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BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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Updated about 1 year ago,

User Stats

2
Posts
4
Votes
Corey Wright
Pro Member
  • Keller, Tx
4
Votes |
2
Posts

Please tear this strategy apart (gently...)

Corey Wright
Pro Member
  • Keller, Tx
Posted

Background:
-My wife and I have two single family rentals in Fort Worth TX where we live. 
-After PITI and 10% for maintenance/capex the rentals combined cash flow $575/mo or $6900/year which is approx 2.6% return on equity.
-If we sold both of the rentals as is, after we paid 6% in commission and 2% for misc/seller credits and then paid off the loans we would walk away with approx $260,000 before taxes.
-My income increased in 2023 and we are now saving $4,000/mo or $48,000 a year in cash to invest in more properties with.
-We currently have $35,000 saved.
-We are both in our mid to late 30's. We make great income and are looking at building as much equity as we can for the next 25 years. We do not need immediate cash flow and are looking at the long game here.
-Average home prices in our area in DFW are low to mid 300's. 

Game Plan:
We would like to sell both of the rentals and take that $260,000 and realize the gain on it (yes I know about 1031 exchanges but dont want to deal with that headache and handcuffs). After 25% taxes we will be left with $195,000 plus our already saved $35,000 would put us at $230,000. I would then like to take that $230,000 and buy a house cash, and BRRRR it. In a perfect world we would be getting back out all the money that we put into the deal, but realistically I know that is a home run. If we have to leave say $20,000 into a deal that is fine because we are saving $48,000/yr to invest with so we will still be increasing our chunk of money each year.

Long term we would like to do 1 BRRRR or more a year and at the end of 25 years have 25+ properties. By selling the two rentals and paying cash for a property we wouldn't have to pay interest during the rehab (low rate from a bank or high rate from a hard money lender) so that would save money. If your average hard money lender is say 13% plus 2 points and we borrowed $200,000 for 12 months that would be $30,000 lost. By paying cash it would be $30,000 saved. Lastly by paying cash we could move more quickly when the right deal comes along and close as soon as title clears. 

So....whats your thoughts? Do we:
A) Keep the two rentals, cash flow $6,900/year for a return on equity of approx 2.6% and then save our $48,000/yr and do the traditional 20% down payment to acquire a BRRRR every 18 or so months with our savings rate? Or
B) Sell the two rentals, pay the taxes on the gains, use that money to buy BRRRR's cash thus saving on interest/finance charges, move more quickly on the right homes by having cash, and as soon as a bank will allow we can refinance and move on to the next property.

I vote option B, but what say you? 

Thanks!

  • Corey Wright
  • Loading replies...