BRRRRing in 7% Interest

[Account Closed]

Hey, so I have been wanting to start BRRRRing in the Los Angeles area. But when I run the numbers I just don't see how it's supposed to work with 7% mortgage rates. Even when I take a super optimistic situation such as:

Home price: $750,000

Rehab: $100,000

Post Rehab price: $1,050,000

Let's say I take back my $850,000K at a 7% 30 Year loan

I get super lucky and am able to rent the property for 7% a year $6,200. Which is very very high for a 1M home in Los Angeles.

Expenses:

1. Property Tax - $800

2. Insurance - $100

3. Mortgage - $5,650

Total expenses: $6,550

So I am actually bleeding $300 a month under the assumption that:

1. I raised the value all in by 25% doing a rehab. If I raise it by 20% Im $500 out of pocket a month..

2. I was able to rent it for 7% (which is very high for Los Angeles)

Can someone shed some light on this, am I missing something. Seems that the only way to make money today in BRRRR is finding areas that rent at 8%+.

Anyone BRRRing in LA during these times?

Thanks in advance

[Greg Kasmer]

Daniel - Not sure how you're determining the rental income, but I would not assume you can achieve a certain % of value of the property in rental income. I would suggest you look at rental comps in the area based on square footage and number of bedrooms. I would then use those actual rental revenues to bounce against your model. Mike and and Jaron may be correct - This area may not be good for long term holds and BRRRs properties. The other scenario you may want to think about is a shorter term rental strategy (Air B&B) or renting mid term to hospital workers/professionals for several months at a time - that may be more lucrative on the income side and enable cash flow, but then again you have the ebbs and flows of how often you can rent it out. Good Luck!