Would you take on negative cash flow on a BRRRR deal?

Question

Let's say you just completed a renovation project and the appraisal came back higher than you expected for once. You now have an opportunity to pull out a ton of equity with a cash out refi. Would you do this even if it meant the property would be put into a negative cash flow position?

I personally would only put the property into a neutral cash flow position. I don't like the idea of holding any negatively cash flowing properties. I am curious what other BRRRR investors would do in this scenario.

Greg Downey · Answer

I think that totally depends on whether or not you can arbitrage that money into another asset that can cashflow for both. I have some clients that do this in more expensive areas of the country since the cash-gains are simply larger in dollar amount (not necessarily by percentage) and do similar deals in more affordable areas (ie- the midwest). They can take the extra cash out (on a negative DSCR) but go buy 3,4,5 properties that cashflow very well.

I think it just depends on your ability to use that money to NET up cashflow OVERALL.

Preston Dean · Answer

If putting yourself into a negative cashflow means creating a huge positive cash flow for another property I would say do it.

1 step back 2 steps forwards

Alecia Loveless · Answer

@Jason Shackleton Personally I would only pull out as much cash as would still leave a positive cash flow. Even if it was only something like $150/door/month that would be enough for me or in the case of a SFH like $200/month.

Andrew Postell · Answer

@Jason Shackleton would you give me $100 per month for 5 years to get $60,000 after 5 years? If so, then you are ok with negative cashflow.

Nicholas L. · Answer

No. I'd break even but wouldn't go negative.

Carini Rochester · Answer

It all depends on what you are going to do with the money you get from the cash out refinance. Hopefully you use it as a down payment on a cash-flowing investment (real estate, maybe.)

Nick Foundas · Answer

Keep in mind interest rates are high right now which may be a major factor in it not being cash flow positive with a cash out refi...would your current property become cash flow positive eventually once interest rates come down and you can refinance into a lower interest rate? Maybe play around with a mortgage calculator to see what the interest rate would need to come down to for you to get it cash flow positive...if it doesnt require much of a drop in rates then I think it makes sense to take advantage of the high property value (before a drop in value happens) and take that money to acquire more assets

Robin Simon · Answer

Its going to depend on a ton of factors - one of which is the rest of your portfolio, etc. and tax purposes. Also primarily if its a small negative cash flow - what is the alternative use of that money (cash out) - i.e. can you come out ahead overall if you re-invest that in govt bonds paying 4.5%?

Would you take on negative cash flow on a BRRRR deal?

Would you take on negative cash flow on a BRRRR deal?

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