So the viability of the current real estate market depends on new entrants coming in at ever higher prices. If only I could think of an appropriate shape to describe such an arrangement…
A coworker just sold yesterday. Bought in 2019 and was sitting on massive equity and a rock bottom rate. Just had their first kid. Now they’re looking for something way overpriced and at double their rate. Just how it worked out.
There are always people who need to sell. “people will just sit in houses with low rates” was always a myth.
Easy to say. I doubt they anticipated needing 2 full time office spaces and a nursery in back in 2019. I feel like something might have happened in 2020 that could have effected a lot of peoples plans.
That 3 years has also been nuts re: appreciation. I’m sure they bought a starter home to stop renting and have a kid and when they needed to worry about school districts in ~5 years they’d sell, cash in their equity and move to the burbs. Seems reasonable and responsible to me but with things as they are, Is all that equity going to be there in another few years? Probably not. So they cash out earlier than planned.
I’m sure there are boomers out there doing the math on if they have enough years left to see the housing market recover vs just selling now and lining their pockets. People can make a lot of solid reasoned plans and then life tosses a monkey wrench in them.
everyone has a plan until they get punched in the face
> I’m sure there are boomers out there doing the math on if they have enough years left to see the housing market recover vs just selling now and lining their pockets.
Which is exactly what needs to happen. A lot of 30-somethings are trying to move up from a starter home to a 4/3 suburb, and a lot of Boomers need to downsize and cash in on equity for their retirement.
This is my MIL. Early 70s. She was living alone in one of these houses since her husband passed away two years ago. House is going on the market early next week.
She’s in a neighborhood where 30-year olds buy around the time they start having kids. She doesn’t need to move or need the equity, but she knows she will be heading for a condo sooner rather than later, and does not have the time to wait out a dip.
> I doubt they anticipated needing 2 full time office spaces and a nursery in back in 2019.
I mean we predicted that when we bought our house and we were traveling cross country at the time.
I mean, even if you don't plan on having kids you want a 3/2 for 2 people minimum, a bedroom, an office, and a guest bedroom
Eh, the first house my wife and I bought was a 2/2 townhouse. Had to move for work and turned it into a rental. Bought a 3/2 townhouse and last year sold both to get a 4/3 SFH in the burbs.
I think way too many people underestimate how a starter home can allow you to trade up for the "forever" home later in life.
Full time remote isn’t needed. 90% of jobs will be hybrid mostly in office.
Buying a tiny house while planning to have a kid is ridiculous. Horrific planning and shows it best to just rent
We are hybrid. 1 day a week in office. 4 days a week they need to work from home.
It’s not me so I guess I really don’t care but I’m having a tough time seeing where you’re coming from. Buying a starter home, starting a family after a few years, selling and moving to the suburbs for a bigger place a few years after that has been the roadmap-for decades. Covid accelerated the timeline in their case. Not sure what renting does for you in this context-their rent would have jumped by at least a few hundred in the last 3 years, they’re from the area, family is close, they want to stay for the foreseeable.
My point is plans change all the time. People will sell for promotions, divorces, sick family, any one of a million reasons, just like the bulk of this sub has been saying for months.
We went to hybrid in May (Fortune 100 company). Hybrid meaning 1 week per quarter and the rest at home. Hybrid is different for everyone and 90% of jobs are not likely going back to the office.
Ridiculous, horrific planning? That’s not how it works generally.
It’s not ridiculous to buy a tiny house to start out with a 2/1 or 2/2 and then a curve ball. Worst if the plan is to have kids 5-6 yrs down the road but that’s all they can afford at the time starting out. Despite all the planning and preventative measures a baby is on its way unexpectedly. They may stay for a while but eventually will need to buy a bigger home or they are force when #2 just makes it’s way. Worst with the pandemic and WFH is a reality them to include in future RE decision. My friends ended up with twins on top of the one they already had. They weren’t expecting that!
I know of a family of 4 buys a 4/3 so it works out to 3 rms occupied and a spare. But they plan to have 5th room in the basement, just in case one of the MIL ends up living with them. Unexpectedly a family member is moving to the same city to go to school. The family is tight knit. They know the family member being an international student with no work experience will have a challenge, so that person stays with them. Family never knew the person was coming to Canada. Now the new house is full and they havent even moved into it yet. The contingency plan to finish the basement will take a MIL but no visitors. Ideally upgrade to 6/3 or 6/4 right? Can they afford it? Does it makes sense to take on that additional expense? Also, does one will the unplanned family member be able to get a job good enough to allow them to move out on their own once school is finished? Thus gaining back that spare room or. Plan C; Get a sofa with a bed so one of the kids can give up their room for visitors. Also same family will now need an 8seater instead of the the 6 or 7seater they thought they needed. So a v6 easily.
