Seeking Advice and Insights on Implementing the BRRRR Strategy in Milwaukee, WI

[Jalen Greenlee]

Happy almost Summer BP Community,

I'm reaching out to tap into the collective wisdom of the community as I look to expand and accelerate my rental business using the BRRRR strategy.

I currently focus on buy-and-hold investments in small multifamily properties (2-4 units). My experience so far has been quite positive, but I'm eager to explore more efficient ways to grow my portfolio and maximize returns.

Any advice, insights, and resources you can provide regarding this strategy in Milwaukee would be greatly appreciated. I’m looking forward to engaging with this community and learning from your experiences. 

Much Love

[John O'Leary]

You can implement this strategy in any market if you make the right purchase. First, determine what your lender offers in terms of Loan-to-Cost (LTC) for acquisitions and the maximum Loan-to-Value (LTV) for a seasoned cash-out refinance. With this information, you can calculate the maximum cash-out amount on the refinance. Once you have that figure, estimate the monthly payment and potential rental income to calculate your DSCR ratio, ensuring it meets your lender's requirements. Feel free to reach out if you need assistance.

[River Sava]

Hey Jalen, 

I agree with John. A BRRRR can be done in nearly any market if you have the right tools / gameplan. Check out this BP article that sheds further light on this topic. Also, feel free to reach out with any questions!

 https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

[Jake Baker]

@Jalen Greenlee

Here are some BRRRR nuances that I have learned along the way:

It is easy to underestimate your rehab budget. - make sure to get bids from multiple contractors and have adequate reserves.

It is easy to overestimate your ARV. - Have an agent pull recent comps for you

It is easy to underestimate the timeline. - whatever a contractor says, add 4 weeks.

It is easy to underestimate loan costs. - look at previous settlement statements or get an estimate from your title company.

[Jalen Greenlee]

Quote from @John O'Leary:

You can implement this strategy in any market if you make the right purchase. First, determine what your lender offers in terms of Loan-to-Cost (LTC) for acquisitions and the maximum Loan-to-Value (LTV) for a seasoned cash-out refinance. With this information, you can calculate the maximum cash-out amount on the refinance. Once you have that figure, estimate the monthly payment and potential rental income to calculate your DSCR ratio, ensuring it meets your lender's requirements. Feel free to reach out if you need assistance.

This is a very valuable tip John! Thanks a bunch. And when you say seasoned, you are referring to the six months the property has to be in your name before a financing event can occur?

[Jalen Greenlee]

Quote from @River Sava:

Hey Jalen, 

I agree with John. A BRRRR can be done in nearly any market if you have the right tools / gameplan. Check out this BP article that sheds further light on this topic. Also, feel free to reach out with any questions!

 https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

 Thanks for the resource River! Much appreciated. 

[John O'Leary]

It varies with each lender, but yes. Some require six months of seasoning, while others may accept three months if the refinance is "on platform," meaning you closed the bridge loan with them. There are also lenders that require no seasoning if you can demonstrate that the value-add has been completed

[Jalen Greenlee]

Quote from @Jake Baker:

@Jalen Greenlee

Here are some BRRRR nuances that I have learned along the way:

It is easy to underestimate your rehab budget. - make sure to get bids from multiple contractors and have adequate reserves.

It is easy to overestimate your ARV. - Have an agent pull recent comps for you

It is easy to underestimate the timeline. - whatever a contractor says, add 4 weeks.

It is easy to underestimate loan costs. - look at previous settlement statements or get an estimate from your title company.

 Thanks Jake! Do you have any tips on finding solid/a number of contractors? This has honestly been one of the deterrents of me moving into this space.

[Wale Lawal]

@Jalen Greenlee

Milwaukee's real estate market offers potential for real estate investors, particularly in the small multifamily market. To expand your rental business, consider the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy. Look into areas where lots of people want to rent, with good schools and low crime. Check past home values and rental rates using sites like Zillow and Realtor.com or local house market reports. Keep an eye on city plans and big projects that could change home prices. Use the BRRRR tactic by finding homes not yet for sale, checking out foreclosures and auctions, fixing up with trusted workers, keeping an eye on fix-up costs, renting to good tenants, setting fair rents, getting a refinance from banks that get the BRRRR idea, and keeping financial matters healthy. Network with local real estate groups, engage with online communities and use educational resources like books and online courses on real estate investing.

Good luck!

[Marcus Auerbach]

Well, here is an answer that's not from ChatGPT.

Let appreciation do some of the heavy lifting for you. It used to be much easier to find properties that were discounted for condition. Milwaukee inventory has been so low since 2021 that sellers don't have to offer a discount for condition, some uber- motivated first-time home buyer will pay full fare. 

The flip side is you have now a tailwind from considerable market appreciation that can do some of the heavy lifting for you, so by the time you are done with your rehab (forced appreciation) the market will have also moved on. Pick your projects accordingly.

