Buy Rehab Rent Refinance Repeat is not a new real estate strategy, it's just been repackaged. It's a new real estate buzz word assigned to a solid strategy that we've been using since real estate investing has come of age.
When you buy rental property using the buy rehab rent refinance repeat system, if property values plunge (and they will correct, you can bet on it) your real estate investment won't pull the passive income you'd expect. You could easily be left holding a short-term hard money load that will escalate until you sell the property.
Traditional lenders will only lend 70% of the loan to appraised value if the property is not owner occupied.
In fact, in many high value real estate areas, such as California, your rental income may run in the red, or upside down. That means the rent you can get from the property is less than the payments going out. Ouch!
Let's carefully examine the BRRRR Strategy, which means to:
This approach to buying rental property has its merits in a hot real estate market, where you can expect quick appreciation.
Only by paying close attention to the numbers will you know if BRRR will meet your own expected rate of return.
This quick sketched example compares using Buy Rehab Refinance Rent Repeat vs Cash to purchase a fix and flip/rent real estate investment. If your exit plan is to flip it for a profit, then the BRRRR plan could work for you.
On the other hand, if you plan to rent it out for passive income year after year (instead of a quick splash in the pan), you would earn $7,800 the first year, and more as rents increase in future years. Once you get a handful of these in your portfolio, with appreciation and as your rental income increases, you will feel more financially secure.
However, in a flat market (where we son't see much price movement one way or the other), or worse -- in a down turning market, you can get left holding a hard money loan that cannot be refinanced easily. And it can quickly eat into any profits.
However don't let a down market keep you from investing, because the best real estate deals are on deck during these markets. This means you can safely buy that income property and expect it to cash flow with passive income.
That's because rents typically stay consistent, whereby mortgage payments can vary. And you'll be paying less for the property. Just watch your calculator!
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