BRRRR as a flipping strategy?

Question

BRRRR is often used as a rental income building strategy… I’m wondering, why couldn’t another R be added to adapt it for flipping?

Buy, Rehab, Rent, Refinance, Re-Sell, and Repeat

The idea being: you buy the property and fix it up, then rent it out to cover holding costs, re-finance to a conventional loan (if you used hard money etc. for the original loan), then resell the property after the year lease is up. That way, you get the tax preferential treatment of long term capital gains and still get to build up capital while you flip.

Any thoughts on this? Potential downfalls? If you live in an area that is good for flipping, but not so great for long-term rentals (aka Illinois with some of the highest real estate tax rates in the country), I could see this as a way to keep flipping but avoid the steep tax rates that come with the straight flip.

Greg Dickerson · Answer

@Naomi Bjerk yes this is an especially good strategy for vacation rentals, turn key rentals, Air BnB and commercial property.

Mike D'Arrigo · Answer

@Naomi Bjerk That's being done all the time. They're called turn key properties. They profit the turn key company makes is the retained equity in a BRRRR.

Naomi Bjerk · Answer

JD Martin - agreed, you'd have to for any post-rental repairs.

And yes, I can see how that would be a really great strategy if you were marketing to investors especially.

Do you see any potential tax pitfalls where the IRS could still find you doing business as a ‘dealer’ versus ‘investor’ and you lose the tax preferential status? Because that is the primary reason you would hold and rent instead of immediately resell.

Jarrod Kohl · Answer

I second this, you can then also show potential buyers that you are making $X a year in revenue on it.

JD Martin · Answer

It can be done and it might be profitable in the right area. Renters tend to be somewhat hard on properties, so a property that you are trying to get top dollar for on a flip usually doesn't lend itself well to looking just as nice on day 366 as it did on day 1. So you might have some refreshing costs at the end of the lease.

BRRRR as a flipping strategy?

BRRRR as a flipping strategy?

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