Trying to understand the numbers for BRRRR

[Luka Jozic]

Hi folks, I started out last year and just recently bought my second property. I am now in a position where I can buy cash and I figured instead of just buying nice properties until I run out of money, I want to supercharge my portfolio on start with BRRRR. I have been quite fortunate to land a solid team pretty quickly. I've read most the books, listened to podcast, read on the forum and most importantly, analyzed a ton of deals (mainly of the MLS). The issue that I have is that the examples in books, or numbers provided in other forum threads etc. don't quite make sense, at least not to me. It seems like most people that execute a successful BRRRR end up after financing with a deal right around the 1% rule. With the high interests rates right now it seems like the two options are 1. Pull out all your cash after the rehab and have zero or even negative cashflow or 2. leave cash in the deal and still have pretty low cash flow.

Like for example, say you buy a duplex for $70K, rehab for $40K, and then refinance at around $140K, that means Im leaving around 15K in the deal depending on closing costs and note that I don't even have any carrying costs here. At $140K and having only able to pull out 70% due to it being a duplex the PMI is just shy of $1000/mo. For the areas Im looking at (typical C) I can rent it out around maybe $850/mo per unit so 1700 total. The way i calculate is 10% vacancy, 10% repairs & capex, 10% management. So remove 30% and we have $1190 left. That means we have about $200/mo of cash flow. That sounds very little to me for all that work and if I were to do a hard money loan, it would be even worse! Is this about as good as it gets or am I missing something? Could someone help me make the numbers make sense?

[Nick Gober-Keller]

Hey there, congrats on your success so far!

You've got the gist of the BRRRR method, but remember, the goal isn't necessarily to pull out all your money in the refi, but to minimize how much you leave in. Even leaving some cash in the deal but getting a cash-flowing asset is a win.

About the cash flow, yeah, it does seem a bit thin in your example. But remember, the cash flow is just one part of the return. You're also getting the property appreciation, mortgage paydown, and tax benefits which should be factored into your total return.

Also, consider tweaking your numbers a bit – maybe find a better deal, negotiate harder, reduce rehab costs, or find ways to increase rent. Every bit counts and could help improve the cash flow.

Hang in there, keep refining your strategy and remember to take into account the whole picture! Good luck!