How are you making deals work in today's market?

Question

Hello my name is Michael Stinson,I'm a long time listener of BP and have recently found my way to the forums. I have been working with a realtor for a couple months now looking for a live in BRRR and I've had trouble finding deals. I'm looking at $160k-240k purchase price range which restricts my deal flow but there are still deals selling; albeit with numbers that don't work in my analyses. Most deals I analyze are negative cash flow and anywhere from -20% to +1% Cash on cash returns. I'm using 5% vacancy, 10% for maintenance and repairs, and 5% for capex. I've ran down payments from 5%-15% and at 15% down most properties are not good deals. Are these metrics as important for a live in BRRR?Should I be hoping interest rates drop by the time I refinance or how can I make some of these deals work better?

Lawrence Potts · Answer

Hey @Michael Stinson,I think you’re running your numbers right for a BRRRR. It sounds like you’re wanting to house hack it though which is a different approach all together.I’ve always ran my house hack numbers as if I’m not living in them. I can’t tell if you are running your numbers that way or not. It’s okay to negatively cashflow if you’re house hacking it as long as you’ll safely cashflow when you move out. I typically look at a 1 year projection (how long I’ll try to live in a place) and then 2 and 5 year projections with very conservative appreciation and rent rate projections.Right now I’m in a 4plex and we cashflow with everything rented. But when I got to refinance in about 10 months, I will probably break even if rates sit at 6.5% for owner-occupied refinances. But I’ll still cashflow when I leave so it’s okay. Even if I barely cashflow, let’s say $75/door for the sake of this comment, it’s not ideal. However, my appreciation rate sits well and my equity paydown will be a nice cash out when I go back to “farm the equity” in a few years when I cash out refinance. Right now, equity is my main focus.So it depends on:1. Your long term play for the property (how much you’ll yield when you move out)2. Your long term goals (equity, cashflow, etc.). What is going to take you closer to your goal?The big plus with house hacking is even if you don’t cashflow, you are replacing the largest expense you have. If you’re rent is $2,000/month but you are paying out of pockets $1,000 for your mortgage, that’s equivalent to a $1,000 cashflow if you live as if you’re still spending $2,000 in rent (pay your $1,000 mortgage and then save $1,000 in a separate account for a new down payment, etc.). Here’s a tip: it’s how much you keep, not how much you make. I’ve seen people build up thousands of dollars in cashflow but still get stuck in their financial problems because they spend it before it hits there account. It’s not a real estate problem or a market problem, it’s a human problem they’re fighting. They become their worst enemy.Hope that helps you out! Give us all the details on a property you find and let us know your goals so we can help you better 👍

Michael Dumler · Answer

@Michael Stinson, do you already own a primary residence? If you're currently renting, then purchasing a live-in BRRRR is still more advantageous for you even if it's not a home run deal. At the very least, you'd be paying down your debt and building equity in the property over time as opposed to paying for someone else's mortgage. Do you plan to house-hack this live in BRRRR? As noted above, house hacking would also be a viable option to limit your expenses and help you save for the next property. In your case, location is an important key factor. While it's ill-advised to speculate the market, if you buy in a high-demand area, you'll increase the likelihood of the property appreciating significantly. A tight situation you're in, but I would not recommend waiting for market conditions to change until you buy. Once interest rates fall, there will be aggressive buyers like we saw in early 2022. Hope this makes sense and helps!

Nicholas L. · Answer

@Michael Stinsonsounds like you're running the numbers correctly. unfortunately, in today's market:-it's very tough to BRRRR an on-market deal - the most distressed properties that work the best are typically not on-market-it's tough to BRRRR with conventional financing - it's much easier with cash or hard moneythe fact that you are looking for a live-in flip, though, might make things a little more forgiving. if you're looking to house hack, you don't have to be as concerned with the required ARV increase of a typical BRRRR.can you post a complete analysis of a deal that doesn't work?

Louis Herley · Answer

Hello, my name is Louis Herley,Michael, I would look at getting into a smaller purchase price range. If you go smaller price range outside of the city into smaller communities. Preferable by small community colleges right now is a booming market. I personally just bought a 4-plex next to a community college for 215K. I'd love to talk some more about these deals with you. Possible team up on some deals! As for your last question about hoping interest rates drop to refinance. Personally, I would do a buy down weather that be 3-2-1 or point buy down. It is more money out of pocket but in my opinion worth it.

Preston Hillard · Answer

It is very hard to find a perfect deal to make a BRRR work on market and in these market conditions. Interest rates are killing these deals a majority of the time. As stated above a live in flip could be more forgiving. If you are not working with a BP/Investor agent that is willing to find you an off market deal, you are in a waiting game. Maybe consider using propstream or something to take matters into your own hands to find an off market deal if you cannot find an agent that will help with this (99% can't). Also something to consider is pitching sub-to or seller financing to work around the bank on both your budget and possibly the high interest rates with a seller finance. Very best of luck to you my friend!

Michael Stinson · Answer

@Michael Dumler I am currently renting, and that’s the thought process I’ve held as well; even if it doesn’t cashflow right away it removes my largest debt every month and goes towards building equity instead.I have a roommate set up to allow for a “house hack” while I live in BRRR the property so all around a pretty good situation as opposed to renting my current residence. It’s been tough to find deals that work even with these circumstances but I’m still looking and analyzing!

Bob Stevens · Answer

All you need to do is find a market that provides 1++- 2% rule. All in 100k, rent 1400, taxes under 2k, All in 70k, rent 1200, taxes 1200. Duplex, all in 105k, rents 800/800, There are deals like this out thereAll the best

Simon Huber · Answer

I want to enter the BRRR strategy investing World as well. Maybe we can have a chat. I can't give an answer to your question, but maybe we can, you know... exchange some value.