All Forum Posts by: Cory Iannacone

I love the BRRRR method, having scaled my real estate portfolio from just 2 units to 18 in 12 months (From 2 units to 18 Units in 12 Months), and later from 18 to 60 units in the early months of the COVID-19 pandemic (18 to 60 Units During the First 9 Months of the COVID-19 Pandemic). The BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat—played a pivotal role in this growth. However, as I look at today’s market, I see that the conditions that allowed for explosive growth back then have changed. So, the question many investors are asking now is: Is the BRRRR method still viable in today’s high-rate, volatile market?  I think it is, but it is not the same BRRRR method investors are used to.

The Changing Real Estate Landscape

The real estate market has fundamentally shifted since the period from 2017-2020, which was marked by relative stability in terms of interest rates, demand, and supply. Back then, BRRRR worked because we could predict future outcomes with some certainty—what a property's value would be post-rehab and how the refinancing terms would look in 6-12 months. This stability made it possible to pull out capital and keep reinvesting.

However, the landscape started to shift drastically around 2020-2022, when interest rates plummeted to historic lows. Many of us rode that wave, using cheap financing to expand portfolios. But as interest rates increased by 525 basis points between March 2022 and July 2023, the predictability that BRRRR relied on started to fade away​.

With the Fed aggressively hiking rates, refinancing became much more expensive. If you were in the middle of a BRRRR deal during that time, refinancing likely crushed your cash flow. The properties you bought under 3% interest rates from 2020-2022 suddenly didn't make sense at the new, higher rates. It became difficult, if not impossible, to repeat the process without severely damaging your profits.

The Rise of BRR"R"RR 2.0

In this new environment, I modified my BRRRR stategey to what I call BRR"R"RR—where the additional "R" stands for "Rate Drop." The key difference is patience. Here's how it works:

1. Buy a cash-flowing property with solid fundamentals today.
2. Rehab it, improving the property’s value and generating more rental income.
3. Rent it out to ensure cash flow covers your costs.
4. Wait for a Rate Drop—this is the new "R." Instead of refinancing immediately, you hold out for rates to drop, which many economists predict will happen as inflation cools and market conditions stabilize in the coming years.
5. Refinance when rates drop, extracting capital while maintaining cash flow at a similar level due to the lower interest rate.
6. Repeat the process by redeploying the refinanced capital into new investment opportunities.

This version of the BRRRR method is more of a long-term play, as opposed to the quick 6-12 month cycles many of us were used to. Waiting 2-3 years for a rate drop ensures that when you do refinance, it doesn't cripple your cash flow, and you can cash out without significant risk.

Why BRR"R"RR Works in 2024 and Beyond

1. The Interest Rate Environment: The higher rates we've been experiencing since 2022 make traditional BRRRR deals difficult. Waiting for rates to drop before refinancing mitigates the risk of locking in a high-cost loan and significantly reduces the pressure on cash flow​.
2. Upcoming Opportunities: Many investors who bought aggressively during the 2020-2022 period, especially those with five-year fixed-rate loans, may face challenges when their rates become variable around 2026-2027. This is where your patience pays off. You can be ready to acquire properties at a discount from those forced to sell due to cash flow issues​.
3. Focus on Cash Flow Today: With BRR"R"RR, you are prioritizing properties that cash flow from the start, making your investment stable and less reliant on speculative future appreciation or short-term market shifts. By maximizing net operating income now, you are positioning yourself for a stronger refinance when rates drop​.

Looking Ahead: The 2026-2027 Opportunity

In my view, 2026-2027 is shaping up to be a critical period for the real estate market. As variable-rate loans adjust and aggressive investors from the low-rate era feel the squeeze, we could see a wave of opportunities for those positioned to take advantage. If you employ the BRR"R"RR strategy now, you’ll be in a strong position to capitalize on discounted properties and refinancing opportunities when the market conditions align.

