BRRRR - Buy, Rehab, Rent, Refinance, Repeat
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The BRRRR method is dead
I believe the BRRR method is dead or at best on life support! The last decade has been easy for investors to use the BRRR method, but now we need to learn other methods. I've been learning these other methods for over a decade because I went through the last recession when banks stopped lending.
Why I believe the BRRR method isn't going to work in the next seasons of investing:
1. Bank rates have gone up which won't allow most properties to cashflow
2. Banks have tightened their lending requirements which aren't allowing most people to qualify.
3. Appreciation has slowed and even flattened in markets which means there isn't free money any more.
What other reasons do you think the BRRR method is in the past?
I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).
Quote from @Jamie Stone:
I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).
It's not really an advanced strategy; it's just not a "get rich quick" strategy. I would hazard a guess that 90% of all investors that ever made any serious money in real estate did it the old fashioned way - they bought the property and held the property, the same way that 90% of all investors that ever made any serious money in the stock market did. Warren Buffett didn't get rich by day trading. He bought quality stocks and never sold them (never being a dramatization, as I'm sure he sold things over time when it made sense and was accompanied by a specific strategy of reinvestment). People who made serious money in RE that weren't builders weren't flippers. They found a decent property, bought it, and held it for the long term.
If there's any "problem" with BRRRRR it's that people think it's a way of quitting their day job in a year or two. This strategy was never meant to mean instant wealth. It is a way of building long-term wealth by using the power of leverage to hold wealth-building assets long enough that they eventually pay for themselves, thus giving you the ability to use other people's money to acquire assets you could not have acquired otherwise. Likewise, the "Refinance" part of the equation doesn't assume you'll refinance 3 months or 6 months after you've finished fixing up the joint. It might take a year or two or four before your property has appreciated enough to be able to reacquire your down payment. That doesn't mean it isn't a good strategy - if the property still produces healthy cash flow after expenses (which includes future capital needs if you've deferred such), at a minimum you could be rolling the cash flow either back into the home to own it outright or using those funds to prepare for your next purchase.
I think a lot of "newbies" see people who they perceive as successful in RE, especially on BP, as just knowing the ins and outs or just being lucky in timing. Everyone I know who's been successful at RE investing (I count myself in this group) has a lot of mileage on them. Forget about what you hear on podcasts of guys with 6 months of experience owning 3 million doors and 45 billion in equity. It's either lies, part of partnerships, or just damned lucky.
Quote from @Alecia Loveless:
@Randall Alan Obviously you can get close to the same return at the bank right now with a CD but you’re not getting an asset that’s being paid for by your tenants that will be worth several hundred thousand dollars one day, you’re getting no tax benefits, and your money is being eaten away by inflation.
Hi Alecia,
I think you are missing my point. It’s not about not buying a property. We have 37 units cash-flowing at over $650/unit /month. We are all in favor of investing in real estate.
It’s about timing. I think most would agree that very little is cash-flowing in real estate right now. Buying a property at 7-8% interest today, then having to refi again in 12-18 months at a cost of $3,000-5,000 when rates are back down in perhaps the 5% range is likely taking a step backwards financially. If you were lucky enough to be cash flowing $200/month on your property that is $2,400/year profit. So with your refi in a year you are upside down buying right now. Mortgage pay down maybe $100/month in the first year? Appreciation with the Fed actively trying to push rates downward? You might get a little appreciation… but I would argue it would be minimal… certainly not what we’ve seen in the past 3 years. Along the way you have to manage and support the property… fill the unit, repairs, etc.
My point was that in the short term… until rates come down, you might be better off taking the safer bet of money in the bank given that you would see about the same cash flow, without the need to refi in a year… especially if you can’t even find a cash-flowing property in the first place. Like I said, we’re always looking, but very little will cash flow at over 7% interest.
All the best!
Randy
I'm by no means an expert on BRRRRing, but just because a method has become harder to find/make harder, shouldn't mean it is dead. Again, no expert, but I want to be able to use multiple strategies for my business to be able to use the right one for the right property.
