BRRRR exit strategy or next steps?

Question

Does anybody have an exit strategy for BRRRR setups?In the 2010s we did the BRRRR thing not even knowing that the acronym existed and now we're are in a good, but complicated situation.

- The commercial mortgages (all under 5%) are going to start being paid off in the next 1-5 years. We also have a HELOC with a balance from repairs and an 8% interest only rate.
- Currently have around 15% LTV - so 85% equity.
- The payments are now 60-90%, principal, which is great, except for tax reporting purposes in 2023 showing a profit.
- 2024 almost much every possible repair imaginable was needed among the units, so the headaches and costs were compounded - now the properties are buttoned up for the most part and we'll probably show a loss for 2024 taxes.
- We don't cash flow at all because we were bullish on the BRRRRs and also did some flip rehabs using some of that equity and pocketed it years ago.

We haven't bought or sold anything since before Covid.

Tim Delaney · Answer

Are you saying that even with only 15% LTV these properties don’t cash flow?

One option is sell and reinvest into a more profitable deal. Another would be refinance and invest in more, but if they aren’t cash flowing now, then then won’t after a refi.

You could sell them on seller financing so you continue to get a monthly income for a period of time and spread out your capital gains.

Jake Baker · Answer

@Justin Cummings

Well said, @Tim Delaney.

Use a 1031 exchange to sell one or more properties and reinvest into fewer but higher-yielding or easier-to-manage assets, like multifamily units or triple-net lease properties. This can also defer capital gains taxes. You could also wWork closely with a CPA to maximize depreciation benefits and reduce your taxable profit for 2023 and beyond. For 2024, you can carry forward losses, which might offset future tax burdens.

River Sava · Answer

Hey Justin -

One option is a cash-out refi, which could help you tap into your 15% LTV to pay off the HELOC or fund new investments. If selling is on the table, a 1031 exchange could allow you to defer taxes and reinvest in properties with better cash flow or lower maintenance needs.

Since repairs are mostly handled, it might be worth reviewing your rents to see if there’s room to increases/ways to improve cash flow. Also, depending on your long term goals, transitioning part of your portfolio into more passive investments might help reduce operational stress while keeping your equity working for you.

Sean Graham · Answer

Always options to keep reinvesting assuming the equity is there to keep playing the real estate market

Tanarat Bunchom · Answer

With your strong equity, consider refinancing to improve cash flow, selling a few properties to reduce debt and build liquidity, or re-evaluating rents and exploring short-term rentals for better returns—all while aligning with your long-term goals.

Aaron Zimmerman · Answer

@Justin Cummings - congratulations on building a nearly paid off portfolio.

What are your future goals? To acquire more properties? Or to live off the cash flow?

Are you debt averse or want to take on more debt?

Something to consider is that you mentioned you had a day job so I’m assuming you’re not a real estate professional. When the properties are paid off, you’ll probably have a healthy profit. What you can do to offset this profit is to invest in syndications that do cost segregation studies (which will lower your tax you pay). The caveat is to make sure the passive investment you choose aligns with your goals and it’s a good investment.

Something else to consider is that once these properties are paid off, you could cross collateralize to purchase additional properties that fit your buy box so that you may not need to bring cash to the table for a down payment. From there, you could do a cost segregation study on that property which will lower taxes for that year and potentially create additional carryover losses.

Michael Smythe · Answer

@Justin Cummings what was your original strategy when you bought these?

Seems you got loans with 15-year amortization terms?

In the next 1-5 years you could have some serious cashflow - why would you care about the associated taxes?

Depending on your goals you could either:

1) Cashout refinance and invest proceeds in additional purchases2) Sell or 1031-X them into bigger acquisitions3) Combination of both 1 & 2.

Ashish Acharya · Answer

@Justin Cummings With your BRRRR portfolio at 15% LTV, significant equity offers several opportunities for optimization. To improve cash flow and manage your current situation, here are some potential strategies:

• Refinance for Cash Flow: Refinance your properties into long-term fixed-rate loans to reduce monthly payments and increase cash flow. Use the proceeds to pay off your high-interest HELOC, which will reduce interest costs and improve liquidity.
• Sell Underperforming Properties: Consider selling properties that don’t cash flow or require significant management. Use a 1031 exchange to defer taxes and reinvest in more lucrative, cash flow-positive properties or diversify into passive investments like syndications.
• Pay Down Debt: With limited cash flow, focus on paying off the HELOC or smaller mortgages. This will lower interest costs and free up future cash flow for reinvestment or reserves.
• Tax Planning: Work with a CPA to mitigate tax impacts from principal-heavy payments and potential gains. Consider strategies like maximizing depreciation (e.g., cost segregation studies), carrying forward 2024 losses, and accelerating deductible expenses to reduce taxable income.
• Shift to Passive Investments: If management has become burdensome, hire a property manager or transition equity into more passive assets like turnkey properties, syndications, or REITs to reduce workload while maintaining income potential.
• Expand or Reinvest: Use your equity to acquire new cash flow-positive properties in markets with strong fundamentals, focusing on diversification and long-term stability.

By refinancing, selling underperformers, or paying down debt, you can improve liquidity and cash flow. Pair these steps with robust tax planning to manage profits and losses effectively while aligning your portfolio with long-term goals.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Justin Cummings · Answer

Thanks for all of the advice.

Justin Cummings · Answer

Yes, I think we're going to cash out refi one of the properties once rates cool down a bit. How would you suggest transitioning part of the portfolio into a passive investment?

BRRRR exit strategy or next steps?

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