BRRRR-.. Why such a rage now? BEWARE!

[Wendy Patton]

Okay, I am hearing some fairly experienced (but maybe experienced since the last downturn) saying that they are loading up right now on BRRRR deals. Sorry, but I don't get it right now. So i would love some explanation or insight from those doing this right now. I sold most of my single family rentals in the last 2 years. I am holding cash and waiting for an opportunity. Yes, I am still buying if the deal is right (ie great for subject tos right now with old 2-3% interest rates - great holds) but to buy at the top of the market, top of interest rates in the last 20 years, layoffs happening everywhere (especially high tech and mortgage/title companies), the market starting to turn down, plus i am sure I am forgetting a few more items. What am I missing, or why are some of you doing this and pursing this right now? Again, subject tos with old interest rates I understand, but to refinance them to higher rates, I don't. A drop in the market values (which are coming now), or a decline in rental values (which are happening now), or tenants that can't pay or won't pay (will happen if unemployed). Would love some thoughts on this.

[JD Martin]

Well, some thoughts:

1. BRRRRR (I add a 5th R for Reserves) doesn't have to mean you get all your money out. The interest rate is immaterial if you can redeploy that money into another asset that surpasses the cost of borrowing.

2. I don't see anything that makes sense to me about selling your properties the last couple of years and sitting around in cash waiting to buy other properties. When you sold, even at high prices, you had to recapture all of your depreciation, pay closing costs, and pay capital gains taxes. Yes, you may have made enough money that you didn't care about paying those things, but if your whole plan was to come back and start buying houses again you could have just harvested your gains with leverage, held that money in cash, paid nothing in closing and cap gains, and still been able to just jump in and buy if you saw a good buying opportunity. There's only 3 reasons I would sell a well performing property: I'm too old to deal with it any more and I want to cash out for good, I could redeploy all of that cash into better performing properties immediately, or I needed all of the cash for something not real estate related.