hundred per month and a bigger maintenance expense comes up - you've killed your income for the year.

Poll: What does the average 75% LTV, conventionally financed SFR cashflow?

This is the classic equity vs cash flow debate. But even the equity in a BRRR deal isn't all that useful. Given the 75% LTV, you can't tap that equity until you pay down the principal or the asset appreciates. For example, a HELOC wouldn't be worth it because most banks want 80% LTV.

Perhaps, I'm missing other ways that you can use this equity - or ways in which that 25% equity boost to your net worth can be used. I can imagine that once you have a portfolio of BRRRed homes, you may be able to get a LoC on them, even at higher LTVs.

Maybe I'm not seeing the big picture but isn't the BRRRR approach effectively creating a risky portfolio of low cash flow, highly leverage assets?

[Cody L.]

This is another instance where I feel like I’m the crazy one in this site. 

I hear “omg. Leverage is risky!” For who? The bank?

I sleep a lot better if I owe $1m on a $1m property than if I own it all cash.  If some unforeseen event happens, I can walk (with the repercussions that come admittedly) and I’m not out any $. Where as if I’m all cash in a property, if something happens I’m F’d

Leverage is ***the*** reason (not one of the reasons but THE reason IMO) people become WEALTHY in RE.