Investing / BRRRR - ing in High Cost of Living Areas

[Kelvin Duen]

I'm still new to REI and I understand how BRRRR works but it seems like it only works out in low to mid cost of living areas. I'm trying to understand how the expenses for a property in a HCOL area, like the boroughs of New York of areas in California, would be covered after a refi. Let's say a property's ARV is $750k. Acquisition and rehab costs is $600k and you're able to refi at said ARV. Assuming a 4.0% interest rate over 30 years, your mortgage payment is ~$3,000 monthly. That's not accounting for expenses like insurance, taxes (taxes in my area can be $1-$2k a month) , repair & maintenance, cap ex, property management, and other expenses. Are you really renting the property at $4000-$5000? or are you renting just to cover mortgage and insurance? Am I missing something? Outside of BRRRR-ing and using FHA loans, how can someone invest in RE in HCOL areas? How are you guys investing in HCOL areas?

[Jaysen Medhurst]

@Kelvin Duen, BRRRR in HCOL areas are very difficult to make work. As you point out, the value to rents is way out of rack. That's because they are both driven by different parts of the RE market.

You're more likely to be able to do it with 3 or 4-unit properties, but even then it may not work. In the town where I live, duplexes can go for $2MM. No way you're getting $10k in rent for each side...

Other ways to invest in HCOL areas is to go bigger. Once you go 5+ units you're in commercial real estate and the values are driven by the income they actually produce. Sure they're going to still be expensive, but they should cash flow, especially if there are value-add opportunities. Try to find an experienced partner to work with.