In short, while the BRRRR method we once knew has become harder to execute, adapting it to BRR"R"RR makes it a viable and profitable strategy in today's market. Stay patient, focus on cash flow, and be ready for the opportunities that lie ahead.

@Karolina Powell Thanks!  I think 1.5% would be considered slam dunks in the current market.

@Scott Allen Thanks!  I agree that 2020 was the beginning of the end of the 2% rule.  At least that's what I saw.  

I currently have a 5.5% interest rate on my loan for the 10 unit building.  I actually don't plan on refi-ing out unless I can get the same or better rate.  I plan to just take the cash flow and wait out the market.  I call it the BRR"R"RR method, where the extra R is waiting for the Rate drop.

thanks @Jonathan Greene. I used to use the 2% (and now 1%) rule just to initially screen properties quickly to determine if they should cash flow (as a rule of thumb).  In my opinion, I don't believe you can find properties just using general rules of thumb like we used to.  It takes more work (and creative thinking) to make deals work in the current market.  

thanks @Jonathan Bock. Planning on long term hold for that 10 unit building.  It will cash flow very nicely once all 10 units are renovated and rented out.  $800 / month increased rent X 10 units = $8,000 / month (almost $100K annual) increase in cash flow.  This is my security blanket for a dip in the economy (which I believe will hit in 2027).

I have been investing in the central Pennsylvania market since 2016, mostly focused on Harrisburg, PA (midtown, uptown and the suburbs), Carlisle, PA and surrounding areas.  Recently, I have run across a number of opportunities in Steelton, PA, which is right next to Harrisburg, but a very different market.  Looking to connect with investors familiar with the Steelton, PA market to discuss these opportunities and get some additional input. 

When I closed on my first duplex in Harrisburg, Pennsylvania in August 2017, "the 2% Rule" was the gold standard for determining whether a property would cash flow.  (The 2% Rule says that the gross monthly rents should be 2% of the purchase price.) I purchased that duplex for $116,000 and had the gross rents at $2,105.00 after re-leasing 1 of the apartments after the sale (roughly 1.8% of sale price, so just shy of the 2% Rule).  Today, the gross rents are $2,875 (exceeding the 2% Rule). In 2017, I thought I did just "okay" on this deal.  Today, however, this deal would be a slam dunk in this market, as I am finding it harder (if not impossible) to find 2% deals in central Pennsylvania.  In fact, since the pandemic and inflation hit, the 2% Rule seems to have all but disappeared in all real estate discussions and been replaced with the “1% Rule” in this tighter market. 

I recently purchased this 10 unit building in Harrisburg, PA.  It is a 100 year old purpose built apartment building which was considered high end in the early 1900s, with butlers' quarters in the basement of the building, and each apartment boasting 1400 sq ft / 2 beds / 1.5 baths and maids' quarters in the back.  I purchased it for $1.1M with each apartment renting around $1,000 ($10,000 gross monthly rents), so just under 1% of the $1.1M purchase price.  We have been renovating each apartment 1 by 1 as tenants move out and renting the apartments for $1,800 ($18,000 projected gross monthly income).  That would put us just above 1.6% of the $1.1M purchase price, so still short of the 2% Rule (and it still doesn’t account for the renovation costs).

All of this begs my question: Is the 2% Rule still alive in the central Pennsylvania market in 2024?  If so, can anyone in this market give me any examples of recent deals they have been involved in which hit the 2% Rule?

Hi @Kayla Upchurch!  Congrats on taking the leap.  I am in Harrisburg, PA and have been investing since 2016.  Also a licensed agent.  Let me know if I can assist you in your new journey.

@Joshua Dupler Where in Harrisburg is your investment property?  What Township / municipality?

Hi @Joshua Dupler.  I am 15 minutes away from you in Lower Paxton Township.  Welcome to Harrisburg / Hershey!  I am in the process of selling off my SFHs in the area if you want to chat.