Any investors still using brrrr in these interest rates

[Anthony Phillips]

So I am almost done with my 2nd brrrr property this year. I completed my first property and was able to cash out all of the property cost plus rehab cost. I bought in cash and when I went to refinance the interest rate went up 1.5% from when I purchased. I self manage the property and the property cash flows about $200 or so a month without taking into account cap ex and vaccancy. The property I am about to complete will be in about the same boat if I refiance the property. I know I would be able to sell the current property after finaishing for roughly 30k profit pre tax as a flip. The same would be true with the first property but that property would now be able use a 1031 exchange after the tenants lease is up.

My question is would you take the small cashflow now for in the possibllity for increased cashflow in the future when or if  the interest rate drops below 7%? I could cash out of the property to put into another project. I know the tax burden will be pretty high for a short term gain.

I am currently at a w-2 full time now and do real estate on the side. My goals would be to do real estate full time through rentals and or flips. Ialso got my real estate license this year and would like to keep growing into that position too. I know with properties that only cash flow a couple hundred a month would take me a long time to replace my income. I would love to hear your guys suggestions and how you are building your portfolio for the future.

[Kevin Sobilo]

Quote from @Anthony Phillips:

Quote from @Kevin Sobilo:

@Anthony Phillips, there are a lot of ways to measure an investment. You might want to learn about all of them so you can evaluate your investment from a bunch of different perspectives.

That said, $200 without accounting for cap ex, vacancy, and I assume maintenance sounds to me like a next zero cash flow basically.

If a 1.5% increase in rates brings you down to $0 cashflow, that sounds like a skinny deal to begin with. So, I don't think the interest rate was the biggest factor here.

What kind of loan and rate are you looking at right now? and with what kind of lender? 

When I was starting out and because the loans I needed were small in my inexpensive market I used 15 year adjustable rate mortgages from local community banks. The plus side is they adjusted DOWN when rates go down! Not a bad idea right now. Another benefit is that local lenders whom you create a relationship with you will often do mortgage modifications. For example, rates dropped after I took a mortgage once but I wasn't entitled to an adjustment for 2 more years. For a $200 processing fee they modified the loan and adjusted the rate saving me a nice chunk of interest. I could probably also get them to reamortize a loan to stretch out payments and increase my cash-flow.

My point is that financing isn't static. You will have opportunities to work with it as time goes. You may also reap the rewards of higher rents in a couple years. I would evaluate those potential opportunities before making a decision. 

Yah now looking back in hindsight I should have just taken the profit but it was my first deal and would like to hold deals long term. Most of the stuff around Nashville is priced that is will not really cash flow very much at these prices. The only benefit it seems is that I can 1031 the first property or sell and pay long term capital gains.

I used a commercial style loan on the first property 5 year term with a 25 year amortization and it is held in an LLC. I was looking into the same product but they are around 7.5% with a .5 point fee as of a couple weeks ago

 Ok, do some case studies using some reasonable assumptions.

For example what if you used a 15 year loan for 3 years and then refinanced into a 30 year loan at 6% (assuming rates have softened by then). With a 15 year loan now your rate would be lower and more goes to principle. So, that in a few years when you refi (assuming you don't pull money out) and spread the loan out your principle will be less and rate would be less and from year 3 on the property may cashflow decently.

Having a 3 year plan to bring a property to where you want income wise isn't unreasonable.

Also, look at whether there is any more low hanging fruit. Could you add anything to the rental to bring rents up. Could you provide a washer and dryer and bump rents $30/month. Or add a dishwasher? or anything simple like that .

To me you are on the cusp of an income producing property and deals are what you make of them. So, you might be able to turn this into an income producing asset if you work with it a little.