Why BRRRR is so hard right now...

[Alan Asriants]

it is no news here that BRRRR is an awesome Real Estate strategy that build wealth and cash flow by recycling and growing capital.

it is something investors have been doing for years and are still obviosly doing today. But today, it is really tough to find BRRRR deals that really "work"

The goal of the BRRRR of course is to find a property below market value, renovate it and force appreciation, rent the property out, cash our refinance to take back your capital (maybe some more or some less), and cash flow. While in theory this is great, even if you find a property below market value you run into two issues in today's market.

The first issue is buying low enough to recuperate your expenses and down payment. OG investors will tell you stories about how they bought properties, fixed them and when they did a refinance they actually put more money into their pocket. Look... not saying its impossible, but 2024 Real Estate market and competition is a lot different than 2010 lol. So many people are competing for their properties and more owners know the value of those properties as well. This makes it more difficult to find deals with room in them. 

But lets say you do. Lets say that you find a property where you buy a house for 200k, rehab it for 80k, and now have a house worth $330k. That's pretty good right? You invested 280k and now you have something worth 330k... But when you start doing some more math, you realize that this deal starts to make less and less sense. This $330k house in my area rents for about $2,300/m. When you go ahead and do a cash out refi, the most LTV you usually can get is 75%, if its a multi unit likely only 70% LTV. So lets just use 75%. 75% of 330k is $247,500. Remember, your all in costs were $280k. So really there is still $32,500 left in your deal. In reality that's not bad at all considering you only have 32k into a deal that is fully renovated and you have another 25% equity in it.

But whats the current payment on a $247k mortgage in this area? - for the sake of time your PITI is $2149/m.

So you rent your house for $2300/m and your payment is $2149/m. your gross cash flow is $151/m. If you calculate your gross CoC - you get 5.6% - not an amazing return considering all the work you put in. And we are accounting for vacancy, cap ex, etc.

This deal by the way, is not that easy to find...

Because of the higher rates, it is tough to get good cash flow after the refi. So if you're looking to BRRRR, the price at which you buy, which is where you make your money, has to be super low for it to be a killer deal! In many cases you mind as well buy turnkey and not do any of the work.

So should you BRRRR? Are there still benefits to the strategy above

Sure of course there are... 

It all depends on your strategy. Everything can look good or bad - it depends on how you look at it.

One can say that all that work for that kind of profit isn't worth it. Another might say, that I get to pull most of my money out, have little in the deal, and my expenses are all covered. In 5 years I'll refi and increase the rents!

Today's market is certainly not like yesterdays, and yesterdays strategies might not work today. 

What do you think? Is the example above worth it?