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

[Michael Stinson]

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]

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 👍