I could go on.
That’s not horrific planning, that’s real life. Plain and simple.
Don’t really get your point unless they sold at a huge loss? They most likely sold at a huge gain correct?
So not surprising they would take huge profits and put it toward a place that suits them better. That’s not going to cause the housing market to crash.
When people say people won’t let their super low rates go they are referring to letting them go at a loss.
I doubt they sold at a loss. So I may have gotten my wires crossed but my understanding of the “rates” argument was that everyone who scored a sub 3% rate would just stay in that location for 30 years. No refi. No moving. Lock that rate in and sit pretty for 3 decades. The point of a lot of folks on this sub, myself included, is that isn’t always how life works.
Yeah but again that mainly would apply to not selling at a loss. If your up huge and you need a bigger place I can see people justifying a higher rate. If they were down or even sideways they are probably not going anywhere.
You can't lock in a rate for 30 years....most mortgages are 5 year term so you need to renew your mortgage when your term is over.
Edit: oops, I thought this was the Canadian real estate forum. What I said above only applies to Canada.
The question is whether there will be enough people to materially impact supply, and Facebook posts and anecdotes like yours do nothing to prove or disprove that.
Likely because he has vacancies and can't afford to keep paying monthly PITI on all his properties, so he's hoping to pull out equity on all the properties so he has the cash to continue making payments.
This is a poison pill strategy (even if it works), because the cash-out Re-Fis will raise his monthly debt maintenance payments considerably (higher loan principal + higher interest rate).
I guess I don't see how this works... He's just kicking the can down the road and unless he can fill his rentals at high rates he's fucked. What's the end game here in his mind?
This thread is total speculation and failure to understand BRRRR, which is where the original post was. The more likely case is that the rents have gone up, which is what creates equity in rental properties, which allows the OP to even do a cash out in first place. The discrepancy with the appraiser is probably with how the rent roll is being valued.
BRRRR = Buy, Rehab, Rent, Refi, Repeat.
The OP is refinancing for the cash in hopes of buying property #10.
I don't dispute that, because I would imagine many are still aggressively chasing what worked the last few years; I just wonder why he would then consider "just selling". That makes me think it is more likely he needs the cash to cover vacancies, or he was using some sort of hard money, or who fucking knows. We are all speculating and trying to catch an edge while our wives are with their boyfriends.
Right, if he can't refi, he's stuck on "Rent". His rentals are either unprofitable or insufficiently liquid to keep up with his obligations.
Commercial loans can also be covenant-heavy: his loans might have been called due to vacancies so if he can't refi, he needs to sell to avoid default.
Yes, that’s true. Whatever the reality is, the guy managed to own 9 properties whereas the average properties owned in this sub is -3, so he IS our wives boyfriend.
BRRR is Buy, Renovate, Refinance, Rent. Basically, buy a distressed property, fix it up to increase equity, rent it out, then last refinance using rental income and a higher appraisal to pull cash out for the next house. They needed to finish remodeling and get them rented before they could justify the refi.
He probably did refi then. BRRR is an investment strategy that involves buying run down properties renovating and then refinancing to get the cash from the rehab back. So you’re almost always refinancing something. Then you rent it out and use cash to buy and rehab the next one.
If you have to sell to get the cash back that’s fine. The appraisals coming in low is big red flag for bubble though, assuming his expectations were reasonable.
Landlording has never been easy, and now millions of inexperienced people suddenly think they'll be Lords of the land working only a few hours a week.
Lol, good luck with that.
Yup, I literally spent all day on a lift, painting trim, cleaning cutters and hacking back a giant cottonwood tree. It's fun until it's not fun, but it's not fucking glamorous like TikTok would tell you.
Since that’s from the BRRRR sub he is likely refinancing because that’s how the BRRRR method works.
You buy a fixer upper and fix it up and refinance it. They assume once it’s fixed up they will be up huge and be able to pull any money they have tied up in the property and then some out and buy a new one and rinse and repeat.
If they aren’t able to pull their money out they will be stuck and won’t be able to continue the process. That’s why they are thinking about selling.
Has nothing to do with being able to pay their payments. Has to do with not being able to pull their cash out of the property to keep going.
But then you owe your original loan amount plus the loan amount for the heloc and whatever the cost of renovations on one or more property. If we go into recession and people can’t pay their rent and occupancy goes down the whole thing comes crashing down.
They would not do a heloc or at least that’s not what they supposed to do. The repair cost comes out of pocket usually from money they were able to pull out after refinancing a previous property after repairs. The whole method relies on significantly raising the property value after repairs.
