Capital getting stuck in small multi family BRRRr deals

[Paul C.]

Hey, my strategy is long term buy and hold of small multi family(2-4) units using BRRRR. However, I am running into major issues on the refinance piece due to lack of comps. On a previous BRRRR, I came out under water due to my duplex being renovated and there not being ANY others that were renovated so the appraisal came back low. I am potentially about to buy a set of duplexes that I would prefer to completely renovate using the BRRRR method but I do not want to get my capital stuck in the deal. In this particular case, there are no comps at all as it is a rural property. Does this mean my strategy is flawed or has anyone else found any viable avenues to avoid this pitfall. Thanks!

[Michael Dumler]

@Paul C., I would agree with the notion that your strategy is flawed. The investment strategy of rehabbing a duplex without any comparables is not sound nor advised. When you renovated the first duplex, did rents rise significantly? Most likely not if the appraisal came back low. The problem here is that you're buying the duplex at market value, rehabbing, and expecting rents to rise. While it's extremely difficult with current market conditions and constant competition from other investors, the strategy needs to be shifted and focused on acquiring deals below market value. With this being said, rents are still being pushed due to the sheer demand. Given time, refinancing to pull your money back out may be a viable option, but that's pure speculation on the matter of rents continuing to rise. I'm curious to hear what others say. Hope this helps!