BRRRR - too risky for newbies with little cash flow?

[John Chung]

HI all,

New to this forum and been listening to a lot of BP podcasts. Hearing a lot about the BRRRR method. I am having trouble understanding how people are getting past the Rent & Refinance and Repeat part.

If you refinance the home to take out your equity (so you can buy another property), then doesn't the monthly mortgage on this property go up?  Then it could be too expensive...and what if you cannot get it rented out or the current tenant leaves or stops paying?  You then need to come up with the mortgage payment yourself.  If you are bleeding money for 3-6 months...then you could be in some deep trouble?  Let alone that you could have already used the refi cash to buy another property. 

I guess that is my fear...and not sure how people get over this risky hurdle? Just feels like you are building a house of cards and one gust of wind and it could cause a negative domino effect. I would think only the ones that have some strong cash savings or well connected people with investor backing would survive in this scenario...but for the guy that does not make a lot of money and just starting out....maybe the BRRRR method could be too risky?

[Scott Hawley]

People mitigate the risk by knowing their market, rental rates and vacancy rates. In addition, you should have some cash reserves to handle emergencies or surprises.

When I put most of my money into a flip, I still had Two line of credits to mitigate the risk. That was even too stressful for me. I keep more back for reserves now.

Scott