real estate market trends for BRRR in 2024

The BRRRR strategy remained a viable investment approach in 2023, but it required greater diligence, adaptability, and strategic planning due to the changing real estate market conditions. Into 2024 investors needed to stay informed and ready to adapt due to market headwinds and regulatory changes. 

Key for BRRR is investors should be prepared for longer holding periods between refinancing, and change their mindset into focusing on areas favorable for Brrrr investment strategy.

Viability of BRRRR in 2024

Pros

  • Potential for cashflow from rental income
  • Ability to build equity and portfolio with limited capital
  • Economies of scale once multiple properties are acquired
  • Leverages property value appreciation
     

Cons

  • Lower property appreciation expected in 2024, making refinancing difficult
  • Rising interest rates increase borrowing costs
  • Refinancing can be challenging due to tighter lending standards
  • Requires significant time and effort at each step
  • Carries risks like cost overruns, vacancies, and declining property values
     
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Overview of the BRRRR Strategy

  1. Buy: The first step is to purchase a property, ideally below market value, that requires some form of rehabilitation.
  2. Rehab: After acquisition, the property is improved to increase its value and appeal to tenants.
  3. Rent: Once the rehab work is completed, the property is rented out to generate income.
  4. Refinance: After the property is rented and demonstrates stable income, the investor refinances the property, ideally at a higher value due to the improvements made.
  5. Repeat: The equity gained from the refinance is then used to finance the next property purchase, repeating the cycle​
 

The BRRRR strategy, standing for Buy, Rehab, Rent, Refinance, Repeat, is a real estate investment method that has gained popularity due to its potential for high returns with relatively low initial capital.

In 2023, this strategy remained favourable property investment method despite the turmoil in the real estate markets around the globe, with certain adaptations and considerations due to the evolving market dynamics many investors manged to adapt and move prepared for 2024.

Pros and Cons of the BRRRR Strategy:

Pros:

  1. Minimal Initial Capital Needed: This approach is favorable for investors with limited funds, focusing on adding value to undervalued properties.
  2. High Return on Investment (ROI): The cash flow from rental income can exceed the debt service, leading to a high ROI.
  3. Increased Equity: Rehabilitation increases the property’s value and rental income.
  4. Reliable Tenants: Renovated properties tend to attract better tenants.
  5. Scalability: This method can be repeated, allowing for growth in property holdings​​.

Cons:

  1. Risk of Overestimating Rental Revenue: Overestimation can delay the cash-out process.
  2. High Costs of Hard Money Loans: These loans can be expensive, affecting ROI.
  3. Appraisal Risk: If the property does not appraise well post-rehab, it limits the ability to extract equity.
  4. High Leverage Risks: Market downturns could lead to financial difficulties.
  5. Vacancy Risks: Market drops could lead to vacancies and potential foreclosures​

How to find BRRRR deals in 2024

A house with a for sale sign in front of it, located in one of the Best Real Estate Markets.
A house with a for sale sign in front of it, located in one of the Best Real Estate Markets.

What to look for, where, how to identify good deals?

Step 1: Understand the BRRRR Method

The BRRRR method stands for Buy, Rehab, Rent, Refinance, Repeat. It involves:

  • Buying an undervalued property
  • Renovating and rehabbing the property
  • Renting out the property to generate rental income
  • Refinancing the property to pull out capital for the next deal
  • Repeating the process

This allows investors to build a rental portfolio with little capital.

Step 2: Research and Analyze Potential BRRR Markets

Step 3: Find Discounted or Distressed Properties

  • Look for pre-foreclosures, foreclosures, short sales, bank-owned properties
  • Search sites like Zillow, Realtor.com, auction sites for distressed listings
  • Drive for dollars – look for signs of neglect like overgrown lawns, peeling paint
  • Look for probate/inheritance sales through county records or attorneys
  • Network with realtors, wholesalers, contractors etc. to find off-market deals
  • Search public records for lis pendens filings and foreclosure notices

Step 4: How to Analyze BRRRR Deal

  • Estimate rehab costs with a contractor walkthrough
  • Calculate ARV (after repair value) based on comps
  • Determine max purchase price using the 70% Rule (Purchase + Rehab ≤ 70% of ARV)
  • Project rental income and expenses to estimate cashflow
  • Account for holding costs during rehab period

Step 5: Secure BRRRR Financing

  • Use private money, hard money loans, cash partners to fund the purchase and renovation
  • Shop around with multiple lenders to find the best terms
  • Once rehabbed, get an appraisal and refinance into a conventional loan to pull out capital

Step 6: Repeat the Process

  • Use the capital from refinancing to purchase the next property
  • Rinse and repeat! Each deal will fund the next acquisition via the refinance cash-out

The key is finding discounted properties in solid rental markets. Proper macro and micro analysis on the region, local cities and towns with conservative underwriting are critical to account for risks and ensure successful execution.

