Exploring BRRRR in Cincinnati: Realistic Expectations and Potential Challenges?

[Seth Baumgartner]

Hello BiggerPockets Community,

I'm Seth, based out of North Bend, Ohio. As someone who spends a majority of time at work, I'm currently in the exploration phase of understanding the real estate landscape, particularly the BRRRR strategy, and how it might fit into my lifestyle and commitments.

1. Initial Investment: I have an available capital of $80,000. For seasoned investors in Cincinnati, what does this realistically allow me to consider, if thinking about the BRRRR method or other strategies?

2. Market Suitability: Are there certain parts of Cincinnati or property types that might be more challenging for a BRRRR approach, especially for someone with limited time?

3. Potential Challenges: Given my tight schedule, what are the common pitfalls or hurdles that could arise in managing a BRRRR process or any other investment strategy in the local area?

I'm not yet decided on my investment journey's direction, but I truly value insights from those who've been in the field. Any feedback or advice would be greatly appreciated.

Thanks for the guidance and hope to learn a lot from this community.Warm regards, Seth Baumgartner

[Nicholas L.]

@Seth Baumgartner

are you able / planning on going out to Cincinnati to see properties, set things up, and then make periodic trips out to oversee everything?

i think remote BRRRR is tougher than advertised.

[Marcus Auerbach]

Agree with @Nicholas L. remote BRRRR is definitley tougher than advertised! We usually have 1-3 jobs going on at any point in time and I try to swing by at least every other day. And half the time I catch something, even with contractors we have been working with for years. I can't imagine doing this remote.

At the moment we rehab and upgrade our older rental properties. Our inventory is so tight, that the market does not give a discount for condition and without that whats the point of a serveral months long rehab project if you don't create equity. So after over a decade of BRRRR we had to adjust. At the moment we buy basically move in ready properties and let appreciation do what I had to work for. I don't think the Milwaukee market is that different from Cincinnati, maybe a little less competitive. My suggestion: buy a quality small MF that needs paint and carpet, even that is difficult enough if you are remote!

[Wilson Lau]

Hey Seth.

Your initial investment will largely depend on your source of fund and chosen strategy. With BRRRR, most hard money lenders offer 85% LTC and you can do the math from there. I wouldn't advise putting all $80k in your first deal. There are often unexpected expenses, and you want to make sure you have enough cushion to get through those surprises.

Given the current low inventory environment, I would say securing a good deal is challenging (though not impossible) in general. There are many experienced investors in Cincinnati, and good deals get snatched up quick.

Best of luck!

[Evan Polaski]

@Seth Baumgartner, I live in Cincinnati, still own (now) one rental, but had more, have done about a dozen or so flips in the area over the years, here is my take.

I am fairly risk adverse, so I don't venture into neighborhoods I don't know inside and out.  And the neighborhoods I do know are fairly in demand areas.  That means entry prices are high.  It is still a very tight market here with limited supply.  And while rents are still growing, they have not kept up with both appreciation or interest rates.

What does this all mean: in general, it is hard to make numbers work on a BRRRR. You are going to pay a fairly high price to purchase, you are going to have fairly high rehab costs, and you will have a high interest rate on your mortgage. All to get decent rents, but I will say it seems very hard to make numbers pencil.

Is it impossible?  No.  You will just likely be looking at a LOT of houses to find one that is marginal, at least for my return needs.

Secondly, along these lines: in the neighborhoods I know and invest in, the demand from retail buyers is still very high, and inventory is low.  As such, the only "deals" typically require extensive renovation, because anything that is purely surface level retail buyers will likely outbid you.  This means high Reno costs and more risk in renovation, especially trying to do it from a far.

Overall, I can't tell you if it is worth it for you or not. Personally, I don't see many BRRRRs that make any real sense in the neighborhoods I would be willing to own in, but I passively look at the MLS, so take my comments with a grain of salt. I am not hunting off market deals, I have contractors I use on my flips, but they are not giving me any spectacular pricing, since I don't do enough to keep them busy full time, and equally important, I want my rentals to be NICE. I do not go barebones because I want tenants that will also respect the place. As such, my renovations may very well be more expensive than what you plan on doing.

[Mike Klarman]

Seth, 80k in the right market is more than enough.  I have three deals in loan processing now that have the numbers of:

165k purchase

70k rehab

360k ARV

35 day rehab

175k purchase

75k rehab

375k ARV

40 day rehab

185k purchase

90k rehab

390k - 400k ARV

40 day rehab

In the deals above the Investors will need about 30k - 35k in liquidity between transaction costs, closing costs, holding costs, and first in money to contractor and will will get returned to them at least 125% return on their float within 100 days.

I sent you a PM, Seth.

[Jorene T.]

Looking at the Cincy market at the moment and would love to connect!

