BRRRR Method - Biggest Advantage and Disadvantages

[Chase Freund]

What are some of the biggest advantages and disadvantages investors run into when trying to complete a BRRRR exit strategy? Really looking to hear more about the downside so I can proactively help investors with their future properties.

Those who have learned how to implement this strategy seem to stick with it for a very long time so I would like to get more investors onboard with BRRRR plays.

[John O'Leary]

Hey @Chase Freund!

In my opinion the current high-interest rate climate might present a significant challenge for investors applying the BRRRR method, particularly when it comes to refinancing with a DSCR loan. Conventional financing typically requires a 12-month seasoning period before allowing cash-out on value-add properties (correct me if I'm wrong here), leading many to opt for DSCR loans with varying seasoning requirements from the lender. It's critical to understand that DSCR loan rates hinge on credit scores and LTV ratios – visualizing this on a graph with X and Y axes can help. High LTV ratios often lead to higher rates, so without thorough initial analysis of long-term debt rates and market rents, investors may discover their expected cash flow falls short.

For those who can secure properties at significant discounts, the BRRRR strategy allows investors to extract their initial investment and sustain their investment assembly line. However, given the rate environment and the necessity to remain cash-flow positive, it may be prudent to incorporate fix-and-flips or wholesales into the investment approach. By doing so, investors can avoid high LTV cash-outs at refinancing, securing more favorable rates and increasing monthly cash flow. The BRRRR method proves most effective with either low-interest rates or acquisitions made well below market value.