I am a novice/new investor in the midwest and wanted to ask a few questions if your open to it. It sounds like the biggest issue with BRRRR in your opinions is the refinance portions? In todays markets the ability to refinance is tough given banks have tightened down on lending, and mortgage (personal or Commercial) rates being what they are. Does the remainder of the strategy still hold true? Buy distressed properties at below market rates that will pencil out, Rehab to "hopefully" create forced appreciation, Rent/Manage the properties that are at least break even, Repeat the process?
Well, it's obviously not working for you anymore - or investors similar to you.
That means more deals for serious investors - you know, the kind that do their own research and take the time to actually learn investing instead of just asking for advice on a forum from a bunch of other newbies:)
I would not say BRRRR is dead. Is it more difficult? Yes. Is it dead? No. Too many people get into real estate wanting to make a quick easy buck. The minute they run into difficulty they give up or just start whining. It takes work. You need to get out there and look harder for good deals and buy deeper. Don't expect a good deal to fall in your lap off MLS.
We recently purchased an off-market estate sale 2%+ deal, a duplex in smaller market. Purchase was 20% down at 7.25%. By buying at a deep discount we have over $16,000 in equity on day one. We just completed the renovation of the first unit so we are half way into renovations. The other side is currently rented and paying the mortgage. We will need to wait a bit for seasoning but I expect to be able to refinance in the coming year pulling out all our original capital. Meanwhile the property is running at a positive cash flow ($800 month) saving up for the next good deal. I only need to find 1-2 of these deals a year.
One of the interesting trends in rentals around here (Colorado Sprngs) is multi-generational. I have had several good tenant experiences with this (great grandkids!) and am planning to see a few recently built 4/3-4's with finished lower level in good family locations. There are many comps in each location so I need to be very careful with quality of the property. Up till now I've focused on older housing stock but the market for these doesnt give me the CF when interest rate sucks. Any opinions?
I wouldn't say it's dead. I just completed one at the end of last year in one of the hottest markets in the country.
Quote from @John Morgan:
@Adrian Smude
You're 100% right. The BRRRR method doesn't work in most markets anymore like it did in 2017. However, people want to sell books about it and gurus claim it still works in today's environment. Lol. I've found other ways to cash flow like pivoting to renting by the room or sec 8. The days of cash out refis to scale up and make a killing are gone. I've bought 12 rentals from cash out refis by pulling equity out to scale up. But it doesn't make sense anymore with current interest rates. Today's environment will "thin out the herd." Many investors will go away until the numbers work. And many noobs who want to hit a home run right away without "planting that tree" and willing to wait several years will get a hard lesson on the reality of what we're dealing with. I'm ok planting some trees in todays environment and waiting a decade for it to produce. But the impatient ones that need to make a ton of money off their investment quickly will be disappointed.
Very well stated!
Quote from @Jamie Stone:I agree it takes the right house. It’s not a strategy I did well with either. Right when I set myself up for it I found a better strategy/niche. As long as we find something that works for us we are doing it right! :-)
I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).
@Adrian Smude
Best investment at this point is tube rentals down the Rifle River!
BRRR is the "best" strategy for me right now, since equities suck and renting is becoming very respectable. Ramit Sethi in his How to Get Rich Netflix series explains that renting offers flexibility and freedom from hazards of ownership (fire, flood, sewer backup, etc etc) and I see multiple posts on social media from people needing to fiind a rental ASAP. Thanks to Pete Harper for good brass tacks advice.
Quote from @Nicholas L.:
it's a good topic to discuss. i'd argue that the key point is that cash flowing from BRRRR is much tougher. it's still very possible to force significant equity, and then break even. it's just not a good cash flow strategy.
so new investors looking to cash flow = as difficult as ever
experienced investors looking to build wealth via equity = still possible
Good point!
