Making sense of Brrrr in this market

[Barry Cohen]

I just completed a new build 3/2, manufactured home for rent. Cost basis is 225K and comps place it at 325 to 350k. So at an LTV of 75% that is a cash out of 240K. Rents are anticipated to be 2250/mo so it fits nicely with the 1% rule. If I take 240k at 7% the monthly payments would be roughly 2150 plus expenses of around 300/mo. That has a (200) cash flow and is a no go for me. If I pull 200k at 5% payments would be roughly 1600 plus 300/mo expenses. (both loans assume 15yr fixed) That gives a positive cash flow of 350/mo. much better. So if I wanted to build a 10K monthly income I would need to own 30 of these accounting for turnover and vacancies. Conversely, if I don't BRRRR and add these properties 1 at a time skipping the last R then I could reach the same cashflow goal with 6 homes. The latter process would take more time (due to capital generation from other sources), cash investment and end up with much less capital appreciation over time but would also carry much less potential risk.

Help me get this concept clear in my head, should I BRRRR and build a portfolio of 30 homes or build these one at a time as my other sources of income allow. I will also look at finding rehab properties to add so they would not all be new builds. Our current market (Phoenix metro) is overpriced for flippers or fix to rent but I am on the lookout for a wholesaler that is finding deals that pencil in our market.

Thanks for your guidance,

Barry