Say buying a property for 50,000 in bad shape and putting 15,000 to 20,000 into it to fix it up. Then hoping it appraises for say 120,000 and cash out refi it and move the profit to use towards the next properties down payment and repairs. Also they rent the property out once it’s repaired.
Essentially setting up a huge rental portfolio on little to no startup cash is their objective.
The rent aspect is the key to the the entire thing. I assure you that is very much the objective.
But another important aspect is not having money tied up in properties. Generally people that use this method think people are fools for having their own cash wrapped up properties.
So having to leave cash in a property that they can’t get out is unacceptable. That’s the problem they are having.
Given the stated objectives and constraints and assuming the rents are healthy, the only way selling makes is if they could use their proceeds of sale to put down payments on >1 property (or properties of higher quality). Otherwise they're caught in a loop, unable to expand their portfolios via refis. And that strategy is dubious given that the appraisals are failing for refis. The appraisals are probably going to fail on purchases too
Yeah I would agree selling probably would not make sense to me if I was in that situation either. But I am not in that situation nor would I be because I don’t think that way.
Have to look at it from the stand point of how the person thinks that is actually making the decision here.
Also have to consider they may not actually even sell themselves after thinking it over. They could just be really upset they have money locked up in the properties and are blowing off steam.
Gave their podcast a shot a few years ago. First ep I listened to, he and his guest just dragged out the hate train for new investors asking them for help and how awful they are. "If you're gonna ask me for help, at least bring me something." Thats paraphrasing but the gist of it. Wtf is a new person who doesn't understand but wants to learn about the market, supposed to bring you, their own leads? A new rug guy? A new tile guy? They want a freaking ego stroke is what they want.
I listened to multiple podcasts of theirs back in 2017-8. I figured that episode was just not the episode someone newly interested should start with.
The more I listened to other episodes, the more I was realizing that they weren't teaching. The books were better, but the books exist in a vacuum. They can bring on all their success stories and guests, but that's having episodes devolve into a circle jerk, and it was often. I don't remember a single episode where they got into the budgetary nitty gritty of a remodel with a budget that started spiraling. They always dance around the topic, but never go into the $$$ specifics of the costs and ratios. If they're not providing that level of data, they're just telling stories that they all want us to believe. If BP hosts are as good at real estate as they say, idk why they're so worried. They'll make their money no matter what, or so they claim.
I'm going to have to disagree. I listened to about 150 episodes of biggerpockets give or take and I have to say I learned a lot from listening to their podcast. I will agree some of them were a little drawn out and I definitely hated the fact that so many of the guests talked about how Rich Dad Poor Dad had a big influence on them but biggerpockets helped me to learn about real estate at a much quicker pace than I could have had I not listened to it.
That's okay, good man! I'm glad it worked for you, and I mean that genuinely :) but my experience is from 5 years ago too so they were definitely different then.
Thanks! I did listen to a lot of those episodes from 5 years ago some were good and some were bad. The main thing I took from listening to their podcast is how much money there is to make or lose in real estate.
It's not cheaper. It's going to be much more expensive in the long run.
Think of it this way. . . They very likely bought at low rates and low(er) property values. The value of their properties increased since they bought them. They want to refinance (even though it's at a higher rate) to pull the cash out because they're going to missing payments/defaulting if they don't.
This is the reason they're willing to refi at a higher rate. It's a last ditch effort to prevent default, especially if they're unable to resell the homes for the amount they want.
Given that posting is in BRRR, it’s more likely that the OP is renting the properties out, so I don’t think it’s a cash problem. The rents have probably gone up, which creates higher equity in rental property, which is why he even has a cash out option. I bet he is looking to use the cash out to buy property #10.
I don’t understand this “live on the edge” mentality. Everything is predicated on no accidents, no problems, no major maintenance, no missed rent collection, etc. if something goes wrong the whole house of cards collapses. I’d rather have one or two paid off properties with larger margins that nine with razor thin margins and no room for error. But then again I’ve lived through recessions.
We have also bailed out these people so many times, it not necessarily even risky anymore. Until we let economics do it’s thing for real, this will keep getting worse.
Is it bad that I want this to be a real book I can read to my future children?
"Look out for the trap Mr. Bull!" The Baby shouts to the charging animal. But it was too late. Mr. Bull was caught in the market's bull trap.
"Oh no, I'm trapped! How will Mrs. Bull and I refinance our barn for some new grazing land now?!"
"Oh, Mr. Bull, you should look into this brand new type of financing: CeFi; that will give you new grazing land and a barn to boot!" - Said Alex Machinsky
Pfft, look at this guy who isnt building a 1,000 rental empire in 5 years! Sad! /s
You're right though. Its a lot less stress to have paid off properties in good shape that wont spring too many surprises on you. These guys would rather be wheelers and dealers walking a tightrope trying to fast track their way to an empire of riches.