Quote from @Dave Vona:
@Adrian Smude Thanks for topic. It's interesting to hear everyone's opinion on this. I'm in the process of refinancing my second BRRRR. I completed the first one last year with a rate just over 6%. It cash flows about $300 after PITI, PM, and reserves. However, it is an older home and requires more maintenance.
The one I'm about to refinance will have a rate of ~7.5%. I expect the cash flow to be $0, and I will have to set aside some of the reserves out-of-pocket for the first year or two until the rents increase. But, the property is in a much nicer neighborhood.
I still see BRRRR as a to way acquire a property while also forcing some appreciation. Even if there is no cash flow immediately, I'm satisfied if I can purchase a property with less than 20% of my money left in it, which is what I can still do with BRRRR. It does take some time and understanding of your numbers to find the right property.
I realize appreciation across most markets isn't as good as it has been over the past 10 years, so I feel it's important to buy in areas where appreciation is more likely. And, I plan to follow a strategy that includes buying higher quality, rather than just looking for high cash flow. Over the long-term, I believe these are the properties that will continue to see rent increases and appreciation.
I'm glad you've enjoyed the topic. I'm enjoying everyone's views in their replies as well. :)
Quote from @Bob Stevens:
Quote from @Adrian Smude:
I believe the BRRR method is dead or at best on life support! The last decade has been easy for investors to use the BRRR method, but now we need to learn other methods. I've been learning these other methods for over a decade because I went through the last recession when banks stopped lending.
Why I believe the BRRR method isn't going to work in the next seasons of investing:1. Bank rates have gone up which won't allow most properties to cashflow
2. Banks have tightened their lending requirements which aren't allowing most people to qualify.
3. Appreciation has slowed and even flattened in markets which means there isn't free money any more.What other reasons do you think the BRRR method is in the past?
There not, it's all about getting good deals. All my purchases are 20% net caps. So even if I did refi, which I never do, it would still be a great COC return. Just get better deals,
All the best
I love it!
Quote from @JD Martin:
Quote from @Timothy W.:I don't agree with that. At it's essence all BRRRRR (I add the 5th R for "Reserves") is, is purchasing a rental property using financing. That's it. People have been renting out financed properties forever. The "method" is nothing new and indeed the term is completely unknown outside of BP. The problem, if there is one, is the perception that one should get all of your money back out of a property. That rarely happens and is an unreasonable expectation. When you can refinance and how much you can take out is largely dependent on market and economic forces that are out of one's control. That doesn't mean the method doesn't work.
It never really was a good method. It relied on everything going right and nothing bad ever happening. One hurricane, one downturn, one localized series of job losses, and the house of cards falls. You need to buy, rehab, rent, manage, refinance if the numbers make sense, don't if they don't, repeat if you identify the right property and if you have the capacity to properly manage, and maintain external sources of cashflow to really get it going. Those who preached BRRR the most made their money off of the preaching, not the doing.
Great clarification. When not trying to get all your money out it works. :)
Quote from @Anthony King:
@Adrian Smude I just bought a SFH for 20k, put 38k into it, got a renter in for $900/month and it appraised for 105k. I'm doing a cash out refi at 8.25% and getting 23k cash out. It breaks even, I have $0 in the deal and I have 23k cash out. Another SFH I am in the middle of refi...purchased for 57k, put 20k into it, appraised for 120k, rented for $1,250, 8.25% rate, breaks even and pulling 13k out. Another one in the middle of rehab right now...
Seems to be working for me.
Congrats! :)
Quote from @JD Martin:
Quote from @Jamie Stone:
I gave up on trying to make BRRRR work in this current market. I'm a newbie, and I feel the BRRRR is an advanced strategy. The BRRRR combines all the things that can go wrong with rehab and managing contractors with the holding costs during the time when the rental is being seasoned, and then you are literally at the mercy of lenders who may or may not refinance you at a rate that will allow you to cash flow. At the end of the day, you probably should have just flipped the house (but then you probably chose rental upgrades vs. nicer ones so that you won't get as much on the flip either).
