My BRRRR Horror Story!
“I mistakenly had a rental policy instead of a builder’s risk policy.” - Jake Baker
Introduction:
The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy is one of the most popular methods for building wealth through real estate. But what happens when things go horribly wrong? My experience with a property in Jacksonville, FL, turned into a nightmare that ended with me selling at a loss. Here’s my story, the lessons I learned, and how you can avoid similar mistakes.
1. The Numbers
While this deal started with promise, it ultimately resulted in a $16K loss. Here’s the breakdown:
Sold for: +$230K
Purchase Price: $115K
Closing Costs: $3K
Rehab Costs: $105K ($49K original rehab, $56K additional repairs due to a car crash)
Holding Costs: $31K (12 months)
Selling Costs: $16KInsurance Claim Recovery: +$25K
Net Income: -$16K
2. What Happened
Everything was on track. The rehab was finished, and we were gearing up to refinance when disaster struck—a car crashed into the property.
The structural damage was severe, and to make matters worse, the driver fled the scene, later claiming the car was stolen. The insurance company settled for $25K, but it wasn’t nearly enough to cover the $77K in unexpected costs, including $41K in repairs and increased holding costs.
Adding to the challenge, rising interest rates hurt the After Repair Value (ARV). Faced with ballooning expenses and diminishing returns, I decided to sell the property at a loss instead of continuing with the BRRRR strategy.
3. The Insurance Mistake
The biggest—and most avoidable—error I made was having the wrong type of insurance. I had a rental policy instead of a builder’s risk policy.
When I filed a claim, my insurance company denied it because the property wasn’t yet rented—it was still under rehab. This oversight cost me dearly. I’ve done many flips and typically have the right insurance in place, but this time, I dropped the ball.
4. The Silver Linings
Despite the challenges, there were a few positives:
An Outstanding Contractor: My contractor went above and beyond, completing the additional repairs at cost to help minimize my losses.
An Amazing Agent: My real estate agent was incredibly supportive, helping me navigate the chaos by coordinating with the city, contractors, and other key stakeholders.
5. What I Learned
Insurance is Critical: Always verify you have the right policy for your project type. Whether it’s builder’s risk, rental, or vacant property insurance, don’t leave this to chance.
Plan for the Unexpected: Even the most straightforward projects can take a sudden turn. Build a contingency fund to cover emergencies.
Your Team is Key: A reliable contractor and a dedicated real estate agent can make all the difference when things go sideways.
6. The Outcome
Selling the property at a loss was one of the toughest decisions I’ve made, but it was the right call under the circumstances. Sometimes, you have to accept that walking away is the best option for your financial well-being.