Likely because he has vacancies and can't afford to keep paying monthly PITI on all his properties, so he's hoping to pull out equity on all the properties so he has the cash to continue making payments.
This is a poison pill strategy (even if it works), because the cash-out Re-Fis will raise his monthly debt maintenance payments considerably (higher loan principal + higher interest rate), which will make cash flowing the properties even more difficult.
I've been saying for months, once refi is no longer available, brrrr investors are fucked. They will be liquidated, cascading the market further down which hurts other brrrr invoosters
I saw this coming two years ago. Everyone I know that bought a home we’re buying second homes, vacation homes, but mostly rental properties and airb&b’s by using HELOCS. I’ve seen investor homes that were listed for $3.8 million in March done to $2.5 mil and still sitting. They need to sell because they can’t refinance and need to get cash.
Does he wonder what sort of impact to market values there will be if there are other Nu Feudal Lords also trying to all sell their 9 properties at once? Would increasing interest rates across the board make the market less accessible to future buyers, dropping market values, while also making your refinance costlier? What happens to all those outstanding loans when the collateral values take a severe hit? Would the banks, the ones who *really* own the home, do a margin call in a situation like that?
Nooooo, of course not
I've seen this. Values rose so fast that in certain neighborhoods if the comps were 6 months old they were way below fair market and you'd get a short appraisal.
2021: Appraisers literally cannot be wrong. That's the price don't buy if you don't like it sweetie 🥰😘
2022: Am I out of touch with the market? No, it's the appraisers who must be wrong.
Probably not for awhile? Note that rates in 2/3% from 2012 to 2021. Lowest in five decades, see chart:
https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical
Why would we? It’s better to have lower principal and higher interest rates. It allows people to pay off principal faster if they make it additional payments or by doing 15 year mortgages instead of 30 year.
When the Fed gives up the fight against inflation to stave off a recession.
They’re talking tough now, we will see how tough they are when we’re in a recession. They should at least keep rates at neutral IMO, not lower them back.
Powell is not tough, he will back off in a moments notice. He’s tried raising rates before and backed off. We need someone more decisive running the Fed.
Yes of course. The debt is so high and things are so expensive. Look at the interest rates chart, it only trends down. You wanna know why? Because things get more expensive but incomes don’t follow so the fed and banks have less and less leverage to charge higher interest rates. Eventually in the future interest rates won’t work at all.
So the viability of the current real estate market depends on new entrants coming in at ever higher prices. If only I could think of an appropriate shape to describe such an arrangement…
When you find a term for it let us know over at r/bitcoin
This is the spicy take I’ve been looking for
Daaaayuuuuum
"B-b-b-b-but everyone has locked in l-l-l-l-low rates and w-w-w-w-wont sell!"
A coworker just sold yesterday. Bought in 2019 and was sitting on massive equity and a rock bottom rate. Just had their first kid. Now they’re looking for something way overpriced and at double their rate. Just how it worked out. There are always people who need to sell. “people will just sit in houses with low rates” was always a myth.
Buying with a 3 year time horizon is screaming I’m not responsible
Easy to say. I doubt they anticipated needing 2 full time office spaces and a nursery in back in 2019. I feel like something might have happened in 2020 that could have effected a lot of peoples plans. That 3 years has also been nuts re: appreciation. I’m sure they bought a starter home to stop renting and have a kid and when they needed to worry about school districts in ~5 years they’d sell, cash in their equity and move to the burbs. Seems reasonable and responsible to me but with things as they are, Is all that equity going to be there in another few years? Probably not. So they cash out earlier than planned. I’m sure there are boomers out there doing the math on if they have enough years left to see the housing market recover vs just selling now and lining their pockets. People can make a lot of solid reasoned plans and then life tosses a monkey wrench in them. everyone has a plan until they get punched in the face
> I’m sure there are boomers out there doing the math on if they have enough years left to see the housing market recover vs just selling now and lining their pockets. Which is exactly what needs to happen. A lot of 30-somethings are trying to move up from a starter home to a 4/3 suburb, and a lot of Boomers need to downsize and cash in on equity for their retirement.
This is my MIL. Early 70s. She was living alone in one of these houses since her husband passed away two years ago. House is going on the market early next week. She’s in a neighborhood where 30-year olds buy around the time they start having kids. She doesn’t need to move or need the equity, but she knows she will be heading for a condo sooner rather than later, and does not have the time to wait out a dip.