Macro Analysis of 2024 Real Estate Trends

A man standing in front of a house with a lost sale sign in one of the Best Real Estate Markets.
A man standing in front of a house with a lost sale sign in one of the Best Real Estate Markets.

Key Economic Factors Influencing Real Estate

  • Rising interest rates are expected to continue impacting housing affordability and dampening demand, with 30-year fixed mortgage rates forecasted between 6-8% in 2023
  • Economic growth is slowing, with potential for a mild recession in 2024. This could reduce real estate transactions across sectors
  • High inflation above 7% in 2022 is reduced consumer purchasing power, in 2023 remained on average 3.70% towards the Q4 but is expected to moderate in 2024, below 3% 
  • The labor market remains tight, supporting the economy, but wage growth needs to slow to reduce inflationary pressure
  • Supply chain issues are improving but still constrain construction and raise development costs
  • Geopolitical uncertainty from war and global conflicts continues to create market volatility

Sector Impacts

  • Office – Demand is weak with hybrid work, high vacancies, negative absorption in many markets
  • Industrial – Still robust with tight supply and rising rents, but slowing leasing activity
  • Retail – Improving after pandemic but still faces economic uncertainty
  • Multifamily – Remains strong with tight vacancies, though rent growth moderating
  • Hotels – Recovering with return of travel but economic risks remain

Real Estate Investment Trends

  • Transaction volume declining due to economic uncertainty and rising capital costs
  • Lending standards tightening, debt more expensive, but markets still liquid
  • Cap rates rising across most markets and property types
  • Investors cautious on pricing with bid-ask spread widening
  • Potential for distressed asset sales and denominator effect if recession deepens

Emerging BRRRR Markets for 2024

  • Sunbelt markets like Florida, Texas, Carolinas with strong in-migration
  • Midwestern markets like Ohio, Indiana, Michigan with affordable housing
  • Secondary cities like Pittsburgh, Memphis, Louisville with price upside
  • Avoid overheated markets like Phoenix, Las Vegas, Austin
  • Target cities with job growth, in-migration, and cashflow potential
  • Changing rates require conservative underwriting and cost buffers
  • Lean on private lenders and leverage market relationships
    Prepare for longer hold periods before refinancing

Real estate faces headwinds in 2023 from slowing growth and rising rates. However, opportunities exist, especially in secondary markets, for investors who plan conservatively and build in downside protection.

A good micro analysis on a local market relies on real economic data in a macro overview. Once you have the macro perspective of the region you want to invest in, this is how you need to analyze a town or place.

Micro Analysis of Top Brrrr Markets

By combining economic research, data analysis, and on-the-ground observations, investors can deeply understand the micro market factors that determine deal potential and guide smart acquisition decisions. The macro overview provides context while granular, block-by-block research uncovers emerging submarket opportunities.

  • Study population growth, job growth, and migration patterns to gauge market demand
  • Research permit activity to track new construction and inventory trends
  • Analyze rental rates, vacancies, and absorption to assess multifamily dynamics
  • Review retail and office lease rates and vacancies to understand commercial real estate conditions
  • Look at housing inventory, sales data, and days on market to measure residential market strength
  • Evaluate median home prices, affordable price points, and price per square foot for valuation guidance
  • Check lending activity, foreclosures, and delinquencies to identify risks or opportunities
  • Review infrastructure projects, zoning changes, and development plans that will shape future growth
  • Drive the market to observe real-time conditions not captured in the data

Key Attributes of Ideal Brrrr Markets

Tracking key attributes of ideal BRRRR markets requires a multifaceted approach. Here are some steps to help you monitor these factors effectively:

1. Economic Growth

  • Data Sources: Utilize economic reports and forecasts from reliable sources like government economic agencies, real estate research firms, and financial institutions.
  • Key Indicators: Look for GDP growth rates, employment trends, and business activity in the area.

