On the surface, BRRRR sounds like an efficient strategy to reuse the same capital over and over to gain more assets.... And it is. However, a few observations cause me to believe that many investors are following a path to ruin if they utilize this method.

1) Too many have never seen a down cycle (full disclosure: I'm in this boat).  What happens if you are at maximum leverage and market values drop? You could find yourself underwater with no exit strategy.  Prices do not always rise.  I feel that investors are developing a lot of false confidence that has accrued over the past 15 years.

2) You are thinning out cash flows. Refinancing shrinks your margin of safety. If you own a sizable portfolio of houses (as I do) you are constantly addressing maintenance and deferred CAPEX.

3) This point links with point #2.  Most new investors are under-rehabbing in order to preserve capital for more deals.  I've made the same mistake... That roof you think will hold for 5-10 more years doesn't always comply with your optimism.

4) I know from reading the forums that MOST investors that are using this strategy are cash poor.  They do not have robust cash reserves.  That is why they are attracted to this strategy... and this is the GREATEST DANGER.

For these reasons, I think BRRRR is a dangerous gamble for those who are most enticed by it. It's an easy path to REI. Everyone is winning in the current economic environment it seems like, but for how long? If you are an experienced investor with solid reserves, go for it! It is a great strategy if utilized properly. However, most do not and I will remain wary.

Alternatives:

1) HELOC - Utilize your equity by cross-collateralizing into a line of credit. You can tap into if you need to and can easily dispose of it.

2) The 1031 Exchange - Recycle that equity by moving up into a larger asset.  Don't violate analysis fundamentals to do it, but it is a safer way to scale.

I appreciate any feedback on my thoughts from the wisdom of the community!