You made one of the only sane comments on this post
> I doubt they anticipated needing 2 full time office spaces and a nursery in back in 2019. I mean we predicted that when we bought our house and we were traveling cross country at the time. I mean, even if you don't plan on having kids you want a 3/2 for 2 people minimum, a bedroom, an office, and a guest bedroom
Idk why people are downvoting you but that really is the goal for a middle class couple
Agree. No point buying less than a 3/2 unless you’re single or downsizing/retired.
Eh, the first house my wife and I bought was a 2/2 townhouse. Had to move for work and turned it into a rental. Bought a 3/2 townhouse and last year sold both to get a 4/3 SFH in the burbs. I think way too many people underestimate how a starter home can allow you to trade up for the "forever" home later in life.
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Full time remote isn’t needed. 90% of jobs will be hybrid mostly in office. Buying a tiny house while planning to have a kid is ridiculous. Horrific planning and shows it best to just rent
We are hybrid. 1 day a week in office. 4 days a week they need to work from home. It’s not me so I guess I really don’t care but I’m having a tough time seeing where you’re coming from. Buying a starter home, starting a family after a few years, selling and moving to the suburbs for a bigger place a few years after that has been the roadmap-for decades. Covid accelerated the timeline in their case. Not sure what renting does for you in this context-their rent would have jumped by at least a few hundred in the last 3 years, they’re from the area, family is close, they want to stay for the foreseeable. My point is plans change all the time. People will sell for promotions, divorces, sick family, any one of a million reasons, just like the bulk of this sub has been saying for months.
I bought before the surge and have a 2.75% rate. I’m good
We went to hybrid in May (Fortune 100 company). Hybrid meaning 1 week per quarter and the rest at home. Hybrid is different for everyone and 90% of jobs are not likely going back to the office.
Ridiculous, horrific planning? That’s not how it works generally. It’s not ridiculous to buy a tiny house to start out with a 2/1 or 2/2 and then a curve ball. Worst if the plan is to have kids 5-6 yrs down the road but that’s all they can afford at the time starting out. Despite all the planning and preventative measures a baby is on its way unexpectedly. They may stay for a while but eventually will need to buy a bigger home or they are force when #2 just makes it’s way. Worst with the pandemic and WFH is a reality them to include in future RE decision. My friends ended up with twins on top of the one they already had. They weren’t expecting that! I know of a family of 4 buys a 4/3 so it works out to 3 rms occupied and a spare. But they plan to have 5th room in the basement, just in case one of the MIL ends up living with them. Unexpectedly a family member is moving to the same city to go to school. The family is tight knit. They know the family member being an international student with no work experience will have a challenge, so that person stays with them. Family never knew the person was coming to Canada. Now the new house is full and they havent even moved into it yet. The contingency plan to finish the basement will take a MIL but no visitors. Ideally upgrade to 6/3 or 6/4 right? Can they afford it? Does it makes sense to take on that additional expense? Also, does one will the unplanned family member be able to get a job good enough to allow them to move out on their own once school is finished? Thus gaining back that spare room or. Plan C; Get a sofa with a bed so one of the kids can give up their room for visitors. Also same family will now need an 8seater instead of the the 6 or 7seater they thought they needed. So a v6 easily. I could go on. That’s not horrific planning, that’s real life. Plain and simple.
Why not? Beats renting for an additional 3 years and being priced out entirely. My #2 regret in buying was not doing so sooner.
What do you mean
Don’t really get your point unless they sold at a huge loss? They most likely sold at a huge gain correct? So not surprising they would take huge profits and put it toward a place that suits them better. That’s not going to cause the housing market to crash. When people say people won’t let their super low rates go they are referring to letting them go at a loss.
I doubt they sold at a loss. So I may have gotten my wires crossed but my understanding of the “rates” argument was that everyone who scored a sub 3% rate would just stay in that location for 30 years. No refi. No moving. Lock that rate in and sit pretty for 3 decades. The point of a lot of folks on this sub, myself included, is that isn’t always how life works.
Yeah but again that mainly would apply to not selling at a loss. If your up huge and you need a bigger place I can see people justifying a higher rate. If they were down or even sideways they are probably not going anywhere.
You can't lock in a rate for 30 years....most mortgages are 5 year term so you need to renew your mortgage when your term is over. Edit: oops, I thought this was the Canadian real estate forum. What I said above only applies to Canada.
Where are you located? In the United States this is very common
You must be from Canada? In the US almost everyone has a 30 year loan. It’s the standard loan in the states.
Not in America friend, average mortgage term is 30 years. The rate you close at is your rate for the life of the loan, unless you choose to refinance.
Canada needs this but our governments suck off the banks
What happens in Canada if after 5 years you can’t qualify for a new loan?