2. Rental Yield

  • Local Market Research: Investigate local real estate listings and rental websites to understand average rental prices.
  • Property Analysis Tools: Use online tools and calculators that provide insights into potential rental yields based on property value and expected rent.

3. Population Growth and Demographics

  • Census Data: Monitor census data for insights into population growth, migration patterns, and demographic changes.
  • Local News and Reports: Stay informed about local developments, infrastructure projects, and other factors that might attract people to the area.

4. Real Estate Market Trends

  • Real Estate Market Reports: Regularly review reports from real estate agencies and industry groups for trends in property prices, sales volume, and inventory levels.
  • Networking: Engage with local real estate agents, investors, and property managers for firsthand insights.

5. Supply and Demand Dynamics

  • Construction Data: Track new construction projects and building permits to understand supply changes.
  • Vacancy Rates: Monitor vacancy rates, as they can indicate the balance between supply and demand in the rental market.

6. Local Economic Factors

  • Employment Sectors: Analyze the strength and diversity of local employment sectors. A diverse job market can mean a more stable tenant base.
  • Major Employers and Industries: Keep track of major employers and any news of expansions or layoffs.

7. Government Policies and Regulations

  • Zoning and Development Laws: Stay informed about changes in local zoning and development regulations.
  • Tax Policies: Understand property tax rates and any potential changes that could affect investment returns.

8. Infrastructure and Services

  • Transportation and Amenities: Evaluate the quality and accessibility of local transportation, schools, healthcare facilities, and other amenities.
  • Future Development Plans: Be aware of planned infrastructure or service improvements that could enhance property values.

9. Geopolitical and External Factors

  • Global and National Trends: Keep an eye on broader geopolitical events and economic trends that could indirectly impact local markets.
  • Risk Assessment: Consider risks like natural disasters or economic downturns and their potential impact on the market.

Tools and Resources

  • Real Estate Analytics Platforms: Utilize platforms that aggregate and analyze real estate data.
  • Investment Forums and Seminars: Attend forums and seminars to gain insights from experts and peers.

By systematically tracking these attributes, investors can better identify ideal BRRRR markets and make informed decisions about where to invest. It’s also important to regularly review and adjust your strategies based on the latest data and market conditions.

Financial Aspects in Brrrr Investing in 2024

Successful BRRRR investing requires meticulous financial planning, from choosing the right refinancing options to conducting a comprehensive cost-benefit analysis.

It’s important to stay informed about lending practices and real estate market trends, build strong relationships with financial institutions, and continuously assess the financial viability of your investments. This approach will help in maximizing returns while mitigating risks in BRRRR investing.

Managing the financial aspects of BRRRR (Buy, Rehab, Rent, Refinance, Repeat) investing involves several key steps, including understanding refinancing options and conducting a thorough cost-benefit analysis. Here’s an overview of how to approach these aspects:

1. Refinancing Options

Refinancing is a crucial step in the BRRRR strategy, as it allows investors to extract equity from the rehabilitated property. Understanding the various refinancing options available is essential:

  • Traditional Mortgage Refinancing: After rehabilitating the property and stabilizing it with rental income, you can approach traditional mortgage lenders for refinancing. This option often provides lower interest rates compared to hard money loans.
  • Hard Money Loans: These are short-term loans with higher interest rates, useful for initial property acquisition and rehab. Investors usually refinance these loans with traditional mortgages once the property is stabilized.
  • Cash-Out Refinance: This involves refinancing for a higher amount than what you owe on the existing mortgage, allowing you to pull out cash from the property’s equity.
  • Portfolio Lenders: These lenders offer more flexibility and might be more understanding of investors’ strategies. They are particularly useful when conventional lenders are not an option.
  • Government-Backed Loans: Options like FHA and VA loans might be available, but they come with specific requirements and limitations.