[Cam Schwartz]

Hey Jalen, can't speak specifically to MKE though I'm just below the state line in Chicago and can confirm there are ample 2-4-unit properties in the area in need of renovating.

One trick with BRRRR investing is to pay a large down payment (30%+) to boost monthly cash flow. This provides wiggle room in your operating budget and when executed on properties with strong margin, you should be able to pull all of your cash out and repeat.

[Nick Harrington]

Hey Jalen - 

I work with a lot of investors in Milwaukee, and also am an investor myself here too. 

On paper and in practice, the BRRRR strategy is great. Phenomenal CoC returns, recycle your money, ability to scale, etc.

For Milwaukee specifically, the most difficult part of doing a BRRRR here is finding the deal. For any property purchase, the deal is made when you buy, not when you sell. The majority of inventory in Milwaukee that is listed on MLS as an "investor special" or with "value add" etc, typically does not have enough spread to exit a deal with no money down post refi.

The common rule talked about with BRRRR is the 75% rule (you want your purchase + rehab costs to be 75% of the ARV). If you find a deal like this, typically you can leave no money in the deal post refi.

Where I see most deals priced on the MLS now are going to be 85% - 95% deals, meaning that post rehab, you have created about 5% - 15% of equity.

Your best bet to find a BRRR deal (or even a flip deal) is to connect with off market resources (wholesalers, agents that specialize in this space), or to cut these people out and source deals yourself. Door knocking, postcards, cold calling, etc. are going to be the best bet for finding something that is going to hit the numbers you need.

[Jalen Greenlee]

Quote from @Marcus Auerbach:

Well, here is an answer that's not from ChatGPT.

Let appreciation do some of the heavy lifting for you. It used to be much easier to find properties that were discounted for condition. Milwaukee inventory has been so low since 2021 that sellers don't have to offer a discount for condition, some uber- motivated first-time home buyer will pay full fare. 

The flip side is you have now a tailwind from considerable market appreciation that can do some of the heavy lifting for you, so by the time you are done with your rehab (forced appreciation) the market will have also moved on. Pick your projects accordingly.

 This is very helpful Marcus! I definitely have noticed properties increasing in value a little more rapidly recently. @Marcus Auerbach

[Jalen Greenlee]

Quote from @Nick Harrington:

Hey Jalen - 

I work with a lot of investors in Milwaukee, and also am an investor myself here too. 

On paper and in practice, the BRRRR strategy is great. Phenomenal CoC returns, recycle your money, ability to scale, etc.

For Milwaukee specifically, the most difficult part of doing a BRRRR here is finding the deal. For any property purchase, the deal is made when you buy, not when you sell. The majority of inventory in Milwaukee that is listed on MLS as an "investor special" or with "value add" etc, typically does not have enough spread to exit a deal with no money down post refi.

The common rule talked about with BRRRR is the 75% rule (you want your purchase + rehab costs to be 75% of the ARV). If you find a deal like this, typically you can leave no money in the deal post refi.

Where I see most deals priced on the MLS now are going to be 85% - 95% deals, meaning that post rehab, you have created about 5% - 15% of equity.

Your best bet to find a BRRR deal (or even a flip deal) is to connect with off market resources (wholesalers, agents that specialize in this space), or to cut these people out and source deals yourself. Door knocking, postcards, cold calling, etc. are going to be the best bet for finding something that is going to hit the numbers you need.

 Thank you @Nick Harrington! The off market resources tip is very helpful. Where do the wholesalers hang out? lol

[Nick Harrington]

On Facebook- there's a group called Milwaukee Off Market Deals (or something along those lines). It's a pretty active group / community and a lot of wholesalers and people in the industry will be on there

[Jake Baker]

Quote from @Jalen Greenlee:

Quote from @Jake Baker:

@Jalen Greenlee

Here are some BRRRR nuances that I have learned along the way:

It is easy to underestimate your rehab budget. - make sure to get bids from multiple contractors and have adequate reserves.

It is easy to overestimate your ARV. - Have an agent pull recent comps for you

It is easy to underestimate the timeline. - whatever a contractor says, add 4 weeks.

It is easy to underestimate loan costs. - look at previous settlement statements or get an estimate from your title company.

 Thanks Jake! Do you have any tips on finding solid/a number of contractors? This has honestly been one of the deterrents of me moving into this space.

 This best way I have found is through referrals. Investor friendly real estate agents often have connections to contractors. They key is to build a good relationship with the contractors that you are working with. 

Create a clear SOW
Have a written Contract
Ask for proof of Insurance/Licenses
Agree on strict timelines
Establish communication preferences
Additionally - Create Incentives for meeting timelines. Perhaps a 5% bonus for meeting the target list date.