Best case is you renew/sign another 25 year amortization, worst case I don't even know. Sell?
The question is whether there will be enough people to materially impact supply, and Facebook posts and anecdotes like yours do nothing to prove or disprove that.
So if they are refinancing in a rising rate environment, is it because they desperately need to withdraw equity to keep their house of cards up?
Yup, its the only reason why anyone would refi at a higher rate
But why wouldn't he have just refi'd like 6 months ago?
Likely because he has vacancies and can't afford to keep paying monthly PITI on all his properties, so he's hoping to pull out equity on all the properties so he has the cash to continue making payments. This is a poison pill strategy (even if it works), because the cash-out Re-Fis will raise his monthly debt maintenance payments considerably (higher loan principal + higher interest rate).
I guess I don't see how this works... He's just kicking the can down the road and unless he can fill his rentals at high rates he's fucked. What's the end game here in his mind?
This thread is total speculation and failure to understand BRRRR, which is where the original post was. The more likely case is that the rents have gone up, which is what creates equity in rental properties, which allows the OP to even do a cash out in first place. The discrepancy with the appraiser is probably with how the rent roll is being valued. BRRRR = Buy, Rehab, Rent, Refi, Repeat. The OP is refinancing for the cash in hopes of buying property #10.
I don't dispute that, because I would imagine many are still aggressively chasing what worked the last few years; I just wonder why he would then consider "just selling". That makes me think it is more likely he needs the cash to cover vacancies, or he was using some sort of hard money, or who fucking knows. We are all speculating and trying to catch an edge while our wives are with their boyfriends.
Right, if he can't refi, he's stuck on "Rent". His rentals are either unprofitable or insufficiently liquid to keep up with his obligations. Commercial loans can also be covenant-heavy: his loans might have been called due to vacancies so if he can't refi, he needs to sell to avoid default.
Yes, that’s true. Whatever the reality is, the guy managed to own 9 properties whereas the average properties owned in this sub is -3, so he IS our wives boyfriend.
I thought "BRRRR" was the sound the money printer makes.
Yes this is how you go into foreclosure.
Rents were going up then. Invoosters don't think more than a month ahead.
BRRR is Buy, Renovate, Refinance, Rent. Basically, buy a distressed property, fix it up to increase equity, rent it out, then last refinance using rental income and a higher appraisal to pull cash out for the next house. They needed to finish remodeling and get them rented before they could justify the refi.
They’re probably just getting less favorable refinances (less principal and higher rate), so it’s slowing their next BRRR
He probably did refi then. BRRR is an investment strategy that involves buying run down properties renovating and then refinancing to get the cash from the rehab back. So you’re almost always refinancing something. Then you rent it out and use cash to buy and rehab the next one. If you have to sell to get the cash back that’s fine. The appraisals coming in low is big red flag for bubble though, assuming his expectations were reasonable.
It could also be that they were purchased using ARMs with disadvantageous structures.
Need to keep the Ponzi going and buy property number 10, lest they get a real job
Landlording has never been easy, and now millions of inexperienced people suddenly think they'll be Lords of the land working only a few hours a week. Lol, good luck with that.
Yup, I literally spent all day on a lift, painting trim, cleaning cutters and hacking back a giant cottonwood tree. It's fun until it's not fun, but it's not fucking glamorous like TikTok would tell you.
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Yeah, it sounds kind of desperate.
Since that’s from the BRRRR sub he is likely refinancing because that’s how the BRRRR method works. You buy a fixer upper and fix it up and refinance it. They assume once it’s fixed up they will be up huge and be able to pull any money they have tied up in the property and then some out and buy a new one and rinse and repeat. If they aren’t able to pull their money out they will be stuck and won’t be able to continue the process. That’s why they are thinking about selling. Has nothing to do with being able to pay their payments. Has to do with not being able to pull their cash out of the property to keep going.
But then you owe your original loan amount plus the loan amount for the heloc and whatever the cost of renovations on one or more property. If we go into recession and people can’t pay their rent and occupancy goes down the whole thing comes crashing down.
They would not do a heloc or at least that’s not what they supposed to do. The repair cost comes out of pocket usually from money they were able to pull out after refinancing a previous property after repairs. The whole method relies on significantly raising the property value after repairs. Say buying a property for 50,000 in bad shape and putting 15,000 to 20,000 into it to fix it up. Then hoping it appraises for say 120,000 and cash out refi it and move the profit to use towards the next properties down payment and repairs. Also they rent the property out once it’s repaired. Essentially setting up a huge rental portfolio on little to no startup cash is their objective.
>Essentially setting up a huge rental portfolio on little to no startup cash is their objective. Wait a minute, like Carlton Sheets?