2. Cost-Benefit Analysis

Conducting a cost-benefit analysis is vital to ensure the profitability of a BRRRR investment:

  • Calculate Total Investment Cost: Include the purchase price, closing costs, rehab costs, holding costs, and refinancing costs.
  • Estimate After-Repair Value (ARV): Determine the potential value of the property after rehabilitation. This is crucial for refinancing and understanding the equity you can extract.
  • Analyze Rental Income: Estimate the rental income the property can generate. This should cover all expenses, including mortgage payments, taxes, insurance, and maintenance, while providing positive cash flow.
  • Consider Market Trends: Keep an eye on the real estate market trends to ensure your investment aligns with current and future market conditions.
  • ROI Calculation: Calculate the return on investment, considering the cash flow and equity gained through the process.
  • Risk Assessment: Identify potential risks, including market downturns, unexpected repair costs, or vacancy rates, and plan accordingly.

3. Financial Institutions and Resources

  • Lender Relationships: Build relationships with various lenders, including banks, credit unions, and private lenders, to understand their lending criteria and interest rates.
  • Financial Advisors and Mortgage Brokers: Consult with financial advisors or mortgage brokers who specialize in investment properties to get the best financing deals and advice.

Risks and Challenges in Brrrr investing 2024

Key Risks and Challenges

  • Overpaying for properties – Paying too much for distressed properties eats into potential profits. Thoroughly research comps and use conservative estimates for ARV.
  • Cost overruns during rehab – Unexpected repairs and delays can blow rehab budgets. Get detailed contractor estimates, build in buffers, and inspect regularly.
  • Overestimating ARV – Being too optimistic about potential value post-rehab results in lower refinance proceeds. Use conservative ARV estimates based on recent comparable sales.
  • Not finding tenants quickly – Vacancies lead to carrying costs that strain cash flow. Price rents competitively and budget for vacancy costs in projections.
  • Refinancing challenges – Inability to refinance on favorable terms prevents pulling out capital for the next deal. Maintain reserves and be prepared to hold properties longer if needed.
  • Lack of exit strategy – Having a plan in place to sell if needed provides flexibility to take profits or cut losses. Track market conditions in case a sale becomes advantageous.

Strategies to Mitigate Risks

  • Thorough market research and conservative underwriting
  • Detailed contractor estimates and rehab buffers
  • Regular property inspections during renovations
  • Building relationships with private lenders
  • Planning for longer hold periods if refinancing is delayed
  • Maintaining capital reserves to cover unexpected costs
  • Networking to stay informed on market conditions
  • Willingness to pivot investment strategy as needed

The key is being aware of the potential challenges, making conservative projections, and having contingency plans in place. With proper preparation, many of the risks of BRRRR investing can be effectively managed.

Where to do BRRRR in Florida

Orlando, Tampa, Jacksonville and secondary Florida cities appear to offer the best combination of rental demand and cheaper housing costs suitable for BRRRR deals in the current market. Thorough planning and preparation is key to successfully implementing BRRRR in these areas.

  • Orlando – Strong tourism industry and job growth drives rental demand. Zip Codes FL 32808; 32818; 32789 tend to have foreclosures on sale. Target secondary cities with lower home prices like Kissimmee.
  • Tampa – Major metro with robust job growth and in-migration. Focus on building relationships with private lenders. Zip Codes FL 33603; 34690; 34691; 33510; 33610 have often foreclosure properties
  • Jacksonville – Benefits from affordable housing and steady population growth. Look for discounted properties to fix up around Zip Codes 32641; 32038; 32220; 32696
  • Miami – High rents but zoning restrictions on short-term rentals. Find properties in Zip Codes 33322; 32220;  33324; 33020;33023;
  • Fort Lauderdale – Popular with young professionals moving to the area. Look for distressed properties in Zip Codes 33301; 33304; 33308; 33312; 33319. Join local REIA groups and attend meetings to network and find potential deals.
  • Secondary cities like Spring Hill, Lehigh Acres, Palm Bay offer cheaper housing costs and solid rental demand fundamentals. Look at Zip Codes 34609; 34608; 34604; 33936; 33971; 33972; 33974; 33976 and 32905; 32907; 32909
  • Market-specific research is key to identify best opportunities and neighborhoods. Focus on job/population growth.
  • Conservative underwriting is essential as appreciation is slowing. Plan for longer hold periods before refinancing.
  • Building relationships with private lenders is crucial to secure financing for deals.

How to read economic forecasts and urban development plans?

