Menu
Cart 0

Is Buy, Rehab, Rent, Refinance, Repeat (BRRRR) a sound strategy?

Posted by John T. Reed on

Here is another article I tried to post on Reddit, but the post button is always gray? I don’t want to waste it so here you go...
.
Is Buy, Rehab, Rent, Refinance, Repeat (BRRRR) a sound strategy?
.
Buy, rehab, and rent are not a profit strategy. In order for that to be profitable, you must be extremely selective in which properties you buy. They have to have exactly the right things wrong with them so that the correcting of those things is profitable. This is extremely difficult.
.
Remodeling Magazine does an annual study showing how much common rehab projects pay back in increased market value of the house. They usually show ten common projects like adding a bathroom.
.
NONE are profitable.
.
None.
.
You have to be very shrewd about it like changing a one-bedroom house into a two without adding any foundation, exterior walls, or roof. That is, the house had one or more large rooms where you could move the walls to achieve two legit bedrooms.
.
Changing a three bedroom to a four, on the other hand, generally will not work. There is nothing wrong with a three-bedroom house. A one-bedroom house, however, is a pariah to sell.
 
Moving on to refinance. Bad idea. You generally get the best terms on a purchase-money mortgage. Many, if not most, lenders have explicit policies that give purchase-money borrowers a better deal than cash out or other refis. Is there really any other reason for refinance being in this sequence than it starts with an R?
.
Ditto renting the property. If you can rehab profitably—again very difficult—better you should do another rehab. If you graphed the property value over the duration of a BRRRR, you would see a jump in value from the rehab then a boring, weak cash flow for months or years. Why not spend those years doing six more rehabs?
.
Note, you can rehab an occupied property. Doing a gut rehab on a vacant property requires that you and your crew get it done frantically fast like home builders do once they have a financing commitment to build a new house. You get no rent from a vacant property.  How fast you fill it or sell it determines not only how much profit you make but whether you make a profit at all.
.
To use a gymnastic analogy, doing vacant property stuff is a much higher degree of difficulty than occupied property.
.
The TV shows about rehabs are BS. That is just ordinary make nice that would pay back less than it cost. A rehab that would be profitable would likely be condemned by the board of health before you started or red tagged for toxic contamination. Rehabbing a property you can move into and live in is a mundane newlywed activity, not a profit strategy.
.
Fixers book

Share this post



← Older Post Newer Post →