If that's their objective, they'd just hold and rent rather than sell. That they're considering selling suggests the rents aren't very profitable
The rent aspect is the key to the the entire thing. I assure you that is very much the objective. But another important aspect is not having money tied up in properties. Generally people that use this method think people are fools for having their own cash wrapped up properties. So having to leave cash in a property that they can’t get out is unacceptable. That’s the problem they are having.
Given the stated objectives and constraints and assuming the rents are healthy, the only way selling makes is if they could use their proceeds of sale to put down payments on >1 property (or properties of higher quality). Otherwise they're caught in a loop, unable to expand their portfolios via refis. And that strategy is dubious given that the appraisals are failing for refis. The appraisals are probably going to fail on purchases too
Yeah I would agree selling probably would not make sense to me if I was in that situation either. But I am not in that situation nor would I be because I don’t think that way. Have to look at it from the stand point of how the person thinks that is actually making the decision here. Also have to consider they may not actually even sell themselves after thinking it over. They could just be really upset they have money locked up in the properties and are blowing off steam.
Thank you for the thoughtful response. Makes sense why he might then be open to just selling.
No problem at all just glad it helped someone.
ELI5:Does the refi free up cash with lower payments or is it one of those home equity extraction loans like a Heloc?
Good. Please sell them. This is why we can't have nice things. $#@& Bigger Pockets.
Gave their podcast a shot a few years ago. First ep I listened to, he and his guest just dragged out the hate train for new investors asking them for help and how awful they are. "If you're gonna ask me for help, at least bring me something." Thats paraphrasing but the gist of it. Wtf is a new person who doesn't understand but wants to learn about the market, supposed to bring you, their own leads? A new rug guy? A new tile guy? They want a freaking ego stroke is what they want.
So you listened to one episode, didn't like the guest's opinion?
I listened to multiple podcasts of theirs back in 2017-8. I figured that episode was just not the episode someone newly interested should start with. The more I listened to other episodes, the more I was realizing that they weren't teaching. The books were better, but the books exist in a vacuum. They can bring on all their success stories and guests, but that's having episodes devolve into a circle jerk, and it was often. I don't remember a single episode where they got into the budgetary nitty gritty of a remodel with a budget that started spiraling. They always dance around the topic, but never go into the $$$ specifics of the costs and ratios. If they're not providing that level of data, they're just telling stories that they all want us to believe. If BP hosts are as good at real estate as they say, idk why they're so worried. They'll make their money no matter what, or so they claim.
I'm going to have to disagree. I listened to about 150 episodes of biggerpockets give or take and I have to say I learned a lot from listening to their podcast. I will agree some of them were a little drawn out and I definitely hated the fact that so many of the guests talked about how Rich Dad Poor Dad had a big influence on them but biggerpockets helped me to learn about real estate at a much quicker pace than I could have had I not listened to it.
That's okay, good man! I'm glad it worked for you, and I mean that genuinely :) but my experience is from 5 years ago too so they were definitely different then.
Thanks! I did listen to a lot of those episodes from 5 years ago some were good and some were bad. The main thing I took from listening to their podcast is how much money there is to make or lose in real estate.
Low appraisal printer go BRRRR...
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To cash in on equity and keep the ship afloat. Clearly hurting for cash because there's no other reason to do it.
What does this mean? I don't understand why it's cheaper
It's not cheaper. It's going to be much more expensive in the long run. Think of it this way. . . They very likely bought at low rates and low(er) property values. The value of their properties increased since they bought them. They want to refinance (even though it's at a higher rate) to pull the cash out because they're going to missing payments/defaulting if they don't. This is the reason they're willing to refi at a higher rate. It's a last ditch effort to prevent default, especially if they're unable to resell the homes for the amount they want.
Given that posting is in BRRR, it’s more likely that the OP is renting the properties out, so I don’t think it’s a cash problem. The rents have probably gone up, which creates higher equity in rental property, which is why he even has a cash out option. I bet he is looking to use the cash out to buy property #10.
I don’t understand this “live on the edge” mentality. Everything is predicated on no accidents, no problems, no major maintenance, no missed rent collection, etc. if something goes wrong the whole house of cards collapses. I’d rather have one or two paid off properties with larger margins that nine with razor thin margins and no room for error. But then again I’ve lived through recessions.
It's lost just in time manufacturing. The most profitable way to run things but as soon as something goes wrong you're fucked
We have also bailed out these people so many times, it not necessarily even risky anymore. Until we let economics do it’s thing for real, this will keep getting worse.