[Timur Salikov]

For the people reading this in the future, I would say go for a light rehab. Painting, replacing light fixtures, swapping out carpet. See if you can just repaint the cabinets and install new countertop. Rehab costs on anything more complicated can spiral out of control fast. I've done a bunch of rehab in Cincinnati so hit me up if you any questions. 

[Mike Klarman]

1. Initial Investment: I have an available capital of $80,000. For seasoned investors in Cincinnati, what does this realistically allow me to consider, if thinking about the BRRRR method or other strategies?. Cincy is one of those midwestern cities where you can get in under 100k.   Deal spreads won't knock your sox off but it's a "beginner's market".  Question is do the MLS numbers work in that market?  I don't know, if not you'll have to get on a few buyer's lists of wholesalers and meet a hungry agent or two who want to hustle listings and bring them right to you in an off market transaction.  These pipelines will be challenging to set-up in any market because you're nothing to a wholesaler or agent until you buy something.  80k is plenty of money in the markets from Indy to Pitt.  If you get 80% leverage and buy something for 100k, you'll have to put up 20k and then closing costs, holding costs, and money to front to a contractor to start the work.  You'll need to be 30k - 35k liquid to get through the whole lifecycle close to close.

2. Market Suitability: Are there certain parts of Cincinnati or property types that might be more challenging for a BRRRR approach, especially for someone with limited time? Can't talk specifically about that market cause my group isn' there right now, but what makes a BRRRR challenging is when your numbers are off.  Your ARV is way too high, your estimation of costs is off, your exit takes longer.  So numbers can screw up a deal, and then the asset can.  If the budget wasn't comprehensive enough and you need to add in maybe 8k - 10k more on top out of pocket.  Structural and Foundation issues can really slow things down because the municipality will get involved with all their procedures and what not what it comes to those two areas.  So project selection, detailed comp analysis, detailed cost analysis, an ARV based on fact.  That is the way you want to go.

3. Potential Challenges: Given my tight schedule, what are the common pitfalls or hurdles that could arise in managing a BRRRR process or any other investment strategy in the local area? Here is a big one, the finishes.  If the GC you hire is lazy and tries to get the subs to manage themselves then chances are your finishes will not be of the same quality as your comps and your exit of 300k is now 260k cause you are not the same quality as the comps.  The challenges is all in the GC arm of the process. That has to work fast, smooth, and to a certain standard.  That is very hard to find. 

[Jorene T.]

Quote from @Timur Salikov:

For the people reading this in the future, I would say go for a light rehab. Painting, replacing light fixtures, swapping out carpet. See if you can just repaint the cabinets and install new countertop. Rehab costs on anything more complicated can spiral out of control fast. I've done a bunch of rehab in Cincinnati so hit me up if you any questions. 

When you say swap out carpet - do you mean ripping off the carpet and replacing with laminate flooring or something else?

[Gregory Wilson]

Quote from @Mike Klarman:

1. Initial Investment: I have an available capital of $80,000. For seasoned investors in Cincinnati, what does this realistically allow me to consider, if thinking about the BRRRR method or other strategies?. Cincy is one of those midwestern cities where you can get in under 100k. . . . . 

Unfortunately,Cincinnati is a badly bifurcated market. There are really good neighborhoods and really bad ones. Not so much in a stable middle. Some, but not many. So you have to be really careful in buying a flip house for under $100,000.

[Evan Polaski]

I have to agree with Gregory.  If you are out of state, it is probably best to "not know" what you are getting into.  As noted, I tend to be risk adverse, but the Cincinnati MSA certainly has properties below $100k purchase price.  

My experience is: if you have a rental that you clearly are putting in the bare minimum to get it rented: cheap carpet, quick coat of paint, cheap light fixtures, repaint cabinets, etc, in these lower income, higher crime areas two things will happen.  First, you will be stuck with tenants that have very few options, so you are likely going to be accepting less qualified tenants on various fronts. While this leads to operational headaches, the bigger factor is the next one.

Your lower quality tenants, typically, create heavier wear and tear and turn over more frequently.  This will impact you financially, because you will have more vacancy and each vacancy will cost you more money to get it rent ready again.

And on the maintenance side, GE appliances or your local plumber don't care what you are collecting in rent.  So, given you are in a lower end area with lower rents, you need to reserve more money on repairs, maintenance and capex compared to a higher rent area, since that $200 HVAC or plumbing service call is 25% of $800/mo, but 10% of $2,000/mo.  

And to Nicholas's point about making visits: the lower end the area, the more I would want to visit.  And while travel is going to be expensive for any property, if you only have one in a market, the concept is the same with less rent: that $2,000 flight/hotel/rental car food for a one night visit, ties up a lot more of your gross when that gross is much lower.