BRRRR - Tourism and rental demand in Orlando

For example, Orlando’s strong tourism industry (Universal’s Islands of Adventure, The Wizarding World of Harry Potter and Magic Kingdom Park) drive job growth and create a high demand for rental properties. Foreclosed properties in zip codes like FL 32808 and 32818 offer potential for profitable Brrrr deals. 

Similarly, Tampa’s robust job market with unemployment rate at 2.6% and in-migration patterns make it attractive for Brrrr investors.

The availability of foreclosed properties in zip codes such as FL 33603 and 34691 further adds to its appeal. However, investors must be cautious as these markets can react unpredictably to economic shifts.

For example, an investor focusing on Jacksonville’s real estate market, particularly for BRRRR deals, can consider properties near key tourist attractions like the Cummer Museum of Art & Gardens (829 Riverside Avenue), Catty Shack Ranch Wildlife Sanctuary (1860 Starratt Road), or Kingsley Plantation (11676 Palmetto Avenue).

These locations, known for their cultural and historical significance, attract consistent foot traffic, making nearby properties potentially lucrative for rental demand.

However, challenges such as zoning regulations or higher property costs in these areas could impact the investment strategy.

To capitalize on these opportunities, investors should conduct in-depth market research focusing on rental demand trends and property prices in these areas. Engaging with local real estate agents knowledgeable about Jacksonville’s unique market dynamics and tourist-driven economy can provide valuable insights. 

Understanding local regulations, especially those related to zoning and rentals near tourist sites, is crucial for making informed investment decisions.

Proactive networking with private lenders and local real estate investment groups can also open doors to potential deals and financing options.

BRRRR - Tourism and rental demand in Fort Lauderdale

In Fort Lauderdale, popular with young professionals, an investor might focus on distressed properties in areas like 33301, 33304, 33308, 33312, or 33319. These zip codes are near major attractions like Fort Lauderdale Beaches, Las Olas Boulevard, the Fort Lauderdale Riverwalk, and Bonnet House Museum & Gardens. 

These attractions draw consistent crowds, potentially increasing rental demand. However, one must be cautious about the state of distressed properties and the cost of renovations, as well as navigating the competitive real estate landscape.

To maximize returns, an investor or flippers should align their property searches with areas that show high potential for growth, like those near key tourist attractions. Networking with local real estate investment groups and attending REIA meetings can uncover valuable insights and off-market deals.

Understanding the preferences and lifestyle of young professionals can guide renovation and marketing efforts, making these properties more attractive to potential tenants.

Depending on the investment strategy balancing the cost of acquisition and renovation with the expected rental income is crucial for a successful investment.

To find the best deals, investors should cast a wide net by checking public foreclosure notices, connecting with real estate agents selling bank-owned properties, and networking at local REIA meetings.

Building relationships with private lenders positioned to fund deals is key. Patience and persistence is required to uncover hidden opportunities.

Why look at average property prices to identify to Flip or BRRRR

Average property prices are a useful metric to narrow down advantageous markets and submarkets for flipping or BRRRR based on affordability, cashflow potential, equity growth, and overall market conditions. Both strategies rely on spreads between purchase price and end values, so assessing relative property costs is key.

Analyzing pricing and valuation trends helps match each neighborhood and submarket to the right investment strategy – lower priced distressed areas for flips, appreciating affordable areas for BRRRR rentals, higher priced rebounds for upscale flips, etc. 

The numbers guide investors to where each model will likely thrive.

 

  • Average prices indicate the typical home valuation in an area, which sets expectations for ARV (after repair value) potential. Higher average prices often allow more room for profit on flips.
  • Looking at recent price changes – appreciation or depreciation – helps gauge likely short and long term growth potential. Areas seeing strong growth may be better for BRRRR holding, while stagnant or declining areas can be riskier.
  • Comparing average prices to median rents provides a sense of price-to-rent ratios and the viability of cashflow from rentals in a BRRRR model. Lower priced areas tend to work better for this strategy.
  • Evaluating prices across neighborhoods highlights relative affordability and home conditions. More distressed, lower priced areas often provide bigger margins for flips. Higher priced areas can still work for BRRRR if rents justify.
  • Price patterns over time, especially following recessions, can indicate areas primed for gentrification and revitalization – ideal for flips or buy and hold.