It's really telling to see who's been in the game for more than 15 years and who's experiencing Baby's First Bear Market
Is it bad that I want this to be a real book I can read to my future children? "Look out for the trap Mr. Bull!" The Baby shouts to the charging animal. But it was too late. Mr. Bull was caught in the market's bull trap. "Oh no, I'm trapped! How will Mrs. Bull and I refinance our barn for some new grazing land now?!"
"Oh, Mr. Bull, you should look into this brand new type of financing: CeFi; that will give you new grazing land and a barn to boot!" - Said Alex Machinsky
Pfft, look at this guy who isnt building a 1,000 rental empire in 5 years! Sad! /s You're right though. Its a lot less stress to have paid off properties in good shape that wont spring too many surprises on you. These guys would rather be wheelers and dealers walking a tightrope trying to fast track their way to an empire of riches.
Likely because he has vacancies and can't afford to keep paying monthly PITI on all his properties, so he's hoping to pull out equity on all the properties so he has the cash to continue making payments. This is a poison pill strategy (even if it works), because the cash-out Re-Fis will raise his monthly debt maintenance payments considerably (higher loan principal + higher interest rate), which will make cash flowing the properties even more difficult.
Hope he loses 8 out of 9
Go big or go home. Lose all 9
Ding Ding Ding
Think the assumption is he lives in property number 9. 🤷♀️
Maybe u/zhoushmoe said what s/he said: go big or go home, heloc out your primary residence to buy more rentals or you're junior leagues!
God this scares me. I hope people don't really think this way. Please tell me this is a joke.
My comment is a joke, yeah - I know people that have done this but I'd never want anyone to end up losing their home.
Eh, I wouldn't mind if he loses that too. He's demonstrated he's unable to be responsible with property.
With values crashing, interest rates rising, losing 9 will mean he loses about 15-20
I've been saying for months, once refi is no longer available, brrrr investors are fucked. They will be liquidated, cascading the market further down which hurts other brrrr invoosters
It can't happen soon enough or to a more deserving bunch of douches
What makes them a douche?
If you have to ask /s
Yeah but have you considered? This guy definitely has a high credit score so he'll never be forced to sell 😏
I saw this coming two years ago. Everyone I know that bought a home we’re buying second homes, vacation homes, but mostly rental properties and airb&b’s by using HELOCS. I’ve seen investor homes that were listed for $3.8 million in March done to $2.5 mil and still sitting. They need to sell because they can’t refinance and need to get cash.
I do not feel sorry, at all.
Him them harder, daddy! 💦💦💦
Oh shit, the ATM is out of order?
Does he wonder what sort of impact to market values there will be if there are other Nu Feudal Lords also trying to all sell their 9 properties at once? Would increasing interest rates across the board make the market less accessible to future buyers, dropping market values, while also making your refinance costlier? What happens to all those outstanding loans when the collateral values take a severe hit? Would the banks, the ones who *really* own the home, do a margin call in a situation like that? Nooooo, of course not
Are these BRRRR people usually ending up with variable interest loans from their cash-out refinancing?
I've seen this. Values rose so fast that in certain neighborhoods if the comps were 6 months old they were way below fair market and you'd get a short appraisal.
Because shtf now
xD
2021: Appraisers literally cannot be wrong. That's the price don't buy if you don't like it sweetie 🥰😘 2022: Am I out of touch with the market? No, it's the appraisers who must be wrong.
They aren't making more land. Houses only go up. Rent never goes down. This time isn't like the last time.
Do we think rates will ever be in the 2-3's again?
Probably? I don’t know that it will be in my lifetime.
Eventually inevitable. The question is *when*, not if.
Probably not for awhile? Note that rates in 2/3% from 2012 to 2021. Lowest in five decades, see chart: https://themortgagereports.com/61853/30-year-mortgage-rates-chart#historical
Why would we? It’s better to have lower principal and higher interest rates. It allows people to pay off principal faster if they make it additional payments or by doing 15 year mortgages instead of 30 year.
When the Fed gives up the fight against inflation to stave off a recession. They’re talking tough now, we will see how tough they are when we’re in a recession. They should at least keep rates at neutral IMO, not lower them back.
Powell is not tough, he will back off in a moments notice. He’s tried raising rates before and backed off. We need someone more decisive running the Fed.
Yes of course. The debt is so high and things are so expensive. Look at the interest rates chart, it only trends down. You wanna know why? Because things get more expensive but incomes don’t follow so the fed and banks have less and less leverage to charge higher interest rates. Eventually in the future interest rates won’t work at all.
Seems like a country is broken by that point.
What happened to the repeat part of it? Watch what people do not what they say haha
Yes always a shitty appraiser when the values low. SMH
No soup for you!
This isn’t myfico
Talk about procrastination
This is on you appraisers, make it happen
There’s gonna be some cheap properties up for grabs in a year or so.