How does BRRRR change in an inflationary market? Here’s what to expect.
For real estate investing, including BRRRR, inflation means money tightens up.
Money tightening means there’s less money for all real estate investors. The federal government makes money harder to get to slow down spending.
So how can you expect these effects of inflation to impact BRRRR?
How an Inflationary Market Changes BRRRR Lender Requirements
In the lending world, money tightening looks like lower loan-to-values. Maybe your hard money lender used to give you 75% of the anticipated value of the home, but now they’d give 70%.
LTVs are tightening not just on the front-end BRRRR loan, but the back-end refinance as well. Lenders are:
- Tightening their cash out requirements
- Offering lower LTVs
- Raising income requirements
- Expecting higher down payments
- Requiring just plain better deals.
A big qualification to focus on is lenders’ credit score requirements. The minimum acceptable credit score has gone up by 20-40 points.
If your credit is on the border, your main priority should be to raise your score. There’s less money out there. You want to be one of the people who can get leverage once property prices go down.
Lenders and Equity in Inflationary Times
Lenders want to make sure they’re lending to the best of the best. They’re concerned with equity.
Prices are going down. So if they lend at 70% LTV, then in 6 months home prices go down 10%, but then that 70% is no longer 70%.
So lenders will be more conservative with their LTVs. Money in general will be more conservative during this time. Eventually, we’ll land at a “new normal,” and everyone in the money world can work off the same level. For now, things are heading down in an unpredictable way, so money will be harder to get.
If you’re investing in BRRRR in an inflationary market, stay aware of the constant changes. Rates have more than doubled this year, LTVs are going down, and the cash flow on your rental properties will take a hit.
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