It's not really an advanced strategy; it's just not a "get rich quick" strategy. I would hazard a guess that 90% of all investors that ever made any serious money in real estate did it the old fashioned way - they bought the property and held the property, the same way that 90% of all investors that ever made any serious money in the stock market did. Warren Buffett didn't get rich by day trading. He bought quality stocks and never sold them (never being a dramatization, as I'm sure he sold things over time when it made sense and was accompanied by a specific strategy of reinvestment). People who made serious money in RE that weren't builders weren't flippers. They found a decent property, bought it, and held it for the long term.
If there's any "problem" with BRRRRR it's that people think it's a way of quitting their day job in a year or two. This strategy was never meant to mean instant wealth. It is a way of building long-term wealth by using the power of leverage to hold wealth-building assets long enough that they eventually pay for themselves, thus giving you the ability to use other people's money to acquire assets you could not have acquired otherwise. Likewise, the "Refinance" part of the equation doesn't assume you'll refinance 3 months or 6 months after you've finished fixing up the joint. It might take a year or two or four before your property has appreciated enough to be able to reacquire your down payment. That doesn't mean it isn't a good strategy - if the property still produces healthy cash flow after expenses (which includes future capital needs if you've deferred such), at a minimum you could be rolling the cash flow either back into the home to own it outright or using those funds to prepare for your next purchase.
I think a lot of "newbies" see people who they perceive as successful in RE, especially on BP, as just knowing the ins and outs or just being lucky in timing. Everyone I know who's been successful at RE investing (I count myself in this group) has a lot of mileage on them. Forget about what you hear on podcasts of guys with 6 months of experience owning 3 million doors and 45 billion in equity. It's either lies, part of partnerships, or just damned lucky.
*mic drop emoji*
Quote from @Kyle Zdrojewski:
I am a novice/new investor in the midwest and wanted to ask a few questions if your open to it. It sounds like the biggest issue with BRRRR in your opinions is the refinance portions? In todays markets the ability to refinance is tough given banks have tightened down on lending, and mortgage (personal or Commercial) rates being what they are. Does the remainder of the strategy still hold true? Buy distressed properties at below market rates that will pencil out, Rehab to "hopefully" create forced appreciation, Rent/Manage the properties that are at least break even, Repeat the process?
yes, I like it! I am a buy fix & rent investor. I use debt but in a very conservative way. I also like my debt being a human. :)
Quote from @Pete Harper:
I would not say BRRRR is dead. Is it more difficult? Yes. Is it dead? No. Too many people get into real estate wanting to make a quick easy buck. The minute they run into difficulty they give up or just start whining. It takes work. You need to get out there and look harder for good deals and buy deeper. Don't expect a good deal to fall in your lap off MLS.
We recently purchased an off-market estate sale 2%+ deal, a duplex in smaller market. Purchase was 20% down at 7.25%. By buying at a deep discount we have over $16,000 in equity on day one. We just completed the renovation of the first unit so we are half way into renovations. The other side is currently rented and paying the mortgage. We will need to wait a bit for seasoning but I expect to be able to refinance in the coming year pulling out all our original capital. Meanwhile the property is running at a positive cash flow ($800 month) saving up for the next good deal. I only need to find 1-2 of these deals a year.
I love it! I am similar to you where I only need a few really good deals a year. Although I had some mega growth years of 12 units. :)
Quote from @Blake Weldon:
@Adrian Smude
Best investment at this point is tube rentals down the Rifle River!
lol if only people knew... lol
#4 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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- Houston, TX
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#4 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Lender
- Houston, TX
It depends on the market, I'm still seeing a lot of investors doing BRRRR's
Quote from @John Chong:
It depends on the market, I'm still seeing a lot of investors doing BRRRR's
Are you seeing them doing the brrrr method because they found a really good priced deal or because of the means a lot of people have done the. In recent years of appreciation and interest rates?
Putting money in a CD making 5% but with 3-4% inflation is only a real return of 1-2%. Real estate should at a minimum get you 6% Cashflow + 8% appreciation and 2-3% in mortgage paydown all based off a 25% down payment.