Quote from @Randall Alan:
@Lucas Anderson
So, your strategy is sound... but your timing is poor (in my opinion).
You aren't going to want to BRRRR a home when your cash-out refi interest rate is 7.x%. Over 50% of your profit is going to be sitting in your "interest owed to the bank" column on your spreadsheet. And if your solution for that is to re-fi the property when rates come back down... guess what - there goes another $3,000 - $5,000 to refi each property... that is 10-15 months worth of profit up in smoke!
Then, since you are going to be working exclusively out of state, you are pretty much necessarily going to be having a property management company look after these for you I would assume. This is (sort of) mistake # 2. Maybe not a mistake... but if you are financing your property - which you should be to make your $100,000 go the furthest - the 10% fee a property management charges each month is going to eat up about 1/3 of your profit. It's a huge give-away. If you have a W2 job right now... you probably already give away 1/3 of your income to taxes. Imagine if you had to give away another 1/3rd! That is what property management is going to do to you. And they often charge you a full month's rent to place a new tenant. That is like 3 months worth of net income on a typical financed property. If you have to go that way, so be it... but know that it comes at a high price.
As for financing versus not financing, I would encourage you to run the numbers on buying 1-$100,000 house, versus 4-$100,000 houses with 75% financing. I think you will quickly find out that having 4 properties makes you more money. So financing - once the rates come back down some - is the way to go. Be sure to look at being able to depreciate 3.3% of each property each year on your taxes, as well as writing off all the mortgage interest as well. Plus, you will be gaining appreciation on 4 properties versus 1.
Hope some of it is food for thought!
All the best!
Randy
@Randall Alan Thank you for the valuable insight. I completely agree the timing isn't great for BRRRR, but I also think the timing will rarely be as opportune as it has been the last 10 years for this strategy. I think rates will come down but I don't think we'll be seeing our 3%'s again for a very long time. So any deal I make, the numbers simply will have to work at the current rate. Finding these deals isn't easy but it is possible in certain markets it would appear.
I'm more interested in equity than I am cashflow at the moment so it's ok if my net is a bit lighter at the beginning. I of course would like a little something, but I would only expect $150-$200 net per door in the first few years.
The property management cut is a total bummer but something I'm on board with paying if it's a competent PM, it all just needs to pencil in on the calculation. I fortunately am not W2 so THANK GOD gov isn't taking 1/3 of my money but you make solid points.
4 properties vs 1 is the right move I agree, this is why I would like to BRRRR, I can't seem to find houses in good price to rent ratio markets that I could leverage 4 downpayents on 4 deals with my $100k. (unless the houses need work)
Thanks a ton for your response, its very helpful.
